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Accounting Information Systems, 12e (Romney/Steinbart)

Chapter 7 Control and Accounting Information Systems


1) What is one reason why AIS threats are increasing?
A) LANs and client/server systems are easier to control than centralized, mainframe systems
!) "any com#anies do not realize that data sec$rity is cr$cial to their s$rvival
%) %om#$ter control #ro&lems are often overestimated and overly em#hasized &y management
') "any com#anies &elieve that #rotecting information is a strategic re($irement
Answer) !
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1) Which of the following is not one of the ris2 res#onses identified in the %.S. 0nter#rise +is2
"anagement 3ramewor2?
A) "onitoring
!) Avoidance
%) Acce#tance
') Sharing
Answer) A
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5) A control #roced$re designed so that the em#loyee that records cash received from c$stomers does
not also have access to the cash itself is an e7am#le of a8n)
A) #reventive control
!) detective control
%) corrective control
') a$thorization control
Answer) A
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
-) At a movie theater &o7 office, all tic2ets are se($entially #ren$m&ered At the end of each day, the
&eginning tic2et n$m&er is s$&tracted from the ending n$m&er to calc$late the n$m&er of tic2ets sold
:hen, tic2et st$&s collected at the theater entrance are co$nted and com#ared with the n$m&er of tic2ets
sold Which of the following sit$ations does this control detect?
A) Some c$stomers #resented tic2ets #$rchased on a #revio$s day when there wasn>t a tic2et ta2er at the
theater entrance 8so the tic2ets didn>t get torn)
!) A gro$# of 2ids sn$c2 into the theater thro$gh a &ac2 door when c$stomers left after a show
%) :he &o7 office cashier accidentally gives too m$ch change to a c$stomer
') :he tic2et ta2er admits his friends witho$t tic2ets
Answer) A
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9) At a movie theater &o7 office, all tic2ets are se($entially #ren$m&ered At the end of each day, the
&eginning tic2et n$m&er is s$&tracted from the ending n$m&er to calc$late the n$m&er of tic2ets sold
%ash is co$nted and com#ared with the n$m&er of tic2ets sold Which of the following sit$ations does
this control detect?
A) Some c$stomers #resented tic2ets #$rchased on a #revio$s day when there wasn>t a tic2et ta2er at the
theater entrance 8so the tic2ets didn>t get torn)
!) A gro$# of 2ids sn$c2 into the theater thro$gh a &ac2 door when c$stomers left after a show
%) :he &o7 office cashier accidentally gives too m$ch change to a c$stomer
') :he tic2et ta2er admits his friends witho$t tic2ets
Answer) %
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6) Which of the following is an e7am#le of a #reventive control?
A) a##roving c$stomer credit #rior to a##roving a sales order
!) reconciling the &an2 statement to the cash control acco$nt
%) co$nting inventory on hand and com#aring co$nts to the #er#et$al inventory records
') maintaining fre($ent &ac2$# records to #revent loss of data
Answer) A
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
@) Inde#endent chec2s on #erformance incl$de all the following except
A) data in#$t validation chec2s
!) reconciling hash totals
%) #re#aring a trial &alance re#ort
') s$#ervisor review of /o$rnal entries and s$##orting doc$mentation
Answer) A
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,) A com#$ter o#erator is allowed to wor2 as a #rogrammer on a new #ayroll software #ro/ect 'oes this
create a #otential internal control #ro&lem?
A) Aes, the com#$ter o#erator co$ld alter the #ayroll #rogram to increase her salary
!) Aes, this is a #otential #ro&lem unless the com#$ter o#erator is s$#ervised &y the #ayroll manager
%) No, ideal segregation of d$ties is not $s$ally #ossi&le, and o#erators are often the &est at
#rogramming changes and $#dates
') No, as long as the com#$ter o#erator se#arately acco$nts for ho$rs wor2ed in #rogramming and in
o#erations
Answer) A
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4) .ne of the o&/ectives of the segregation of d$ties is to
A) ma2e s$re that different #eo#le handle different #arts of the same transaction
!) ens$re that no coll$sion will occ$r
%) ma2e s$re that different #eo#le handle different transactions
') achieve an o#timal division of la&or for efficient o#erations
Answer) A
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1<) *am is a rece#tionist for '$nderhead *a#er %o, which has strict cor#orate #olicies on a##ro#riate
$se of cor#orate reso$rces :he first wee2 of A$g$st, *am saw "ichael, the &ranch manager, #$tting
#encils, #ens, erasers, #a#er and other s$##lies into his &riefcase on his way o$t the door :his sit$ation
&est reflects a wea2ness in which as#ect of internal environment, as disc$ssed in the %.S. 0nter#rise
+is2 "anagement 3ramewor2?
A) Integrity and ethical val$es
!) +is2 management #hiloso#hy
%) +estrict access to assets
') "ethods of assigning a$thority and res#onsi&ility
Answer) A
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
11) Which of the following statements is true?
A) Internal a$ditors, rather than e7ternal a$ditors, can cond$ct eval$ations of effectiveness of 0nter#rise
+is2 "anagement #rocesses
!) +e?adding the total of a &atch of invoices and com#aring the total with the first total yo$ calc$lated is
an e7am#le of an inde#endent chec2
%) +e($iring two signat$res on chec2s over B1<,<<< is an e7am#le of segregation of d$ties
') Altho$gh forensic s#ecialists $tilize com#$ters, only #eo#le can acc$rately identify fra$d
Answer) A
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11) .f the following e7am#les of fra$d, which will &e the most diffic$lt to #revent and detect? Ass$me
the com#any enforces ade($ate segregation of d$ties
A) Cim iss$es credit cards to him and "arie, and when the credit card &alances are /$st $nder B1,<<<,
"arie writes off the acco$nts as &ad de&t Cim then iss$es new cards
!) An em#loyee #$ts inventory &ehind the d$m#ster while $nloading a vendor>s delivery tr$c2, then
#ic2s $# the inventory later in the day and #$ts it in her car
%) A mail room em#loyee steals a chec2 received from a c$stomer and destroys the doc$mentation
') :he acco$nts receiva&le cler2 does not record sales invoices for friends or family, so they can receive
free goods
Answer) A
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15) According to :he Sar&anes?.7ley Act of 1<<1, the a$dit committee of the &oard of directors is
directly res#onsi&le for
A) hiring and firing the e7ternal a$ditors
!) #erforming tests of the com#any>s internal control str$ct$re
%) certifying the acc$racy of the com#any>s financial re#orting #rocess
') overseeing day?to?day o#erations of the internal a$dit de#artment
Answer) A
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
1-) Do?Do %or#oration, a #$&licly traded com#any, has three &rothers who serve as *resident, Eice
*resident of 3inance and %0. :his sit$ation
A) increases the ris2 associated with an a$dit
!) m$st &e changed &efore yo$r a$dit firm co$ld acce#t the a$dit engagement
%) is a violation of the Sar&anes?.7ley Act
') violates the Sec$rities and 07change Act
Answer) A
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19) Which of the following is a control related to design and $se of doc$ments and records?
A) Se($entially #ren$m&ering sales invoices
!) %om#aring #hysical inventory co$nts with #er#et$al inventory records
%) +econciling the &an2 statement to the general ledger
') Loc2ing &lan2 chec2s in a drawer or safe
Answer) A
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16) Which of the following d$ties co$ld &e #erformed &y the same individ$al witho$t violating
segregation of d$ties controls?
A) A##roving acco$nting software change re($ests and testing #rod$ction sched$ling software changes
!) *rogramming new code for acco$nting software and testing acco$nting software $#grades
%) A##roving software changes and im#lementing the $#graded software
') "anaging acco$nts #aya&le f$nction and revising code for acco$nting software to more efficiently
#rocess disco$nt d$e dates on vendor invoices
Answer) A
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1@) With a limited wor2 force and a desire to maintain strong internal control, which com&ination of
d$ties wo$ld res$lt in the lowest ris2 e7#os$re?
A) F#dating the inventory s$&sidiary ledgers and recording #$rchases in the #$rchases /o$rnal
!) A##roving a sales ret$rn on a c$stomer>s acco$nt and de#ositing c$stomers> chec2s in the &an2
%) F#dating the general ledger and wor2ing in the inventory wareho$se
') 0ntering #ayments to vendors in the cash dis&$rsements /o$rnal and entering cash received from
c$stomers in the cash recei#ts /o$rnal
Answer) '
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
1,) Which of the following is not a factor of internal environment according to the %.S. 0nter#rise
+is2 "anagement 3ramewor2?
A) Analyzing #ast financial #erformance and re#orting
!) *roviding s$fficient reso$rces to 2nowledgea&le em#loyees to carry o$t d$ties
%) 'isci#lining em#loyees for violations of e7#ected &ehavior
') Setting realistic targets for long?term #erformance
Answer) A
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14) Which of the following s$ggests a wea2ness in a com#any>s internal environment?
A) :he a$dit committee reg$larly meets with the e7ternal a$ditors
!) :he !oard of 'irectors is #rimarily inde#endent directors
%) :he com#any has an $#?to?date organizational chart
') 3ormal em#loyee #erformance eval$ations are #re#ared every three years
Answer) '
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1<) Which of the following statements a&o$t internal environment is false?
A) "anagement>s attit$des toward internal control and ethical &ehavior have only minimal im#act on
em#loyee &eliefs or actions
!) S$#ervision is es#ecially im#ortant in organizations that cannot afford ela&orate res#onsi&ility
re#orting or are too small to have ade($ate segregation of d$ties
%) An overly com#le7 or $nclear organizational str$ct$re may &e indicative of more serio$s #ro&lems
') A written #olicy and #roced$res man$al is an im#ortant tool for assigning a$thority and
res#onsi&ility
Answer) A
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11) Which of the following is not a reason for the increase in sec$rity #ro&lems for AIS?
A) %onfidentiality iss$es ca$sed &y interlin2ed inter?com#any networ2s
!) 'iffic$lt to control distri&$ted com#$ting networ2s
%) Increasing efficiency res$lting from more a$tomation
') Increasing n$m&ers of information systems and $sers
Answer) %
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
11) .ne reason why many organizations do not ade($ately #rotect their systems is &eca$se
A) control #ro&lems may &e overestimated &y many com#anies
!) #rod$ctivity and cost c$tting ca$se management to forgo im#lementing and maintaining internal
controls
%) control technology has not yet &een develo#ed
') all of the a&ove
Answer) !
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15) Acco$ntants m$st try to #rotect the AIS from threats Which of the following wo$ld &e a meas$re
that sho$ld &e ta2en?
A) :a2e a #roactive a##roach to eliminate threats
!) 'etect threats that do occ$r
%) %orrect and recover from threats that do occ$r
') All of the a&ove are #ro#er meas$res for the acco$ntant to ta2e
Answer) '
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1-) :he #rocess that a &$siness $ses to safeg$ard assets, #rovide acc$rate and relia&le information, and
#romote and im#rove o#erational efficiency is 2nown as
A) a #henomenon
!) internal control
%) an AIS threat
') a #reventive control
Answer) !
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19) Safeg$arding assets is one of the control o&/ectives of internal control Which of the following is not
one of the other control o&/ectives?
A) #roviding acc$rate and relia&le information
!) #romoting o#erational efficiency
%) ens$ring that no fra$d has occ$rred
') enco$raging adherence to management #olicies
Answer) %
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
16) Internal control is often referred to as a8n) GGGGGGGG, &eca$se it #ermeates an organization>s
o#erating activities and is an integral #art of management activities
A) event
!) activity
%) #rocess
') system
Answer) %
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1@) Which of the following is accom#lished &y corrective controls?
A) Identify the ca$se of the #ro&lem
!) %orrect the res$lting errors
%) "odify the system to #revent f$t$re occ$rrences of the #ro&lem
') All of the a&ove are accom#lished &y corrective controls
Answer) '
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1,) '$#licate chec2ing of calc$lations is an e7am#le of a GGGGGGGG control, and #roced$res to res$&mit
re/ected transactions is an e7am#le of a GGGGGGGG control
A) correctiveH detective
!) detectiveH corrective
%) #reventiveH corrective
') detectiveH #reventive
Answer) !
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14) What is not a corrective control #roced$re?
A) Identify the ca$se of a #ro&lem
!) 'eter #ro&lems &efore they arise
%) %orrect res$lting errors or diffic$lties
') "odify the system so that f$t$re #ro&lems are minimized or eliminated
Answer) !
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
5<) GGGGGGGG controls are designed to ma2e s$re an organization>s control environment is sta&le and
well managed
A) A##lication
!) 'etective
%) Deneral
') *reventive
Answer) %
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51) GGGGGGGG controls #revent, detect and correct transaction errors and fra$d
A) A##lication
!) 'etective
%) Deneral
') *reventive
Answer) A
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51) :he #rimary #$r#ose of the 3oreign %orr$#t *ractices Act of 14@@ was
A) to re($ire cor#orations to maintain a good system of internal control
!) to #revent the &ri&ery of foreign officials &y American com#anies
%) to re($ire the re#orting of any material fra$d &y a &$siness
') All of the a&ove are re($ired &y the act
Answer) !
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55) %ongress #assed this federal law for the #$r#ose of #reventing financial statement fra$d, to ma2e
financial re#orts more trans#arent and to strengthen the internal control of #$&lic com#anies
A) 3oreign %orr$#t *ractices Act of 14@@
!) :he Sec$rities 07change Act of 145-
%) :he Sar&anes?.7ley Act of 1<<1
') :he %ontrol *rovision of 144,
Answer) %
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
5-) Which of the following is not one of the im#ortant as#ects of the Sar&anes?.7ley Act?
A) :he creation of the *$&lic %om#any Acco$nting .versight !oard
!) New r$les for a$ditors and management
%) New roles for a$dit committees
') New r$les for information systems develo#ment
Answer) '
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59) A8n) GGGGGGGG hel#s em#loyees act ethically &y setting limits &eyond which an em#loyee m$st not
#ass
A) &o$ndary system
!) diagnostic control system
%) interactive control system
') internal control system
Answer) A
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56) A8n) GGGGGGGG meas$res com#any #rogress &y com#aring act$al #erformance to #lanned
#erformance
A) &o$ndary system
!) diagnostic control system
%) interactive control system
') internal control system
Answer) !
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5@) A8n) GGGGGGGG hel#s to#?level managers with high?level activities that demand fre($ent and reg$lar
attention
A) &o$ndary system
!) diagnostic control system
%) interactive control system
') internal control system
Answer) %
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1<
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
5,) :his control framewor2 addresses the iss$e of control from three vantage #oints) &$siness o&/ectives,
information technology reso$rces, and information technology #rocesses
A) ISA%A>s control o&/ectives for information and related technology
!) %.S.>s internal control framewor2
%) %.S.>s enter#rise ris2 management framewor2
') none of the a&ove
Answer) A
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54) :his control framewor2>s intent incl$des hel#ing the organization to #rovide reasona&le ass$rance
that o&/ectives are achieved and #ro&lems are minimized, and to avoid adverse #$&licity and damage to
the organization>s re#$tation
A) ISA%A>s control o&/ectives for information and related technology
!) %.S.>s internal control framewor2
%) %.S.>s enter#rise ris2 management framewor2
') none of the a&ove
Answer) %
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-<) :he %.S. 0nter#rise +is2 "anagement 3ramewor2 incl$des eight com#onents Which of the
following is not one of them?
A) control environment
!) ris2 assessment
%) com#liance with federal, state, or local laws
') monitoring
Answer) %
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-1) Which of the following is not one of the eight interrelated ris2 and control com#onents of %.S.
0nter#rise +is2 "anagement 3ramewor2?
A) Internal environment
!) "onitoring
%) +is2 res#onse
') 0vent assessment
Answer) '
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
-1) :he %.S. 0nter#rise +is2 "anagement Integrated 3ramewor2 stresses that
A) ris2 management activities are an inherent #art of all &$siness o#erations and sho$ld &e considered
d$ring strategy setting
!) effective ris2 management is com#rised of /$st three interrelated com#onentsH internal environment,
ris2 assessment, and control activities
%) ris2 management is the sole res#onsi&ility of to# management
') ris2 management #olicies, if enforced, g$arantee achievement of cor#orate o&/ectives
Answer) A
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-5) Which of the following wo$ld &e considered a Ired flagI for #ro&lems with management o#erating
style if the ($estion were answered IyesI?
A) 'oes management ta2e $nd$e &$siness ris2s to achieve its o&/ectives?
!) 'oes management attem#t to mani#$late #erformance meas$res s$ch as net income?
%) 'oes management #ress$re em#loyees to achieve res$lts regardless of the methods?
') All of the a&ove statements wo$ld raise Ired flagsI if answered IyesI
Answer) '
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--) Which com#onent of the %.S. 0nter#rise +is2 "anagement Integrated 3ramewor2 is concerned
with $nderstanding how transactions are initiated, data are ca#t$red and #rocessed, and information is
re#orted?
A) Information and comm$nication
!) Internal environment
%) 0vent identification
') .&/ective setting
Answer) A
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-9) :he %.S. 0nter#rise +is2 "anagement Integrated 3ramewor2 identifies fo$r o&/ectives necessary
to achieve cor#orate goals .&/ectives s#ecifically identified incl$de all of the following except
A) im#lementation of newest technologies
!) com#liance with laws and reg$lations
%) effective and efficient o#erations
') relia&le re#orting
Answer) A
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%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
-6) :he a$dit committee of the &oard of directors
A) is $s$ally chaired &y the %3.
!) cond$cts testing of controls on &ehalf of the e7ternal a$ditors
%) #rovides a chec2 and &alance on management
') does all of the a&ove
Answer) %
*age +ef) 1,4
.&/ective) Learning .&/ective 5
'iffic$lty ) "oderate
AA%S!) Analytic
-@) :he a$dit committee is res#onsi&le for
A) overseeing the internal control str$ct$re
!) overseeing the financial re#orting #rocess
%) wor2ing with the internal and e7ternal a$ditors
') All of the a&ove are res#onsi&ilities
Answer) '
*age +ef) 1,4
.&/ective) Learning .&/ective 5
'iffic$lty ) 0asy
AA%S!) Analytic
-,) :he definition of the lines of a$thority and res#onsi&ility and the overall framewor2 for #lanning,
directing, and controlling is laid o$t &y the
A) control activities
!) organizational str$ct$re
%) &$dget framewor2
') internal environment
Answer) !
*age +ef) 14<
.&/ective) Learning .&/ective 5
'iffic$lty ) 0asy
AA%S!) Analytic
-4) +ed$cing management layers, creating self?directed wor2 teams, and em#hasizing contin$o$s
im#rovement are all related to which as#ect of internal environment?
A) .rganizational str$ct$re
!) "ethods of assigning a$thority and res#onsi&ility
%) "anagement #hiloso#hy and o#erating style
') %ommitment to com#etence
Answer) A
*age +ef) 14<
.&/ective) Learning .&/ective 5
'iffic$lty ) "oderate
AA%S!) Analytic
15
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
9<) *ersonnel #olicies s$ch as &ac2gro$nd chec2s, mandatory vacations, and rotation of d$ties tend to
deter
A) $nintentional errors
!) em#loyee fra$d or em&ezzlement
%) fra$d &y o$tsiders
') disgr$ntled em#loyees
Answer) !
*age +ef) 14<?141
.&/ective) Learning .&/ective 5
'iffic$lty ) 0asy
AA%S!) Analytic
91) :he S0% and 3AS! are &est descri&ed as e7ternal infl$ences that directly affect an organization>s
A) hiring #ractices
!) #hiloso#hy and o#erating style
%) internal environment
') methods of assigning a$thority
Answer) %
*age +ef) 141
.&/ective) Learning .&/ective 5
'iffic$lty ) 0asy
AA%S!) Analytic
91) Which attri&$te &elow is not an as#ect of the %.S. 0+" 3ramewor2 internal environment?
A) 0nforcing a written code of cond$ct
!) =olding em#loyees acco$nta&le for achieving o&/ectives
%) +estricting access to assets
') Avoiding $nrealistic e7#ectations
Answer) %
*age +ef) 1,,
.&/ective) Learning .&/ective 5
'iffic$lty ) "oderate
AA%S!) Analytic
95) :he amo$nt of ris2 a com#any is willing to acce#t in order to achieve its goals and o&/ectives is
A) Inherent ris2
!) +esid$al ris2
%) +is2 a##etite
') +is2 assessment
Answer) %
*age +ef) 1,4
.&/ective) Learning .&/ective 5
'iffic$lty ) 0asy
AA%S!) Analytic
1-
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
9-) :he ris2 that remains after management im#lements internal controls is
A) Inherent ris2
!) +esid$al ris2
%) +is2 a##etite
') +is2 assessment
Answer) !
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
99) :he ris2 that e7ists &efore management ta2es any ste#s to control the li2elihood or im#act of a ris2 is
A) Inherent ris2
!) +esid$al ris2
%) +is2 a##etite
') +is2 assessment
Answer) A
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
96) When $nderta2ing ris2 assessment, the e7#ected loss is calc$lated li2e this
A) Im#act times e7#ected loss
!) Im#act times li2elihood
%) Inherent ris2 times li2elihood
') +esid$al ris2 times li2elihood
Answer) !
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
9@) Denerally in a ris2 assessment #rocess, the first ste# is to
A) identify the threats that the com#any c$rrently faces
!) estimate the ris2 #ro&a&ility of negative events occ$rring
%) estimate the e7#os$re from negative events
') identify controls to red$ce all ris2 to zero
Answer) A
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
19
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
9,) Store #olicy that allows retail cler2s to #rocess sales ret$rns for B5<< or less, with a recei#t dated
within the #ast 6< days, is an e7am#le of
A) general a$thorization
!) s#ecific a$thorization
%) s#ecial a$thorization
') generic a$thorization
Answer) A
*age +ef) 146
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) +eflective :hin2ing
94) %or#orate #olicy that re($ires a #$rchasing agent and #$rchasing de#artment manager to sign off on
asset #$rchases over B1,9<< is an e7am#le of
A) general a$thorization
!) s#ecific a$thorization
%) s#ecial a$thorization
') generic a$thorization
Answer) !
*age +ef) 146
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) +eflective :hin2ing
6<) A doc$ment that shows all #ro/ects that m$st &e com#leted and the related I: needs in order to
achieve long?range com#any goals is 2nown as a
A) #erformance eval$ation
!) #ro/ect develo#ment #lan
%) data #rocessing sched$le
') strategic master #lan
Answer) '
*age +ef) 14,
.&/ective) Learning .&/ective @
'iffic$lty ) "oderate
AA%S!) Analytic
61) A GGGGGGGG is created to g$ide and oversee systems develo#ment and ac($isition
A) #erformance eval$ation
!) #ro/ect develo#ment #lan
%) steering committee
') strategic master #lan
Answer) %
*age +ef) 14,
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) Analytic
16
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
61) A GGGGGGGG shows how a #ro/ect will &e com#leted, incl$ding tas2s and who will #erform them as
well as a timeline and cost estimates
A) #erformance eval$ation
!) #ro/ect develo#ment #lan
%) steering committee
') strategic master #lan
Answer) !
*age +ef) 14,
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) Analytic
65) Which of the following is not a violation of the Sar&anes?.7ley Act 8S.J)? :he management at
3olding S($id :echnologies
A) as2ed their a$ditors to ma2e recommendations for the redesign of their information technology
system and to aid in the im#lementation #rocess
!) hired the manager from the e7ternal a$dit team as com#any %3. twelve months after the manager
had wor2ed on the a$dit
%) selected the com#any>s %hief 3inancial .fficer to chair the a$dit committee
') did not mention to a$ditors that the com#any had e7#erienced significant losses d$e to fra$d d$ring
the #ast year
Answer) !
*age +ef) 1,6
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
6-) :he Sar&anes?.7ley Act 8S.J) a##lies to
A) all com#anies with gross ann$al reven$es e7ceeding B9<< million
!) #$&licly held com#anies with gross ann$al reven$es e7ceeding B9<< million
%) all #rivate and #$&licly held com#anies incor#orated in the Fnited States
') all #$&licly held com#anies
Answer) '
*age +ef) 1,9
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
1@
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
69) %h$c2 =ewitt was rela7ing after wor2 with a colleag$e at a local watering hole Well into his second
martini, he &egan e7#ressing his o#inions a&o$t his com#any>s &$dgeting #ractices It seems that, as a
res$lt of I&$dget handc$ffsI that re($ire managers to e7#lain material deviations from &$dgeted
e7#endit$res, his a&ility to creatively manage his de#artment>s activities have &een c$rtailed :he level
of control that the com#any is $sing in this case is a
A) &o$ndary system
!) &elief system
%) interactive control system
') diagnostic control system
Answer) '
*age +ef) 1,9
.&/ective) Learning .&/ective 1
'iffic$lty ) 0asy
AA%S!) Analytic
66) %h$c2 =ewitt was rela7ing after wor2 with a colleag$e at a local watering hole Well into his second
martini, he &egan e7#ressing his o#inions a&o$t his wor2 environment It seems that, as a res$lt of
IfeminaziI interference, the s$ggestive &anter that had &een #revalent in the wor2#lace d$ring his yo$th
was no longer acce#ta&le =e even had to sit thro$gh a se7$al harassment wor2sho#K :he level of
control that the com#any is $sing in this case is a
A) &o$ndary system
!) &elief system
%) interactive control system
') diagnostic control system
Answer) A
*age +ef) 1,9
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
6@) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild
rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing
in/$red or 2illed Settlement of res$lting laws$its has an average cost of B69<,<<< Ins$rance with a
B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal
negligence What is the im#act of this ris2 witho$t ins$rance?
A) B9<,<<<
!) B69<,<<<
%) B69<
') B9<
Answer) !
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
1,
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
6,) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild
rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing
in/$red or 2illed Settlement of res$lting laws$its has an average cost of B69<,<<< Ins$rance with a
B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal
negligence What is the e7#ected loss witho$t ins$rance?
A) B9<,<<<
!) B69<,<<<
%) B69<
') B9<
Answer) %
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
64) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild
rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing
in/$red or 2illed Settlement of res$lting laws$its has an average cost of B69<,<<< Ins$rance with a
B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal
negligence What is the e7#ected loss with ins$rance?
A) B9<,<<<
!) B69<,<<<
%) B69<
') B9<
Answer) '
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
@<) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild
rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing
in/$red or 2illed Settlement of res$lting laws$its have an average cost of B69<,<<< Ins$rance with a
B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal
negligence !ased on cost?&enefit analysis, what is the most that the &$siness sho$ld #ay for the
ins$rance?
A) B9<<
!) B69<
%) B6<<
') B9<
Answer) %
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
14
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
@1) '$e to data errors occ$rring from time to time in #rocessing the Al&ert %om#any>s #ayroll, the
com#any>s management is considering the addition of a data validation control #roced$re that is
#ro/ected to red$ce the ris2 of these data errors from 15L to 1L :he cost of the #ayroll re#rocessing is
estimated to &e B11,<<< :he cost of im#lementing the data validation control #roced$re is e7#ected to
&e B@<< Which of the following statements is true?
A) :he data validation control #roced$re sho$ld &e im#lemented &eca$se its net estimated &enefit is
B91<
!) :he data validation control #roced$re sho$ld &e im#lemented &eca$se its cost of B@<< is less than the
#ayroll re#rocessing cost of B1,-5<
%) :he data validation control #roced$re sho$ld not &e im#lemented &eca$se its cost of B@<< e7ceeds
the e7#ected &enefit &y B-,<
') :he data validation control #roced$re sho$ld not &e im#lemented &eca$se its net estimated &enefit is
a negative B1,11<
Answer) A
*age +ef) 14-
.&/ective) Learning .&/ective 6
'iffic$lty ) "oderate
AA%S!) Analytic
@1) :he organization chart for Deerts %or#oration incl$des a controller and an information #rocessing
manager, &oth of whom re#ort to the vice #resident of finance Which of the following wo$ld &e a
control wea2ness?
A) Assigning the #rogramming and o#erating of the com#$ter system to an inde#endent control gro$#
which re#orts to the controller
!) *roviding for maintenance of in#$t data controls &y an inde#endent control gro$# which re#orts to
the controller
%) *eriodically rotating assignment of a##lication #rocessing among machine o#erators, who all re#ort
to the information #rocessing manager
') *roviding for review and distri&$tion of system?generated re#orts &y an inde#endent control gro$#
which re#orts to the controller
Answer) A
*age +ef) 14,
.&/ective) Learning .&/ective @
'iffic$lty ) "oderate
AA%S!) +eflective :hin2ing
1<
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
@5) Dlo&al 0conomic Strategies, LL', has &een diligent in ens$ring that their o#erations meet modern
control standards +ecently, they have e7tended their control com#liance system &y incor#orating
#olicies and #roced$res that re($ire the s#ecification of com#any o&/ectives, $ncertainties associated
with o&/ectives, and contingency #lans :hey are transitioning from a GGGGGGGG to a GGGGGGGG control
framewor2
A) %.S.?Integrated 3ramewor2H %.!I:
!) %.!I:H %.S.?Integrated 3ramewor2
%) %.!I:H %.S.?0+"
') %.S.?Integrated 3ramewor2H %.S.?0+"
0) %.S.?0+"H %.!I:
Answer) '
*age +ef) 1,@?1,,
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) +eflective :hin2ing
@-) 3rantic=o$se *artners, LL%, does home remodeling and re#air All em#loyees are &onded, so the
firm>s ris2 e7#os$re to em#loyee fra$d is
A) red$ced
!) shared
%) avoided
') acce#ted
Answer) !
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
@9) 3rantic=o$se *artners, LL%, does home remodeling and re#air :he firm does not acce#t /o&s that
re($ire the installation of slate or co##er roofing &eca$se these materials often re($ire costly #ost?
installation services :he firm>s ris2 e7#os$re to costly #ost?installation services is
A) red$ced
!) shared
%) avoided
') acce#ted
Answer) %
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
11
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
@6) According to the %.S. 0nter#rise +is2 "anagement 3ramewor2, the ris2 assessment #rocess
incor#orates all of the following com#onents except
A) re#orting #otential ris2s to a$ditors
!) identifying events that co$ld im#act the enter#rise
%) eval$ating the im#act of #otential events on achievement of o&/ectives
') esta&lishing o&/ectives for the enter#rise
Answer) A
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) "oderate
AA%S!) Analytic
@@) 3erdinand Waldo 'emara was 2nown as the great im#oster =e had an asto$nding a&ility to
convince #eo#le that he was who he tr$ly was not =e wor2ed as a naval officer, #hysician, college
teacher, #rison warden, and other /o&s witho$t any of the #rere($isite ($alifications !y not diligently
chec2ing references, the organizations fooled &y 'emara 8incl$ding the %anadian Navy) a##arently
chose to GGGGGGGG the ris2 of fra$d
A) red$ce
!) share
%) avoid
') acce#t
Answer) '
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) 0asy
AA%S!) Analytic
@,) Which of the following is an inde#endent chec2 on #erformance?
A) :he *$rchasing Agent #hysically reviews the contents of shi#ments and com#ares them with the
#$rchase orders he has #laced
!) *rod$ction teams #erform ($ality eval$ations of the #rod$cts that they #rod$ce
%) :he Deneral "anager com#ares &$dgeted amo$nts with e7#endit$re records from all de#artments
') *etty cash is dis&$rsed &y 3red =aynes =e also maintains records of dis&$rsements, #laces re($ests
to finance to re#lace e7#ended f$nds, and #eriodically reconciles the #etty cash &alance
Answer) %
*age +ef) 1<<
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) Analytic
11
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
@4) *etty cash is dis&$rsed &y the 3red =aynes in the %ashier>s .ffice =e also maintains records of
dis&$rsements, #laces re($ests to the 3inance 'e#artment to re#lace e7#ended f$nds, and #eriodically
reconciles the #etty cash &alance :his re#resents a8an) GGGGGGGG segregation of d$ties
A) effective
!) ideal
%) ineffective
') limited
Answer) %
*age +ef) 146
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) Analytic
,<) =iring decisions at 3razier>s +azors are made &y Sheila 3razier, the 'irector of =$man +eso$rces
*ay rates are a##roved &y the Eice *resident for .#erations At the end of each #ay #eriod, s$#ervisors
s$&mit time cards to Sheila, who #re#ares #aychec2 re($isitions *aychec2s are then distri&$ted thro$gh
the com#any>s mail room :his re#resents a8an) GGGGGGGG segregation of d$ties
A) effective
!) #artial
%) ineffective
') limited
Answer) A
*age +ef) 146
.&/ective) Learning .&/ective @
'iffic$lty ) "oderate
AA%S!) +eflective :hin2ing
,1) %hange management refers to
A) dis&$rsement controls on #etty cash
!) o#erational controls a##lied to com#anies after mergers or ac($isitions
%) re#lacement of $##er management and their introd$ction to the organization
') controls designed to ens$re that $#dates in information technology do not have negative
conse($ences
Answer) '
*age +ef) 144
.&/ective) Learning .&/ective @
'iffic$lty ) 0asy
AA%S!) Analytic
15
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
,1) :he 'irector of Information :echnology for the city of !$m#2iss, "innesota, formed a com#any to
sell com#$ter s$##lies and software All #$rchases made on &ehalf of the %ity were made from his
com#any =e was later charged with fra$d for overcharging the %ity, &$t was not convicted :he control
iss$e in this case arose &eca$se the 'irector had &oth GGGGGGGG and GGGGGGGG d$ties
A) c$stodyH a$thorization
!) c$stodyH recording
%) recordingH a$thorization
') managementH c$stody
Answer) %
*age +ef) 146
.&/ective) Learning .&/ective @
'iffic$lty ) "oderate
AA%S!) +eflective :hin2ing
,5) According to the 0+", these hel# the com#any address all a##lica&le laws and reg$lations
A) %om#liance o&/ectives
!) .#erations o&/ectives
%) +e#orting o&/ectives
') Strategic o&/ectives
Answer) A
*age +ef) 141
.&/ective) Learning .&/ective -
'iffic$lty ) 0asy
AA%S!) Analytic
,-) According to the 0+", high level goals that are aligned with and s$##ort the com#any>s mission are
A) com#liance o&/ectives
!) o#erations o&/ectives
%) re#orting o&/ectives
') strategic o&/ectives
Answer) '
*age +ef) 141
.&/ective) Learning .&/ective -
'iffic$lty ) 0asy
AA%S!) Analytic
,9) According to the 0+", these deal with the effectiveness and efficiency of com#any o#erations, s$ch
as #erformance and #rofita&ility goals
A) %om#liance o&/ectives
!) .#erations o&/ectives
%) +e#orting o&/ectives
') Strategic o&/ectives
Answer) !
*age +ef) 141
.&/ective) Learning .&/ective -
'iffic$lty ) 0asy
AA%S!) Analytic
1-
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all
,6) According to the 0+", these o&/ectives hel# ens$re the acc$racy, com#leteness and relia&ility of
internal and e7ternal com#any re#orts
A) %om#liance o&/ectives
!) .#erations o&/ectives
%) +e#orting o&/ectives
') Strategic o&/ectives
Answer) %
*age +ef) 141
.&/ective) Learning .&/ective -
'iffic$lty ) 0asy
AA%S!) Analytic
,@) Which of the following is not a ris2 red$ction element of a disaster recovery #lan?
A) Identification of alternate wor2 site
!) .ff?site storage of &ac2$# files and #rograms
%) 'oc$mentation of #roced$res and res#onsi&ilitie
') Ade($ate cas$alty ins$rance
Answer) '
*age +ef) 145
.&/ective) Learning .&/ective 6
'iffic$lty ) 'iffic$lt
AA%S!) +eflective :hin2ing
,,) 'escri&e the differences &etween general and s#ecific a$thorization
Answer) A$thorizations are often doc$mented &y signing, initializing, or entering an a$thorization code
on a transaction doc$ment or record "anagement may deem that certain transactions are of a ro$tine
nat$re and as s$ch may a$thorize em#loyees to handle s$ch transactions witho$t s#ecial a##roval :his
is 2nown as general a$thorization .ther transactions may &e of s$ch conse($ence that management
grants s#ecific a$thorization for them to occ$r Fs$ally management m$st a##rove of s$ch transactions
and oversee them to com#letion, re($iring an additional signat$re re($ired on chec2s e7ceeding a given
dollar amo$nt "anagement sho$ld have written #olicies on &oth s#ecific and general a$thorization for
all ty#e of transactions
*age +ef) 146
.&/ective) Learning .&/ective @
'iffic$lty ) "oderate
AA%S!) Analytic
,4) 07#lain how a com#any co$ld &e the victim of fra$d, even if ideal segregation of d$ties is enforced
Answer) When a system effectively incor#orates a se#aration of d$ties, it sho$ld &e diffic$lt for any one
em#loyee to defeat the system and commit fra$d 3ra$d is #ossi&le when two or more em#loyees agree
to defeat the system for their own dishonest ends :his #ro&lem is 2nown as coll$sion When two or
more em#loyees act together to defeat the internal controls of the system, they may li2ely s$cceed It is
more diffic$lt to detect s$ch activity &eca$se the em#loyees may have #lanned to Icover their trac2sI
:his is why inde#endent review of transaction activity &y third #arties is im#ortant to monitor that
internal controls are in #lace and wor2ing as designed
*age +ef) 14@
.&/ective) Learning .&/ective @
'iffic$lty ) "oderate
AA%S!) +eflective :hin2ing
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4<) %lassify each of the following controls as #reventive, detective, or corrective
*eriodic &an2 reconciliation
Se#aration of cash and acco$nting records
"aintaining &ac2$# co#ies of master and transaction files
*re?n$m&ering of sales invoices
%hart of acco$nts
+etina scan &efore entering a sensitive + M ' facility
+es$&mission of error transactions for s$&se($ent #rocessing
Internal a$ditor rechec2ing the de&its and credits on the #ayment vo$cher
'e#ositing all cash recei#ts intact
=iring ($alified acco$nting #ersonnel
Answer) 'etective *reventive %orrective *reventive *reventive *reventive %orrective 'etective
*reventive *reventive
*age +ef) 1,9
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
41) 'isc$ss fo$r reasons why AIS threats are increasing
Answer)
1 %lient/server systems have #roliferated and have ena&led large n$m&ers of em#loyees to have access
to the information
1 LANs and client/server systems distri&$te data to vario$s $sers and are more diffic$lt to control than
centralized systems
5 0'I and e?commerce have ena&led c$stomers and s$##liers to access each other>s systems and data,
ma2ing confidentiality a ma/or concern
- .rganizations are not aggressively #rotecting their data for vario$s reasons
9 %om#$ter control #ro&lems are often $nderestimated and down#layed
6 %ontrol im#lications of networ2ed systems are not #ro#erly reasoned o$t
@ :o# management does not gras# the effect of sec$rity of data and information on s$rvival and
#rofita&ility of the com#any
, Internal controls &ecome a cas$alty in cost c$tting and #rod$ctivity meas$res $nderta2en &y the
management
*age +ef) 1,-
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
41) 07#lain why the 3oreign %orr$#t *ractices Act was im#ortant to acco$ntants
Answer) :he act is im#ortant to acco$ntants &eca$se it incor#orates the lang$age of the AI%*A
#rono$ncement on internal controls :he Act mandates that cor#orations sho$ld 2ee# records that
acc$rately and fairly reflect their transactions and assets in reasona&le detail :he internal control system
of these organizations sho$ld &e a&le to #rovide reasona&le ass$rance that) a) transactions are #ro#erly
a$thorized and recordedH &) assets are safeg$arded and #rotected from $na$thorized accessH and c)
recorded asset val$es are #eriodically com#ared with act$al assets and any differences are corrected :he
act re($ires cor#orations to maintain good systems of internal acco$nting control
*age +ef) 1,9
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
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45) 'isc$ss the internal environment and identify the elements that com#rise the internal environment
Answer) :he internal environment em&races individ$als and the environment in which they o#erate in
an organization Individ$al em#loyees are Ithe engineI that drive the organization and form the
fo$ndation $#on which everything in the organization rests 0lements of the internal environment are) 1)
a commitment to integrity and ethical val$esH 1) the #hiloso#hy and o#erating style of managementH 5)
organizational str$ct$reH -) the a$dit committee of the &oard of directorsH 9) methods of assigning
a$thority and res#onsi&ilityH 6) h$man reso$rces #olicies and #racticesH and @) vario$s e7ternal
infl$ences 0ach of these elements infl$ences the internal control str$ct$re of the organization Li2ewise,
these elements sho$ld &e e7amined and analyzed in detail when im#lementing or eval$ating a system of
internal controls
*age +ef) 1,,
.&/ective) Learning .&/ective 5
'iffic$lty ) "oderate
AA%S!) Analytic
4-) 07#lain why management>s #hiloso#hy and o#erating style are considered to &e the most im#ortant
element of the internal environment
Answer) "anagement tr$ly sets the tone for the control environment of a &$siness If to# management
ta2es good control serio$sly and ma2es this 2nown to everyone in the organization, then em#loyees
down the line will tend to do li2ewise "anagement>s attit$de toward ris2 ta2ing and the assessment of
ris2 &efore acting are indications Willingness to mani#$late #erformance meas$res or to enco$rage
em#loyees to do li2ewise is another indication of attit$de 3inally, #ress$re on s$&ordinates to achieve
certain res$lts regardless of the methods $sed can &e a very #ers$asive indicator of #ro&lems
"anagement concerned a&o$t control will assess ris2 and act #r$dently, mani#$lation of #erformance
meas$res will not &e tolerated, and ethical &ehavior will &e instilled in and re($ired of em#loyees
*age +ef) 1,4
.&/ective) Learning .&/ective 5
'iffic$lty ) "oderate
AA%S!) +eflective :hin2ing
49) What are some of the ways to assign a$thority and res#onsi&ility within an organization?
Answer) It is inc$m&ent on management to identify s#ecific &$siness o&/ectives and assign s$ch
o&/ectives to certain de#artments and individ$als "anagement m$st also hold s$ch de#artments and
individ$als res#onsi&le and acco$nta&le for achieving the assigned &$siness o&/ectives Ways in which
management may assign a$thority and res#onsi&ility is thro$gh formal /o& descri#tions, em#loyee
training, &$dgets, o#erating #lans, and sched$ling A formal code of cond$ct also sets the stage for
res#onsi&le &ehavior on the #art of em#loyees &y defining ethical &ehavior, acce#ta&le &$siness
#ractices, reg$latory re($irements, and conflicts of interest Another $sef$l and im#ortant tool is a
written #olicy and #roced$res man$al
*age +ef) 14<
.&/ective) Learning .&/ective 5
'iffic$lty ) "oderate
AA%S!) Analytic
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46) 'isc$ss the wea2nesses in %.S.>s internal control framewor2 that led to the develo#ment of the
%.S. 0nter#rise +is2 "anagement framewor2
Answer) %.S.>s internal control framewor2 1 had too narrow a foc$s 1 e7amined controls witho$t
first addressing #$r#oses and ris2s of &$siness #rocesses 5 e7isting internal control systems often have
controls that #rotect against items that are no longer ris2s or are no longer im#ortant - foc$sing on
controls first has an inherent &ias toward #ast #ro&lems and concerns
*age +ef) 1,@?1,,
.&/ective) Learning .&/ective 1
'iffic$lty ) "oderate
AA%S!) Analytic
1,
%o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all