Internal Controls and Fraud Prevention Exam Review
Course Introduction
This course examines the essential principles and practices of internal controls within organizations, focusing on their critical role in safeguarding assets, ensuring financial integrity, and supporting regulatory compliance. Students will explore common fraud schemes, the methods used to detect and prevent fraudulent activity, and the framework for designing effective internal control systems. Through case studies and real-world examples, the course also addresses the ethical responsibilities of management and auditors, contemporary risks in digital environments, and strategies for building a culture of accountability and transparency.
Recommended Textbook
Accounting Information Systems 10th Edition by James A. Hall
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16 Chapters
1672 Verified Questions
1672 Flashcards
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Page 2
Chapter 1: The Information System: an Accountants Perspective
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) The __________________________ and __________________________ standards that characterize the accounting information system clearly distinguish it from the management information system.
Answer: legal,professional
Q2) Advantages of cloud computing include all of the following except
A)access to whatever computing power is needed
B)paying only for what is used
C)unknown data processing location
D)flexible, short term contracts
Answer: C
Q3) The goal of data processing is
A)the verification of the algorithms used
B)to collect only relevant data
C)the production of useful information
D)to develop a hierarchy of outputs
Answer: C
Q4) Custom software is developed and maintained by enterprise resource planners.
A)True
B)False
Answer: False
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Chapter 2: Introduction to Transaction Processing
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) In one sentence,what does updating a master file record involve?
Answer: Updating a master file record involves changing the value of one or more of its variable fields to reflect the effects of a transaction.
Q2) What are the two broad classes of file technologies?
Answer: Flat files and databases
Q3) Which of the following is a turnaround document?
A)remittance advice
B)sales order
C)purchase order
D)payroll check
Answer: A
Q4) Operational inefficiencies occur because accounts common to many concurrent transactions need to be updated in real time.
A)True
B)False
Answer: True
Q5) List two of the three transaction cycles.
Answer: expenditure cycle,conversion cycle,revenue cycle
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Chapter 3: Ethics,fraud,and Internal Control
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) Auditor independence under SOX includes categories of services that a public accounting firm cannot perform for a client.List five prohibited functions.
Answer: Bookkeeping or other services related to the accounting records or financial statements
Financial information systems design and implementation
Appraisal or valuation services,fairness opinions,or contribution-in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer,investment adviser,or investment banking services
Legal services and expert services unrelated to the audit
Any other service that the PCAOB determines is impermissible
Q2) Internal control systems are recommended but not required of firms subject to the Sarbanes-Oxley Act.
A)True
B)False
Answer: False
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Chapter 4: The Revenue Cycle
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) A credit sale is made to a customer,even though the customer's account is four months overdue.Describe a specific internal control procedure that would prevent this from happening.
Q2) Sales orders should be prenumbered documents.
A)True
B)False
Q3) What makes point-of-sale systems different from revenue cycles of manufacturing firms?
Q4) Usually,specific authorization is required for all of the following except
A)sales on account which exceed the credit limit
B)sales of goods at the list price
C)a cash refund for goods returned without a receipt
D)write-off of an uncollectible account receivable
Q5) For each of the following documents,describe its purpose,the functional area preparing it,and the key data included: remittance advice,remittance list,deposit slip.
Q6) The purpose of the invoice is to bill the customer.
A)True
B)False
Q7) How is EDI more than technology? What unique control problems may it pose?
Page 6
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Chapter 5: The Expenditure Cycle Part I: Purchases and Cash
Disbursements Procedures
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) The document which will close the open purchase requisition file is the
A)purchase order
B)vendor invoice
C)receiving report
D)payment voucher
Q2) The receiving report
A)is used to update the actual cost inventory ledger
B)accompanies the goods to the storeroom
C)is sent to general ledger
D)is returned to the vendor to acknowledge receipt of the goods
Q3) Firms that wish to improve control over cash disbursements use a voucher system.
A)True
B)False
Q4) What are the major differences between a basic technology purchasing system and an integrated purchases processing system?
Q5) What is the objective of automated purchase approval?
Q6) Describe the five procedures that are performed on items that are due in the integrated cash disbursements system.
Q8) Differentiate between a purchase requisition and a purchase order. Page 7
Q7) Where is access control exercised in the purchasing/cash disbursement functions?
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Page 8
Chapter 6: The Expenditure Cycle Part II: Payroll Processing and
Fixed Asset Procedures
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94 Verified Questions
94 Flashcards
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Sample Questions
Q1) Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit department?
A)to detect a "phantom employee" for whom a check was produced
B)to prevent an absent employee's check from being lost
C)to avoid paying absent employees for payday
D)to prevent the paymaster from cashing unclaimed checks
Q2) The fixed asset system performs all of the following except
A)determines the need for new assets
B)maintains depreciation records
C)records retirement and disposal of assets
D)tracks the physical location of fixed assets
Q3) Which of the following statements is not true?
A)Routine payroll processing begins with the submission of time cards.
B)Payroll clerks must verify the hours reported on the time cards.
C)Payroll reconciles personnel action forms with time cards and prepares paychecks.
D)Cash disbursements signs paychecks and forwards them to the paymaster for distribution.
Q4) Why should employee paychecks be drawn against a special checking account?
Q5) Why should the employee's supervisor not distribute paychecks?
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Chapter 7: The Conversion Cycle
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The complexities of ABC have caused many firms to abandon this method in favor of value stream accounting.
A)True
B)False
Q2) When one of the following statements is true?
A)ERP evolved directly from MRP.
B)ERP evolved into MRP and MRP evolved into MRP II.
C)MRP II evolved from MRP and MRP II evolved into ERP.
D)None of the above is true.
Q3) The only objective of the just-in-time philosophy is to reduce inventory levels.
A)True
B)False
Q4) Explain the conversion cycle.
Q5) Explain how CAD can contribute to a firm's move toward world-class status.
Q6) Discuss inventory control objectives.
Q7) An example of automation of manufacturing design is
A)computer-aided engineering
B)automated storage and retrieval systems
C)computer numerical control
D)robotics
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Chapter 8: Financial Reporting,and Management Reporting Systems
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) In contrast to tactical planning decisions,management control decisions,and operational control decisions,strategic planning decisions usually
A)are more focused
B)have a shorter time frame
C)are unstructured
D)have a high degree of certainty
Q2) In most cases intangible decision criteria can be quantified.
A)True
B)False
Q3) Identify the primary risks to a firm's strategic (big)data and discuss at least four techniques to maintain data security.
Q4) Entries into the general ledger system (GLS)can be made using information from A)the general journal
B)a journal voucher which represents a summary of similar transactions
C)a journal voucher which represents a single, unusual transaction
D)all of the above
Q5) Contrast the four decision types: strategic planning,tactical planning,management control and operational control,by the five decision characteristics: time frame,scope,level of details,recurrence,and certainty.
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Chapter 9: Database Management Systems
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) What is view integration?
Q2) Define repeating groups,partial dependencies and transitive dependencies and discuss how they are dealt with in the process of normalizing tables.
Q3) The formal name for a row in the physical database table is
A)attribute
B)schema
C)tuple
D)link
Q4) What is repeating group data?
Q5) There is more than one conceptual view of the database.
A)True
B)False
Q6) In the database method of data management,access authority is maintained by systems programming.
A)True
B)False
Q7) Timestamping is a control that is used to ensure database partitioning.
A)True
B)False
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Chapter 10: The Rea Approach to Business Process
Modeling
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) The duality association in an REA diagrams signifies that each economic transaction involves two agents.
A)True
B)False
Q2) Explain how events,resources and agents are linked in a REA diagram.
Q3) Discuss why adherence by the accounting profession to a single,GAAP-based view is inappropriate.
Q4) REA modeling embraces two classes of events: economic events and support events.
A)True
B)False
Q5) Where a 1:M association exists between tables,the primary key of the 1 side is embedded in the table of the M side.
A)True
B)False
Q6) Explain the rule for assigning foreign keys in a (1:M)association?
Q7) The concept of duality means that a REA diagram must consist of:
Page 13
A)two events, one of them economic and the other support B)two agents, one of them internal and the other external C)two resources, one increased and the other decreased by the same event
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Page 14
Chapter 11: Enterprise Resource Planning Systems
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Which statement about ERP installation is least accurate?
A)For the ERP to be successful, process reengineering must occur.
B)ERP fails because some important business process is not supported.
C)When a business is diversified, little is gained from ERP installation.
D)The phased-in approach is more suited to diversified businesses.
Q2) What is data mining?
Q3) Slicing and dicing permits the disaggregation of data to reveal underlying details.
A)True
B)False
Q4) A closed database architecture shares data easily.
A)True
B)False
Q5) An access control list specifies the user-ID,the resources available to the user,and the level of permission granted.
A)True
B)False
Q6) OLAP stands for online application processing.
A)True
B)False
Page 15
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Chapter 12: Electronic Commerce Systems
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Cookies are created by the web server of a visited site and are stored on the hard drive of the visitor's computer.
A)True
B)False
Q2) In a ring topology
A)the network consists of a central computer which manages all communications between nodes
B)a host is computer connected to several levels of subordinate computers
C)all nodes are of equal status; responsibility for managing communications is distributed among the nodes
D)information processing units rarely communicate with each other
Q3) Polling is one technique used to control data collisions.
A)True
B)False
Q4) A certification authority is an independent and trusted third party empowered with responsibility to vouch for the identity of organizations and individuals engaging in Internet commerce.
A)True
B)False
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Chapter 13: Managing the Systems Development Life Cycle
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94 Flashcards
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Sample Questions
Q1) What is the project schedule and what does it represent?
Q2) What is the purpose of retaining test data after a system has been successfully implemented?
Q3) Typically a systems analysis
A)results in a formal project schedule
B)does not include a review of the current system
C)identifies user needs and specifies new system requirements
D)is performed by the internal auditor
Q4) A tangible benefit can be measured and expressed in financial terms.
A)True
B)False
Q5) When the nature of the project and the needs of the user permit,most organizations will create the system in-house rather than rely on a commercial package.
A)True
B)False
Q6) Contrast the structured and object-oriented approaches to conceptual systems design.
Q7) Describe a risk associated with the phased cutover procedure for data conversion.
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Chapter 14: Auditing It Controls Part I: Sarbanes-Oxley and It Governance
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) Give an example of an audit objective and its related audit procedure.
Q2) All of the following are control risks associated with the distributed data processing structure except
A)lack of separation of duties
B)system incompatibilities
C)system interdependency
D)lack of documentation standards
Q3) What is IT governance?
Q4) Why is inadequate documentation a chronic problem?
Q5) The same internal control objectives apply to manual and computer-based information systems.
A)True
B)False
Q6) Changing the Hours Worked field in an otherwise legitimate payroll transaction to increase the amount of the paycheck is an example of data collection fraud.
A)True
B)False
Q7) Contrast internal and external auditing.
Q8) What are the components of audit risk? Page 18
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Page 19
Chapter 15: Auditing It Controls Part II: Security and Access
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Sample Questions
Q1) Operating system integrity is not of concern to accountants because only hardware risks are involved.
A)True
B)False
Q2) Describe three ways in which IPS can be used to protect against DDoS attacks?
Q3) All of the following techniques are used to validate electronic data interchange transactions except
A)value-added networks that compare passwords to a valid customer file before message transmission
B)prior to converting the message, the translation software of the receiving company can compare the password against a validation file in the firm's database
C)the recipient's application software can validate the password prior to processing
D)the recipient's application software can validate the password after the transaction has been processed
Q4) Explain the concept of discretionary access privileges.
Q5) Discuss the key features of the one-time password technique:
Q6) What is event monitoring?
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Page 20
Chapter 16: Auditing It Controls Part III: Systems
Development, program Changes, and Application Auditing
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Sample Questions
Q1) To verify the module's internal logic,the programmer compares the actual results obtained from the test with the predetermined results.
A)True B)False
Q2) The base case system evaluation is a variation of the test data method.
A)True B)False
Q3) The programmer's authority table will specify the libraries a programmer may access.
A)True B)False
Q4) The black box approach to testing computer applications allows the auditor to explicitly review program logic.
A)True B)False
Q5) What is ITF?
Q6) All program modules must be thoroughly tested before they are implemented. A)True B)False
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