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AIS Quiz Chap13, 7, 5
| Which of the following inventory control methods is most likely to be used for a product such as lumber (1 X 2’s, 2 X 4’s, etc.) for which sales can be reliably forecast? JIT; EOQ; MRP; ABC | MRP forecasts sales and uses that information to purchase inventory to meet anticipated needs. Demand for lumber can be forecast rather accurately, including seasonal fluctuations... |
| What is JIT? | JIT seeks to minimize inventory by making purchases only after sales. It is used to primarily for products for which it is hard to forecast demand. Lumber is an example of a product for which demand can be forecast rather accurately |
| What is EOQ? | EOQ represents the optimal amount of inventory to purchase to minimize the sum of ordering, carrying, and stockout costs. |
| What is ABC? | ABC is a method for stratifying inventory according to importance and scheduling more frequent inventory counts for the more important items. |
| Which of the following matches is performed in evaluated receipt settlement (ERS)? the vendor invoice with the receiving report; the purchase order with the receiving report; the vendor invoice with the purchase order; or all three | The purchase order with the receiving report |
| T/F ERS systems involve a 3way match of purchase orders,receiving reports,and supplier invoices;Setting up petty cash as an imprest fund violates segregation of duties;The EOQ formula is used for re-ordering;A voucher package usually includes a debit memo | Setting up petty cash as an imprest fund violates segregation of duties |
| What is a ERS systems? | ERS systems eliminate supplier invoices and rely upon a two-way match of purchase orders and receiving reports. |
| What is the EOQ formula used for? | The EOQ formula is used to determine how much to order. The reorder point identifies when to reorder inventory. |
| Voucher packages consist of what? | Voucher packages consist of the purchase order, receiving report, and vendor invoice, if one is received; debit memos are used to record adjustments of accounts payable. |
| Which document is used to establish a contract for the purchase of goods or services from a supplier? vendor invoice; purchase requisition; purchase order; disbursement voucher | Purchase order |
| What is a vendor invoice? | The vendor invoice is a bill. |
| A purchase requisition is what? | A purchase requisition is an internal document. |
| what is a disbursement voucher? | A disbursement voucher is used to specify which accounts to debit when paying vendor invoices. |
| Which method would provide the greatest efficiency improvements for the purchase of non inventory items such as miscellaneous office supplies? bar-coding; EDI; procurement cards; EFT | Procurement cards |
| What is bar coding? | Bar-coding improves accuracy of counting inventory items. T biggest efficiency-related problem with non-inventory purchases is the time and effort required to generate a purchase order, create a voucher package, and make payments large and small.. |
| EDI | EDI is seldom used for miscellaneous purchases. |
| EFT | EFT improves the efficiency of payments, but does not improve the efficiency of ordering and approving supplier invoices. |
| Which of the following expenditure cycle activities can be eliminated through the use o IT or reengineering? ordering goods; approving vendor invoices; receiving goods; cash disbursements | Approving vendor invoices |
| what are ordering goods? | Even with vendor-managed inventory, the vendor’s system must initiate the ordering process. |
| what are receiving goods | Ordered goods must always be received and moved to the appropriate location. |
| what are cash disbursements? | IT can change the method used to make cash disbursements, such as by EFT instead of by check, but the function must still be performed. |
| What is the best control procedure to prevent paying the same invoice twice? Segregate check-preparation and check-signing functions;Cancel all supporting documents when the check is signed;Require two signatures on all checks above a certain limit | Cancel all supporting documents when the check is signed. |
| Require two signatures on all checks above a certain limit. | This is a good control procedure, but its purpose is to better control large outflows of cash. |
| Prepare checks only for invoices that have been matched to receiving reports and purchase orders. | This is a good control procedure, but its purpose is to ensure that organizations pay only for goods ordered and received. |
| Segregate check-preparation and check-signing functions. | This is a good control procedure, but its purpose is to ensure that payments are valid. |
| For good internal control, who should sign checks’? cashier; accounts payable; purchasing agent; controller | Cashier |
| Who maintains vendor records? | Accounts payable |
| Who authorizes acquisition of goods? | The purchasing agent |
| Who is in charge of accounting, the record-keeping function? | The controller |
| Which of the following procedures is designed to prevent the purchasing agent from receiving kickbacks? requiring approval of all purchase orders; requiring purchasing agents to disclose any financial investments in potential suppliers | Requiring purchasing agents to disclose any financial investments in potential suppliers |
| Which document is used to record adjustments to accounts payable based on the return of unacceptable inventory to the supplier? receiving report; credit memo; debit memo; purchase order | Debit memo |
| What is a purchase order? | This document establishes a legal obligation to purchase goods. |
| What is a credit memo? | This document is used in the revenue cycle to adjust a customer’s account. |
| What is a receiving report | This document records quantities of goods received. |
| 1. COSO identified five interrelated components of internal control. Which of the following is NOT one of those five? a. risk assessment b. internal control policies c. monitoring d. information and communication | b. internal control policies (Correct. Internal control policies are NOT one of COSO’s five components of internal control. However, control environment and control activities are two of the five internal control framework components.) |
| risk assessment | (Incorrect. The organization must be aware of and deal with the risks it faces.) |
| monitoring | (Incorrect. The entire internal control process must be monitored, and modifications made as necessary.) |
| information and communication | (Incorrect. The primary purpose of an AIS is to process and communicate information about an organization, and these activities are an essential part of an internal control system.) |
| In the fiRM model, COSO specified four types of objectives that management must meet to achieve company goals. Which of the following is NOT one of those types? a. responsibility obj b. strategic obj c. compliance obj d. reporting obj | a. responsibility objectives (Correct. Responsibility objectives are NOT one of the objectives in COSO’s fiRM model.) |
| strategic objectives | Incorrect. Strategic objectives are high-level goals aligned with the company’s mission and are one of the objectives in COSO’s ERM model.) |
| compliance objectives | Incorrect. Compliance objectives help the company comply with all applicable laws and regulations and are one of the objectives in COSO’s ERM model.) |
| reporting objectives | (Incorrect. Reporting objectives help ensure the accuracy, completeness, and reliability of internal and external reports and are one of the objectives in COSO’s ERM model.) |
| operations objectives | (Incorrect. Operations objectives deal with the effectiveness and efficiency of operations and are one of the objectives in COSO’s ERM model.) |
| Which is true? a. COSO’s enterprise risk management framework is narrow in scope and is limited to financial controls. b. COSO’s internal control integrated framework has been widely accepted as the authority on internal controls. | b. COSO’s internal control integrated framework has been widely accepted as the authority on internal controls. |
| . COSO’s enterprise risk management framework is narrow in scope and is limited to financial controls. | (Incorrect. The fiRM framework incorporates all kinds of internal controls, not just financial controls, and provides an all-encompassing focus on the broader subject of enterprise risk management.) |
| The Foreign Corrupt Practices Act had no impact on internal accounting control systems | Incorrect. The Foreign Corrupt Practices Act specifically requires corporations to maintain good systems of internal accounting control.) |
| It is easier to add controls to an already designed system than to include them during the initial design stage. | (Incorrect. The opposite is true: It is easier to include internal controls at the initial design stage than after the system is already designed.) |
| All things equal, which is true? Corrective controls are superior to preventive controls. Preventive controls are equivalent to detective controls. Preventive controls are superior to detective controls. | d. Preventive controls are superior to detective controls. (Correct. With respect to controls, it is always of utmost importance to prevent errors from occurring.) |
| Detective controls are superior to preventive controls. | (Incorrect. The reverse is true— preventive controls are superior to detective controls. Preventive controls keep an em or irregularity from occurring. Detective controls uncover an error or irregularity afte the fact.) |
| Corrective controls are superior to preventive controls. | Incorrect. The reverse is true— preventive controls are superior to corrective controls. Preventive controls keep an em or irregularity from occurring. Corrective controls fix an error after the fact.) |
| Preventive controls are equivalent to detective controls. | (Incorrect. Preventive control keep an error or irregularity from occurring. Detective controls uncover an error or irregularity after the fact.) |
| TRUE or FALSE? Management’s attitudes toward internal control and ethical behavior have little imp on employee beliefs or actions. | . (Correct. This statement is false. Management’s atti tude toward internal control is critical to the organization’s effectiveness and succes They set the “tone at the top” that other employees follow.) |
| TRUE or FALSE? An overly complex or unclear organizational structure may be indicative of problen that are more serious. | Incorrect. This is a true statement. Management may intentic ally build overly complex or unclear organizational structures to hide fraud or erroo |
| A written policy and procedures manual is an important tool for assigning authority and responsibility | (Incorrect. This is a true statement. A written policy and procedu manual explains proper business practices, describes the knowledge and experience needed by key personnel, and lists the resources provided to carry out specific duties |
| Supervision is especially important in organizations that cannot afford elaborate responsibility reporting or are too small to have an adequate separation of duties. | Incorrect. This is a true statement. Effective supervision involves training and assisting employees, monitoring their performance, correcting errors, and safeguard assets by overseeing employees who have access to them.) |
| Which o: following is the correct listing of the accounting-related functions that must be segregated;control, recording, and monitoring;authorization, recording, and custody;control, custody, and authorization:monitoring, recording, and planning | authorization, recording, and custody (Correct. See Figure 7-3.) |
| Which is NOT an independent check? a. bank reconciliation b. periodic comparison of subsidiary ledger totals to control accounts c. trial balance d. re-adding the total of a batch of invoices and comparing it with your first total | re-adding the total of a batch of invoices & comparing it with your 1st total(1 person performing the same procedure 2x using the same docs, such as re-adding invoice batch totals, is not an independent check b/c it does not involve a 2nd person, a 2nd se |
| trial balance | is an independent check, as are top-level reviews, analytical reviews, reconciling two independently maintained sets of records comparisons of actual quantities with recorded amounts, double-entry accounting, and independent reviews. |
| periodic comparison of subsidiary ledger totals to control accounts | A perodic comparison of subsidiary ledger totals to control accounts is an independent check, as are top-level reviews, analytical reviews, reconciling 2 independently maintained sets of records, comparisons of actual quantities with recorded amts double- |
| bank reconciliation | is an independent check, as at top-level reviews, analytical reviews, reconciling two independently maintained sel records, comparisons of actual quantities w/recorded amounts, double-entry accounting, & independent reviews.) |
| Which of the following is the correct order of the risk assessment steps discussed in this chapter? | a. Identify threats, estimate risk and exposure, identify controls, and estimate costs and benefits. (Correct. See Figure 7-2.) |
| current system is 90% reliable. A major threat has been identified w/an impact of $3,000,000. 2 control procedures exist to deal w/the threat. Implementation of control A would cost $100,000 & reduce the likelihood to 6%. Implementation of control B would | Implement control A only. (Incorrect. Control procedure A provides a net benefit of only $20,000, whereas control procedure B provides a net benefit of $40,000.) |
| Which of the following is a fraud in which later payments on account are used to pay off earlier payments that were stolen? a. lapping b. kiting c. Ponzi scheme d. salami technique | lapping (Correct.) |
| kiting | kiting (Incorrect. In a kiting scheme, the perpetrator creates cash by transferring money between banks.) |
| Ponzi scheme | c. Ponzi scheme (Incorrect. In a Ponzi scheme, money from new investors is used to pay off earlier investors.) |
| salami technique | salami technique (Incorrect. The salami technique involves stealing tiny slices of money over a period of time.) |
| Which type of fraud is associated with 50% of all auditor lawsuits? a. kiting b. fraudulent financial reporting c. Ponzi schemes d. lapping | fraudulent financial reporting (Correct. Attesting to fraudulent financial statements is the basis of a large percentage of lawsuits against auditors.) |
| kiting | kiting (Incorrect. Losses from kiting, a scheme involving bank transfers, are not large enough to be associated with 50% of auditor lawsuits.) |
| Ponzi schemes | Ponzi schemes (Incorrect. Ponzi schemes, in which money from new investors is used to pay off earlier investors, are investment frauds that often do not involve auditors.) |
| lapping | lapping (Incorrect. Losses from lapping, in which later payments on account are used to pay off earlier payments that were stolen, are not large enough to be associated with 50% of auditor lawsuits.) |
| TRUE or FALSE? The psychological profiles of white-collar criminals differ from those of violent criminals. | Incorrect. This is a true statement. Psychologically, white-collar criminals are very different than violent criminals.) |
| TRUE or FALSE? The psychological profiles of white-collar criminals are significantly different from those of the general public | . (Correct. This is false; the psychological profile of white- collar criminals is similar to that of the general public.) |
| TRUE or FALSE? There is little to no difference between computer fraud perpetrators and other types of white-collar criminals. | (Incorrect. This is a true statement. Although different things can motivate perpetrators of computer fraud, they share many similarities with other types of white-collar criminals.) |
| TRUE or FALSE? Computer fraud perpetrators often do not view themselves as criminals. | (Incorrect. This is a true statement. Computer fraud perpetrators often do not view what they do as wrong.) |
| Which of the following conditions is/are usually necessary for a fraud to occur? (See the Fraud Triangle in Figure 5-1.) a. pressure b. opportunity c. explanation d. rationalization | pressure (Correct.) b. opportunity (Correct.) d. rationalization (Correct.) |
| Which of the following is NOT an example of computer fraud? a. theft of money by altering computer records b. obtaining infor illegally using a computer c. failure to perform preventive maintenance on a computer | c. failure to perform preventive maintenance on a computer (Correct. This is poor management of computer resources, but it is not computer fraud.) |
| theft of money by altering computer records | (Incorrect. The simplest and most common way to commit a computer fraud is to alter or falsify computer input, such as altering computer records.) |
| obtaining information illegally using a computer | (Incorrect. One type of data fraud is using a computer to acquire information illegally.) |
| unauthorized modification of a software program | (Incorrect. Tampering with company software is a type of computer instructions fraud.) |
| Which of the following causes the majority of computer security problems? a. human errors b. software errors c. natural disaster d. power outages | human errors-The Computing Technology Industry Association estimates that human errors cause 80% of security problems. These are caused by human carelessness, failure to follow established procedures, & poorly trained or supervised personnel. |
| software errors | federal study estimated yearly economic losses due to software bugs at almost $60 billion a year & revealed that more than 60% of companies studied had significant software errors in the previous year, it is not the main cause of computer security issues. |
| natural disasters | Natural disasters—such as fires, floods, earthquakes, hurricanes, tornadoes, and blizzards—can destroy an information system and cause a company to fail but not the main reason |
| power outages | Incorrect. Massive power failures caused by defective software occasionally occur and leave hundreds of thousands of people and businesses without power, but this is not the main cause of computer security issues.) |
| Which is NOT 1 of the responsibilities of auditors in detecting fraud according to SAS No. 99?Evaluate the results of their audit tests;Catch the perpetrators in the act of committing the fraud. | Catch the perpetrators in the act of committing the fraud. (Correct. SAS No. 99 does not require auditors to witness the perpetrators committing fraud.) |
| Discuss the risks of material fraudulent misstatements | Incorrect.While planning the audit, team members should discuss among themselves how and where the company’s financial statements might be susceptible to fraud.) |
| Incorporate a technology focus | SAS No. 99 recognizes the impact technology has on fraud risks and provides commentary and examples specifically recognizing this impact. It also notes the opportunities the auditor has to use technology to design fraud-auditing procedures.) |
| Evaluate the results of their audit tests | (Incorrect. When an audit is completed, auditors must evaluate whether any identified misstatements indicate the presence of fraud. If they do, the auditor must determine the impact of this on the financial statements and the audit.) |
| Which of the following control procedures is most likely to deter lapping? a. encryption b. continual update of the access control matrix c. background check on employees d. periodic rotation of duties | periodic rotation of duties - Lapping requires a constant & ongoing cover-up to hide the stolen funds. Rotating duties such that the perpetrator does not have access 2 the necessary accounting records will most likely result in the fraud’s discovery |
| encryption | Encryption is used to code data in transit so it cannot be read unless it is decoded. It does not stop employees from lapping accounts receivable payments. |
| continual update of the access control matrix | The access control matrix specifies what computer functions employees can perform and what data they can access with a computer. It does not stop employees from lapping accounts receivable payments |
| background check on employees | A background check can help screen out dishonest job applicants, but it does not stop employees from lapping accounts receivable payments. |
| Which of the following is the most important, basic, and effective control to deter fraud? a. enforced vacations b. logical access control c. segregation of duties d. virus protection controls | . segregation of duties (Correct. Segregating duties among different employees is the most effective control for the largest number of fraud schemes, because it makes it difficult for any single employee to both commit and conceal a fraud.) |
| enforced vacations | Enforced vacations will prevent or deter some, but not all, fraud schemes |
| logical access control | Logical access controls will prevent or deter some, but not all, fraud schemes |
| virus protection controls | Virus protection controls will help prevent some computer-related abuses, but they are unlikely to deter much fraud |
| Once fraud has occurred, which of the following will reduce fraud losses? (Select all correct answers.) a. insurance b. regular backup of data and programs c. contingency plan d. segregation of duties | insurance; regular backup of data and programs; contingency plan |
| insurance | The right insurance will pay for all or a portion of fraud losses |
| regular backup of data and programs | Regular backup helps the injured party recover lost or damaged data and programs |
| contingency plan | A contingency plan helps the injured party restart operations on a timely basis |
Can a voucher package include a debit memo?
A voucher package usually includes a debit memo. maintains records.)
Which document is used to establish a contract for the purchase of goods or services from a supplier?
A purchase order (PO) is an official document, created by the buyer, which authorizes a purchase transaction for goods or services from a supplier.
What are the typical expenditure cycle functions?
The three basic activities performed in the expenditure cycle are: (1) ordering goods, supplies, and services; (2) receiving and storing these items; and (3) paying for these items. These activities mirror the activities in the revenue cycle.
What is the best internal control procedure for preventing payment of the same invoice twice?
Cancel all supporting documents when the check is signed. This ensures that the supporting documents cannot be resubmitted to pay the same invoice again.