Internal Control Systems Exam Solutions
Course Introduction
Internal Control Systems is a comprehensive course designed to introduce students to the principles, concepts, and frameworks that govern internal controls within organizations. The course explores the objectives and components of effective internal control systems, including risk assessment, control activities, information and communication, and monitoring. Students will examine the role of internal controls in safeguarding assets, ensuring reliable financial reporting, and promoting operational efficiency and regulatory compliance. Through case studies and real-world examples, the course emphasizes the importance of ethical practices, the responsibilities of management and auditors, and the evaluation and design of internal control mechanisms in various organizational contexts.
Recommended Textbook
Accounting Information Systems 13th Global Edition by Marshall B. Romney
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Page 2
Chapter 1: Accounting Information Systems: an Overview
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Q1) When the AIS provides information in a timely and accurate manner,it stands as an example of
A)improved decision making.
B)improving the quality and reducing the costs of products or services.
C)improving efficiency.
D)all of the above
Answer: D
Q2) Which of the following is not one of the three basic types of data about a specific sales transaction that should be captured by an Accounting Information System?
A)name of the employee who completed the sale
B)daily sales quota
C)product sold
D)date
Answer: B
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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Chapter 2: Overview of Transaction Processing and Enterprise Resource Planning Systems
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Q1) Which of the following is conceptually similar to a journal in a manual AIS?
A)database
B)master file
C)record
D)transaction file
Answer: D
Q2) Data about all of the following facets of a business activity are most likely to be recorded in a master file except the A)business activity.
B)resources affected by the business activity.
C)people who participate in the business activity.
D)place the business activity occurs.
Answer: A
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
Page 4
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Chapter 3: Systems Documentation Techniques
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Q1) Nishant Kumar has been hired by American Manufacturing as a staff accountant in the internal audit department.He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements.He decides to begin by meeting with the information technology staff in order to develop an understanding of the computer programs used by the system.The documentation tool that he should employ for this purpose is a A)data flow diagram.
B)document flowchart.
C)system flowchart.
D)program flowchart.
Answer: D
Q2) A flowchart that depicts the relationships among the input,processing,and output of an AIS is
A)an internal control flowchart.
B)a document flowchart.
C)a system flowchart.
D)a program flowchart.
Answer: C
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Chapter 4: Relational Databases
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Sample Questions
Q1) Inability to add new data to a database without violating the basic integrity of the database is referred to as the
A)update anomaly.
B)insert anomaly.
C)integrity anomaly.
D)delete anomaly.
Q2) 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
Q3) How do users retrieve data stored in a database?
A)by viewing the appropriate data tables
B)by executing a query
C)by performing a search
D)by specifying the primary keys
Q4) List the four DBMS "languages" and describe who uses each and for what purpose.
Q5) Explain the difference between file-oriented transaction processing systems and relational database systems.Discuss the advantages and disadvantages of each system.
6
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Chapter 5: Computer Fraud
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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) On Tuesday morning,Chen Lee,Chief Information Officer at American Trading Corporation (ATC),got some bad news.The hard drive use to store system data backups was lost while it was being transported to an offsite storage location.Chen called a meeting of her technical staff to discuss the implications of the loss.Which of the following is most likely to relieve her concerns over the potential cost of the loss?
A)ATC has a comprehensive disaster recovery plan.
B)The hard drive was encrypted and password protected.
C)The shipper has insurance that will reimburse ATC for the cost of the hard drive.
D)ATC has a copy of the hard drive onsite,so a new copy for storage offsite can easily be prepared.
Q3) Why is computer fraud on the rise?
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Chapter 6: Computer Fraud and Abuse Techniques
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Q1) Wassim Masood works in the information technology department of TMV.On Monday morning,he arrived at work,scanned his identity card,and entered his code.At that moment,a lady in a delivery uniform came up behind Wassim with a bunch of boxes.Although Wassim held the door for the delivery lade,he later wondered if the delivery lady was engaged in
A)pretexting.
B)piggybacking.
C)posing.
D)spoofing.
Q2) How can a system be protected from viruses?
Q3) Which of the following is not an example of social engineering?
A)obtaining and using another person's Social Security number,credit card,or other confidential information
B)creating phony websites with names and URL addresses very similar to legitimate websites in order to obtain confidential information or to distribute malware or viruses
C)using e-mail to lure victims into revealing passwords or user IDs
D)setting up a computer in a way that allows the user to use a neighbors unsecured wireless network
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8
Chapter 7: Control and Accounting Information Systems
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Q1) Upon getting into your new car,you suddenly became worried that you might become injured in an auto accident.You decided to buckle your seat belt in response.You chose to ________ the risk of being injured in an auto accident.
A)reduce
B)share
C)avoid
D)accept
Q2) Applying the COBIT5 framework,monitoring is the responsibility of
A)the CEO.
B)the CFO.
C)the board of directors.
D)all of the above
Q3) The Sarbanes-Oxley Act (SOX)applies to
A)all companies with gross annual revenues exceeding $500 million.
B)publicly traded companies with gross annual revenues exceeding $500 million.
C)all private and public companies incorporated in the United States.
D)all publicly traded companies.
Q4) Explain how a company could be the victim of fraud,even if ideal segregation of duties is enforced.
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Chapter 8: Controls for Information Security
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Q1) In 2007,a major U.S.financial institution hired a security firm to attempt to compromise its computer network.A week later,the firm reported that it had successfully entered the system without apparent detection and presented an analysis of the vulnerabilities that had been found.This is an example of a
A)preventive control.
B)detective control.
C)corrective control.
D)standard control.
Q2) This protocol specifies the procedures for dividing files and documents into packets to be sent over the Internet.
A)access control list
B)Internet protocol
C)packet switching protocol
D)transmission control protocol
Q3) A demilitarized zone
A)routes electronic communications within an organization.
B)connects an organization's information system to the Internet.
C)permits controlled access from the Internet to selected resources.
D)serves as the main firewall.
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Chapter 9: Confidentiality and Privacy Controls
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Q1) Identify the item below which is not a piece of legislation passed to protect individuals against identity theft or to secure individuals' privacy.
A)the Health Insurance Portability and Accountability Act
B)the Health Information Technology for Economic and Clinical Heath Act
C)the Financial Services Modernization Act
D)the Affordable Care Act
Q2) Which of the following is not one of the basic actions that an organization must take to preserve the confidentiality of sensitive information?
A)identification of information to be protected
B)backing up the information
C)controlling access to the information
D)training
Q3) Data masking is also referred to as
A)encryption.
B)tokenization.
C)captcha.
D)cookies.
Q4) Describe symmetric encryption and identify three limitations.
Q5) Describe some steps you can take to minimize your risk of identity theft.
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Chapter 10: Processing Integrity and Availability Controls
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Q1) ________ enables a system to continue functioning in the event that a particular component fails.
A)An incremental backup procedure
B)Fault tolerance
C)Preventive maintenance
D)A concurrent update control
Q2) The accounting department at Aglaya Telecom records an average of 5,000 transactions per hour.A cost-benefit analysis leads management to conclude that the maximum acceptable amount of data loss is 20,000 transactions.If the firm's recovery time objective is 60 minutes,then the worst case recovery time objective is
A)1 hour.
B)2 hours.
C)3 hours.
D)4 hours.
Q3) This batch processing data entry control sums a non-financial numeric field.
A)record count
B)financial total
C)hash total
D)sequence check
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Page 12
Chapter 11: Auditing Computer-Based Information Systems
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Q1) An auditor finds that employee absentee rates are significantly higher on Mondays and Fridays than on other work days.This is an example collecting audit evidence by A)confirmation.
B)reperformance.
C)vouching.
D)analytical review.
Q2) Evaluating effectiveness,efficiency,and goal achievement are objectives of ________ audits.
A)financial
B)operational
C)information systems
D)all of the above
Q3) Increasing the effectiveness of auditing software will
A)reduce detection risk.
B)reduce control risk.
C)increase detection risk.
D)increase control risk.
Q4) Define and give examples of embedded audit modules.
Q5) Describe the risk-based audit approach.
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Chapter 12: The Revenue Cycle: Sales to Cash Collections
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Q1) Identify a useful tool for monitoring accounts receivable.
A)ERP exception report
B)accounts receivable aging report
C)accounts receivable tolerance report
D)customer credit limit report
Q2) If a firm uses an ERP,the best way to mitigate the risk of the destruction of master data is to
A)frequently update the ERP system.
B)implement the ERP system in three separate instances.
C)periodically audit the ERP system.
D)integrate the ERP system with all IT functions.
Q3) 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
Q4) Define and describe benefits of a CRM system.
Q5) Explain how to effectively segregate duties in the sales order activity.
Q6) Describe typical credit approval procedures.
Page 14
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Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Q1) What is a key feature of materials requirements planning (MRP)?
A)minimize or entirely eliminate carrying and stockout costs
B)reduce required inventory levels by scheduling production rather than estimating needs
C)determine the optimal reorder point
D)determine the optimal order size
Q2) Ngai Nhung is the sales manager at Hung Technologies.At lunch with the company CEO,Ngai complained that a recent shipment from a vendor had been unsatisfactory and was returned.As a result,Hung's purchasing manager needed to send a ________ to the supplier.
A)debit memo
B)purchase order
C)blanket purchase order
D)receiving report
Q3) True or False: Under the EOQ inventory approach,carrying costs are usually ignored for low-cost/low-usage items.
A)True
B)False
Q4) Discuss the differences between EOQ,MRP,and JIT.
Page 15
Q5) Under what conditions is MRP more suitable than JIT and vice versa?
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Chapter 14: The Production Cycle
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Q1) ________ is an efficient way to track and process information about raw materials used in production.
A)A just-in-time inventory system
B)Identifying materials with bar codes or RFID tags
C)A materials resources planning inventory system
D)Job-order costing
Q2) Direct labor must be tracked and accounted for as part of the production process.Traditionally,direct labor was tracked using ________ but an AIS enhancement is to use ________ to record and track direct labor costs.
A)job-time tickets; coded identification cards
B)move tickets; coded identification cards
C)employee earnings records; job-time tickets
D)time cards; electronic time entry terminals
Q3) What specific control can help restrict the rights of authorized users to only the portion of a database needed to complete their specific job duties?
A)an access control matrix
B)passwords and user IDs
C)closed-loop verification
D)specific authorization
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Page 16
Chapter 15: The Human Resources Management and Payroll Cycle
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Q1) A growing number of companies require some of their upper level executives to spend time performing job duties of rank-and-file employees.When the CEO of Loews Hotels assumed the role of bellman,he discovered
A)that the company's polyester uniform caused him to sweat a great deal.
B)evidence of fraud in several hotel locations.
C)instances where company employees fell asleep on the job.
D)situations where employees were not treating customers properly.
Q2) Direct deposit of employee paychecks is one way an organization can improve efficiency and reduce payroll-processing costs.Which statement regarding direct deposit is false?
A)The cashier does not authorize the transfer of funds from the organization's checking account to a payroll checking account.
B)The cashier does not have to sign employee paychecks.
C)Employees who are part of a direct deposit program receive a copy of their paycheck indicating the amount deposited.
D)Employees who are part of a direct deposit program receive an earnings statement on payday rather than a paper check.
Q3) What controls are available to address the threat of payroll errors?
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Chapter 16: General Ledger and Reporting System
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Q1) Which of the following statements is not true about an XBRL instance document?
A)An instance document includes instruction code as to how the document should be physically arranged and displayed.
B)An instance document contains facts about specific financial statement line items.
C)An instance document uses separate tags for each specific element.
D)An instance document can be used to tag financial and nonfinancial elements.
Q2) Adjusting entries that are made to reflect differences between the actual and recorded value of an asset or a change in accounting principle are called
A)reconciliations.
B)revaluations.
C)estimates.
D)accruals.
Q3) The ________ is the managerial report that shows planned cash inflows and outflows for major investments or acquisitions.
A)journal voucher list
B)statement of cash flows
C)operating budget
D)capital expenditures budget
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18
Chapter 17: Database Design Using the Rea Data Model
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Sample Questions
Q1) The maximum cardinality of any REA diagram relationship is A)zero or one.
B)one or many.
C)zero or many.
D)none of the above
Q2) True or False: It is industry standard to model entities as rectangles on entity-relationship diagrams.
A)True
B)False
Q3) REA models are usually depicted in which diagramming form?
A)entity-relationship diagrams
B)decision tree diagrams
C)if-then diagrams
D)stock-flow diagrams
Q4) An REA diagram must link every event to at least one ________ and two ________.
A)resource; agents
B)agent; resources
C)transaction; entities
D)resource; relationships
Q5) Describe an REA data model.
Page 19
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Chapter 18: Implementing an Rea Model in a Relational Database
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Q1) Why might the same REA diagram result in different relationship cardinalities?
A)Different organizations might have different business policies.
B)Different designers might implement an REA diagram differently.
C)Different consultants might draw an REA diagram differently.
D)Errors occur in the REA diagram.
Q2) Which table is most likely to have a concatenated key?
A)customer
B)sales
C)customer-sales
D)accounts receivable
Q3) Rebus Fashions provides haircuts to men and women.Rebus uses an REA database to record information that is important to the firm.Rebus has an M:N table named "Customer-Sale" where it keeps information about customer sales.Identify the attribute below that most likely does not belong in the Customer-Sale table.
A)Date of sale
B)Time hair cut was started
C)Name of customer
D)All of the above are appropriate attributes for the Customer table.
Q4) Explain where in the REA model you can find the information normally found in a ledger.
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Chapter 19: Special Topics in Rea Modeling
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Q1) For a service business,the minimum cardinalities between Sales event and Inventory entity are most likely both 0 for all except which of the following reasons?
A)Service businesses don't sell inventory,they only use inventory to perform services.
B)A sale doesn't have to include any inventory.
C)Inventory can exist that hasn't been part of a sale yet.
D)Some services only require labor.
Q2) Supplier number is most likely to be a foreign key in
A)Inventory-Request_Inventory.
B)Receive Inventory.
C)Supplier.
D)Warehouse.
Q3) Data about actual raw materials used in production is most appropriately stored which of the entities below?
A)Finished Goods
B)Raw Materials
C)Raw Materials Issuance
D)Work-in-Process
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) Describe economic feasibility analysis.What techniques are used in economic feasibility analysis?
Q2) Identify the statement below that best describes a Gantt chart.
A)a network of arrows and nodes representing project activities
B)a bar chart with project activities on the left-hand side and units of time across the top
C)a pie chart with the size of estimated expenditures represented as slices
D)a scatterplot diagram with activities on the Y access and dots representing the potential expenditures of each activity
Q3) True or False: External parties may need to participate in an organization's systems development and analysis process.
A)True
B)False
Q4) A feasibility study should first be performed in the ________ stage of the systems development life cycle.
A)conceptual design
B)implementation and conversion
C)physical design
D)system analysis
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Chapter 21: Ais Development Strategies
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Q1) According to Deloitte & Touche,most chief information officers
A)do not expect to replace their current information systems.
B)prefer to replace their current information systems.
C)expect to replace their current information system(s)with commercially available packages.
D)expect to replace their current information system(s)with packages developed in-house.
Q2) The risk of losing a fundamental understanding of a company's AIS needs and the strategic users of an AIS as a result of outsourcing is referred to as
A)focus reduction.
B)loss of control.
C)reduced competitive advantage.
D)unfulfilled goals.
Q3) Prototyping is often appropriate when
A)there is a low level of uncertainty.
B)it is clear which questions need to be addressed.
C)there is a high likelihood of failure.
D)there are limited financial resources available.
Q4) Discuss how an organization can develop custom software.
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Chapter 22: Systems Design,implementation,and Operation
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Q1) True or False: Although most systems are moving away from using paper documents,form design is still an important consideration in system development.
A)True
B)False
Q2) Ghassan in Marketing received an e-mail from Asif at regional headquarters."Ghassan,I just reviewed the annual sales report for your district.You blew your sales goal away again,you top gun!" What type of report did Asif use?
A)scheduled report
B)special-purpose analysis report
C)triggered exception report
D)demand report
Q3) An analyst who asks the question,"Does the system produce actual and complete data?" is investigating what post implementation factor?
A)accuracy
B)compatibility
C)goals and objectives
D)reliability
Q4) What are the purposes of a conceptual systems design report?
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