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Chapter 1—The Information System: An Accountant’s

Accountant’s Perspective

TRUE/A!SE
1. Inform
Informati
ation
on is a busine
businessss resou
resource
rce..
ANS: T PTS: 1
2. IT outsou
outsourcing
rcing is locatio
location-in
n-indepen
dependent
dent computing
computing..
ANS: F PTS: 1
3. Transaction
Transaction processing
processing sstems con!ert non-financial transactions into financial transactions.
ANS: F PTS: 1
". Informatio
Information n lac#ing
lac#ing reliabi
reliabilit
lit ma
ma still
still $a!e
$a!e !alue.
!alue.
ANS: F PTS: 1
%. A balance s$eet prepared in conformit &it$ &it$ 'AAP is an e(ample
e(ample of discretionar
discretionar reporting.
ANS: F PTS: 1
). T$e *anagement
*anagement +eporting Sstem pro!ides pro!ides t$e internal financial
financial information
information needed
needed to manage a
 business.
ANS: T PTS: 1
,. *ost of t$e inputs
inputs to t$e 'eneral
'eneral edger
edger Sstem
Sstem come from t$e Financia
Financiall +eporting
+eporting Sstem.
Sstem.
ANS: F PTS: 1
. /$en preparing
preparing discretionar
discretionar reports0 organiations can c$oose &$at information information to report
report and $o&
$o& to
 present it.
ANS: T PTS: 1
. +etrie!al
+etrie!al is t$e tas#
tas# of permanentl
permanentl remo!in
remo!ing g obsolete
obsolete or redundant
redundant records
records from
from t$e database.
database.
ANS: F PTS: 1
1. Sstems
Sstems de!elopment
de!elopment represen
represents ts  to  percent
percent of t$e total cost
cost of a computer sstem.
sstem.
ANS: F PTS: 1
11. T$e database
database administrator
administrator is responsible for t$e securit and integrit integrit of t$e database.
database.
ANS: T PTS: 1
12. 4ustom
4ustom soft&are
soft&are is completel
completel finis$ed
finis$ed00 tested0
tested0 and read for implement
implementatio ation.
n.
ANS: F PTS: 1
13. T$e internal
internal auditor
auditor represen
representsts t$e interests
interests of t$ird-p
t$ird-part
art outside
outsiders.
rs.
ANS: F PTS: 1
1". Information Tec$nolog 5IT6 5IT6 audits can be performed
performed b bot$
bot$ internal and e(ternal auditors.
ANS: T PTS: 1
1%. 4ustom
4ustom soft&are
soft&are is t$e most
most affordabl
affordablee sstems
sstems de!elopme
de!elopment nt option.
option.
ANS: F PTS: 1
1). A database is a collection of interconnected
interconnected computers and communications
communications de!icesde!ices t$at allo&s
allo&s users to
communicate0 access data and applications0 and s$are information and resources.
ANS: F PTS: 1
1,. Sstems
Sstems maintenanc
maintenancee consumes
consumes t$e ma7orit
ma7orit ofof a sstem8s
sstem8s total costs
costs..
ANS: T PTS: 1
1. 4loud computing
computing is a practice in &$ic$ t$e organiation sells its IT resources resources to a t$ird-part outsourcing
outsourcing
!endor t$en leases bac# IT ser!ices from t$e !endor for a contract period.
ANS: F PTS: 1
1. A potential benefit
benefit of cloud computing
computing is t$at t$at t$e client firm does not need to #no& &$ere its data data are
 bring processed.
ANS: F PTS: 1
2. 9ne of t$e
t$e greatest disad!antages of database sstems is t$at all data is al&as a!ailable a!ailable to all
all users.
ANS: F PTS: 1
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21. nder S9; legislation public accounting

accounting firms are no longer
longer allo&ed to pro!ide
pro!ide consulting
consulting ser!ices to
audit clients.
ANS: T PTS: 1
22. nder S9; legislation public accounting
accounting firms are no longer
longer allo&ed to pro!ide
pro!ide consulting
consulting ser!ices to
t$eir clients.
ANS: F
 N9T<: T$e ma not
not pro!ide suc$ ser!ices
ser!ices to audit clients0
clients0 but ma still pro!ide
pro!ide t$em to non-audit
clients
PTS: 1

"U!TIP!E C#$ICE
1. Which of the
the follow
following
ing is not a business
business resour
resource?
ce?
a. ra&
ra& material
 b. labor 
c. information
d. all
all are
are busi
busine
ness
ss res
resou
ourc
rces
es

ANS: = PTS: 1
2. Which level
level of management
management is responsible
responsible for shortterm
shortterm planning
planning an! coor!ina
coor!ina"on
"on of ac"vi"es
necessary to accomplish organi#a"onal
organi#a"onal ob$ec"ves?
a. oper
operat
atio
ions
ns mana
manage
geme
ment
nt
 b. middle management
c. top
top mana
manag gemen
ementt
d. line
line man
managagem
emen
entt

ANS: > PTS: 1

%. Which level
level of management
management is responsible
responsible for controll
controlling
ing !ayto!
!ayto!ay
ay opera"on
opera"ons?
s?
a. top
top mana
manag gemen
ementt
 b. middle management
c. oper
operat
atio
ions
ns mana
managegeme
ment
nt
d. e(ec
e(ecut
uti!
i!ee mana
manage
gemen
mentt

ANS: 4 PTS: 1
". ocation-independent
ocation-independent computing
computing in &$ic$ s$ared data centers deli!er $osted
$osted IT ser!ices o!er t$e Internet.
a. IT outs
outso
ourc
urcing
ing
 b. Net&or# administration
administration
c. 4lou
4loud d co
compu
mputing
ting
d. 4us
4ustom
tom soft
soft&a
&are
re

ANS: 4 PTS: 1
&. 'he value
value of informa
informa"on
"on for users
users is !etermin
!etermine!
e! by all of the
the following
following but
but
a. rel
reliabilit
 b. rele!ance
c. con!enience
d. comp
complelete
tenness
ess

ANS: 4 PTS: 1
(. )n e*ampl
e*ample e of a nonn
nonnancia
anciall transac"
transac"on
on is
a. sal
sale of
of pro
prod
ducts
ucts
 b. cas$ disbursement
c. log
log of
of cus
custo
tome
merr cal
calls
ls
d. purc
purc$a
$ase
se of in!e
in!ent
ntor
or

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ANS: 4 PTS: 1
+. )n e*am
e*ample
ple of
of a nanci
nancial al trans
transac"
ac"on
on is
a. t$e
t$e pur
purc$
c$as
asee of
of com
compuputeter 
r 
 b. a supplier8s price list
list
c. a del
deli!
i!er
er
 sc$
sc$ed
edul
ulee
d. an emplo
emploeeee benefi
benefitt broc$u
broc$urere

ANS: A PTS: 1
,. Which subs
subsyst
ystem
em is not part
part of the )ccoun
)ccoun"ng
"ng -nforma"
-nforma"on
on ystem
ystem?
?
a. Trans
Transact
action
ion Proces
Processin
singg Sstem
Sstem
 b. <(pert Sstem
c. 'enera
'enerall edger?
edger?Fin
Financ
ancial
ial +epor
+eportin
ting
g Sstem
Sstem
d. *anag
*anagem
emen entt +epor
+eporti
ting
ng Sste
Sstemm

ANS: > PTS: 1

. 'he ma$or !i0er
!i0erence
ence between
between the inancial
inancial epor"ng
epor"ng ystem
ystem 34 an!
an! the 5anagement
5anagement epor"ng
epor"ng
ystem 354 is the
a. F+S pro!ides
pro!ides informat
information
ion to interna
internall and e(ternal
e(ternal users@
users@ t$e *+S
*+S pro!ides
pro!ides informat
information
ion to
internal users
 b. F+S pro!ides discretionar
discretionar information@ t$e *+S pro!ides
pro!ides nondiscretionar
nondiscretionar information
c. F+S reports
reports are prepared
prepared using
using informat
information
ion pro!ided
pro!ided b
b t$e 'eneral
'eneral edger
edger Sstem@
Sstem@ t$e
*+S pro!ides information to t$e 'eneral edger Sstem
d. F+S reports
reports are prepared
prepared in fle(ib
fle(ible0
le0 nonstanda
nonstandardie
rdiedd formats@
formats@ t$e *+S reports
reports are
 prepared in standardied0
standardied0 formal formats

ANS: A PTS: 1
16. 'he purpose of the 'ransac"on 7rocessing ystem ystem inclu!es all of the following
following e*cept
a. con!erting
con!erting economic
economic e!ents
e!ents into
into financ
financial
ial trans
transactio
actions
ns
 b. recording financial transactions
transactions in t$e accounting
accounting records
c. distribut
distributing
ing essentia
essentiall information
information to operations
operations personne
personnell to support t$eir
t$eir dail operation
operationss
d. measuring
measuring and report
reporting
ing t$e statu
statuss of financial
financial resource
resourcess and t$e c$anges
c$anges in t$ose
t$ose
resources

ANS: = PTS: 1
11. 'he 'ran
'ransac"on
sac"on 7rocess
7rocessinging ystem
ystem inclu!es
inclu!es all of the followi
following
ng cycles e*cept
e*cept
a. t$e
t$e re!
re!en
enu
ue cc
ccle
le
 b. t$e administrati!e ccle
ccle
c. t$e
t$e e(pe
e(pend
ndit
itur
uree ccl
cclee
d. t$e
t$e con!
con!er
ersi
sion
on ccl
cclee

ANS: > PTS: 1

12. 'he primary
primary input
input to the 'ran 'ransac"on
sac"on 7roces
7rocessing
sing yst
ystem
em is
a. a fin
finan
anci
cial
al tran
transasact
ctio
ion n
 b. an accounting record
c. an acc
accou
ount
ntin
ing
g rep
repor
ortt
d. a nonfi
nonfina
nanc
ncia
iall trans
transac
actition
on

ANS: A PTS: 1
1%. When !esignin
!esigning g the !ata collec"on
collec"on ac"vity
ac"vity88 which type of !ata
!ata shoul! be avoi!e!
avoi!e!?
?
a. data
data t$at
t$at is
is rel
rele!
e!an
antt
 b. data t$at is efficient
efficient
c. data
data t$at
t$at is redu
redund
ndan
antt
d. data
data t$at
t$at is accu
accura
rate
te

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ANS: 4 PTS: 1
19. 'he most
most basic
basic element
element of
of useful
useful !ata
!ata in the !atabas
!atabase
e is
a. t$e re
record
 b. t$e #e
c. t$e file
d. t$e
t$e attr
attrib
ibut
utee

ANS: = PTS: 1
1&. -n a !atabase8
!atabase8 a complet
complete
e set of aribute
aributess for a single
single occurrence
occurrence of an en"ty
en"ty class is calle!
calle!
a. a #e
 b. a file
c. a record
d. a c$aracter 

ANS: 4 PTS: 1
1(. 0ec"ve
0ec"ve informa
informa"on
"on has all of the followi
following
ng characteris
characteris"cs
"cs e*cept
e*cept
a. rele!ance
 b. completeness
c. sum
summar
mariat
iatio
ion
n
d. structure

ANS: = PTS: 1
1+. ;atabase
;atabase management
management tasks
tasks !o not inclu!e
inclu!e
a. sum
summar
mariat
iatio
ion
n
 b. storage
c. retrie!al
d. deletion

ANS: A PTS: 1
1,. 'he author !is"nguishes between the )ccoun"ng -nforma"on -nforma"on ystem an! the management -nforma"on
-nforma"on
ystem base! on
a. &$et$er
&$et$er t$e
t$e transa
transaction
ctionss are
are financia
financiall or nonfinan
nonfinancial
cial
 b. &$et$er discretionar or nondiscretionar reports
reports are prepared
c. t$e
t$e end
end use
users
rs of t$e
t$e repo
report
rtss
d. t$e organia
organiation
tional
al struct
structure
ure of t$e
t$e busin
business
ess

ANS: A PTS: 1
1. Which ac"vity
ac"vity is
is not part of the
the nance
nance func"on?
func"on?
a. cas$ re
receipts
 b. portfolio management
c. credit
d. gene
generral led
ledger 
ger 

ANS: = PTS: 1
26. 5arket
5arket research
research an!
an! a!ver"sin
a!ver"sing
g are part of
of which busine
business
ss func"on?
func"on?
a. mate
materi
rial
alss manag
managem
emen
entt
 b. finance
c. mar#eting
d. production

ANS: 4 PTS: 1
21. Which func"on
func"on manages
manages the nancial
nancial resourc
resources
es of the rm through
through por<olio
por<olio managemen
management8
t8 banking8
banking8
cre!it evalua"on8 an! cash receipts an! !isbursements?
a. accounting
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 b. finance
c. mate
materirial
alss manag
managem
emen
entt
d. dis
distri
tributi
butionon

ANS: > PTS: 1

22. Which of the follo
following
wing is not part
part of the
the accoun"n
accoun"ng g func"on?
func"on?
a. managing
managing t$et$e finan
financial
cial informati
information
on resour
resource
ce of
of t$e firm
 b. capturing and recording
recording transactions in t$e
t$e database
c. distribut
distributing
ing transa
transactio
ction
n informati
information
on to operat
operations
ions personnel
personnel
d. managing
managing t$et$e p$sic
p$sical
al informat
information
ion sste
sstemm of t$e
t$e firm
firm

ANS: = PTS: 1
2%. 'he term =accoun
=accoun"ng"ng in!epe
in!epen!enc
n!ence>
e> refer
referss to
a. data
data integr
tegrit
it

 b. separation of duties0
duties0 suc$ as record #eeping and custod
custod of p$sical resources
resources
c. genera
generatio
tion
n of accurat
accuratee and timel
timel
 inform
informati
ation
on
d. busine
business
ss segm
segmententati
ation
on b
b funct
function
ion

ANS: > PTS: 1

29. -n the
the !istri
!istribute!
bute! !ata
!ata processi
processing
ng approa
approachch
a. computer
computer ser!ices
ser!ices are consol
consolidate
idatedd and managed
managed as a s$ared
s$ared organia
organiation
tion resourc
resourcee
 b. t$e computer ser!ice function
function is a cost center 
c. t$e end
end users
users are billed
billed using
using a c$arge-b
c$arge-bac#
ac# sstem
sstem
d. computer
computer ser!ices
ser!ices are organied
organied into
into small informatio
information
n processing
processing units
units under t$e control
control
of end users

ANS: = PTS: 1

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2%. /$ic$ of t$e follo&in

follo&ing g is not
not a cloud
cloud computi
computing
ng ser!ice
ser!ice
a. Soft
Soft&a
&are
re as a ser
ser!i
!ice
ce
 b. Infrastructure as a ser!ice
c. Net&
Net&oror#
# as
as a ser!
ser!ic
icee
d. Plat
Platfo
form
rm asas a ser
ser!
!ice
ice

ANS: 4 PTS: 1
2).
2). =ata
=ata pro
proce
cess
ssin
ing
g does not involve
does not involve
a. data control
 b. computer operations
c. sst
sstem
em main
mainte
tena
nanc
ncee
d. data
data co
con!er
n!erssion
ion

ANS: 4 PTS: 1
2,.
2,. Attest
Attestati
ation
on ser!ic es are performe! by
ser!ices
a. e(te
e(tern
rnal
al audi
audito
tors
rs
 b. internal accountants
accountants
c. inte
intern
rnal
al audi
audito
tors
rs
d. t$ir
t$ird-
d-pa
part
rt
 accou
accountntan
ants
ts

ANS: A PTS: 1
2,. Which in!ivi
in!ivi!ual
!ual is least
least invol
involve!
ve! in new syst
systems
ems !evelopm
!evelopment?
ent?
a. ss
sstems
ems ana
anallst
 b. e(ternal auditor 
c. end user  
d. data
data libra
ibrari
rian
an

ANS: = PTS: 1
2. 'he ob$ec"ves
ob$ec"ves of all informa
informa"on
"on systems
systems inclu!e
inclu!e all of the followi
following
ng e*cept
e*cept
a. support
support for
for t$e
t$e ste&ar
ste&ards$i
ds$ipp functi
function
on of
of manageme
management nt
 b. e!aluating transaction
transaction data
c. support
support for
for t$e
t$e da-to
da-to-da
-da operation
operationss of
of t$e
t$e firm
firm
d. suppor
supportt for mana
managemgement
ent deci
decisio
sion
n ma#ing
ma#ing

ANS: > PTS: 1

%6. Which in!ivi
in!ivi!uals
!uals may
may be involve!
involve! in the ystems
ystems ;evelopm
;evelopment
ent ife
ife @ycle?
a. accountants
 b. sstems professionals
professionals
c. end users
d. all
all of
of t$
t$e ab
abo!e
o!e

ANS: = PTS: 1

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%1. )n appraisal
appraisal func"on
func"on house!
house! within
within the organi#a
organi#a"on
"on that performs
performs a wi!e range
range of services for
for
management is
a. inte
intern
rnal
al audi
auditi
ting
ng
 b. data control group
c. e(te
e(tern
rnal
al audi
auditi
ting
ng
d. data
databa
base
se adm
admin
inis
istr
trat
atio
ion
n

ANS: A PTS: 1
32. /$ic$ of t$e follo&
follo&ing
ing is not
not a productio
production
n support
support acti!it
acti!it
a. *ai
*aintenance
 b. *ar#eting
c. Prod
Produc
ucti
tion
on pla
plann
nnin
ing
g
d. Bual
Bualit
it
 con
control
trol

ANS: > PTS: 1

33.
33. Ad!ant
Ad!antage
agess of cloud
cloud comp
comput ing inclu!e all of the following e*cept
uting
a. Access
Access to
to &$ate!
&$ate!erer compu
computin
tingg po&er
po&er is neede
neededd
 b. Paing onl for &$at is used
used
c. n#no&
n#no&n n data
data proces
processin
sing
g loca
locatio
tion
n
d. Fle(ib
Fle(ible0
le0 s$ort
s$ort term
term cont
contrac
racts
ts

ANS: 4 PTS: 1
3".
3". *oti!a
*oti!atio
tions
ns for
for IT outs
outsour
ourcing  inclu!e each of the following e*cept
cing
a. IT8s
IT8s $ig$
$ig$l
l tec$ni
tec$nical
cal nature
nature
 b. ong term contracts in IT outsourcing
c. <(pense of IT
d. =nami
=namicalcall
l c$an
c$angin
ging
g natur
naturee of IT

ANS: > PTS: 1

3%.
3%. T$ese
T$ese are
are focuses
focuses on on t$e sst
sstem
em itsel
itself.
f.
a. 4lou
4loudd co
compu
mputing
ting
 b. Fraud audits
c. Subs
Substa
tant
nti!
i!ee test
testss
d. Tests
ests of cont
controrols
ls

ANS: = PTS: 1
3). /$at factor
factor conceptuall
conceptuall distingu
distinguis$e
is$ess e(ternal auditing
auditing and internal
internal auditing
auditing
a. Tests
ests of cont
contro
rols
ls
 b. Substanti!e tests
c. <ducation
d. 4ons
4onsti
titu
tuen
enci
cies
es

ANS: = PTS: 1

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%+. )ll of
of the followi
followingng are
are e*ternal
e*ternal en! users
users e*cept
e*cept
a. 4ost
4ost acco
accoununtatant
ntss
 b. 4reditors
c. Stoc#$olders
d. Ta( aut$
aut$ororit
itie
iess

ANS: A PTS: 1
%,. Aseful
Aseful informa"
informa"onon must possess
possess all of the followi
following
ng characteri
characteris"cs
s"cs e*cept
e*cept
a. rele!ance
 b. precision
c. accurac
d. comp
comple lete
ten
ness
ess

ANS: > PTS: 1

%. 'he ob$ec"ves
ob$ec"ves of an info
informa"
rma"onon system
system inclu!e
inclu!e each of the
the following
following e*cept
e*cept
a. support
support for
for t$e ste&ards$
ste&ards$ipip respons
responsibil
ibilities
ities of manage
management
ment
 b. furt$ering t$e financial interests of s$are$olders
s$are$olders
c. suppor
supportt for
for manage
managemenmentt decis
decision
ion ma#ing
ma#ing
d. support
support for
for t$e
t$e firm8
firm8ss da-to
da-to-da
-da operation
operationss

ANS: > PTS: 1

96. )ccountants
)ccountants play many roles
roles rela"ng to the accoun"ng
accoun"ng informa"on
informa"on system8
system8 inclu!ing
inclu!ing all of
of the following
following
e*cept
a. sstem users
 b. sstem designers
c. ss
sstem audi
audittors
ors
d. sst
sstem
em con!
con!ererte
ters
rs

ANS: = PTS: 1

S#$RT A%S&ER 
1. <ntities outside
outside t$e organiation &it$ a direct or indirect interest
interest in t$e firm0 suc$
suc$ as stoc#$olders0
stoc#$olders0
financial institutions0 and go!ernment agencies0 are called CCCCCCCCCCCCCCCCCCCC.
CCCCCCCCCCCCCCCCCCCC.
ANS:
sta#e$olders
PTS: 1
2. ocation-independent
ocation-independent s$aringof
s$aringof data
data centers $osting IT ser!ers
ser!ers o!er D$e internet
internet is called
 CCCCCCCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCCCCCCCCCCCC. CCCCC.
ANS:
4loud computing
PTS: 1
3. Transactions
Transactions &it$
&it$ trading
trading partners
partners include
include CCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCC
CCCCCC and CCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCC.
CCCCC.
ANS:
sales0 purc$ases
PTS: 1
". A practice in &$ic$ an organiation
organiation sells its IT resources and leases t$em bac# is called
 CCCCCCCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC.
CCCCCCCCCC.
ANS:
IT outsourcing
PTS: 1

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%. T$e tas# of locating and transferring

transferring an e(isting
e(isting record from t$e database
database for processing is
is called data
 CCCCCCCCCCCCCCCCCCCC.
 CCCCCCCCCCCCCCCCCCCC.
ANS:
retrie!al
PTS: 1
B ). T$ese
T$ese tests focus on data rat$er
rat$er t$an process:
process: CCCCCCCC
CCCCCCCCCCCC
CCCCCCCC
CCCCCCCCC
CCCCCCCCC
CCCCC0
C0
ANS:
Substanti!e tests
PTS: 1
,. T$ree acti!it
acti!ities
ies t$at are part of t$e finance
finance function
function are CCCCCCCCCC
CCCCCCCCCCCCCC
CCCCCCCC
CCCCCCCCC
CCCCCCCC0
CCC0
 CCCCCCCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCCCCCCCC0 C0 and CCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC. CC.
ANS:
 portfolio management0
management0 treasur0
treasur0 credit0 cas$ disbursements0
disbursements0 cas$ receipts
PTS: 1
. T&o distinct
distinct &as to structure
structure t$e =ata Processing
Processing =epartment
=epartment are CCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCC and
 CCCCCCCCCCCCCCCCCCCC.
 CCCCCCCCCCCCCCCCCCCC.
ANS:
centralied0 distributed
PTS: 1

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. T&o met$ods to acEuire

acEuire information
information sstems
sstems are to CCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCC and to
 CCCCCCCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCCCCCCCC. C.
ANS:
de!elop customied sstems0 purc$ase commercial sstems
PTS: 1
1. Audits
Audits are conducted
conducted b CCCCCCCCCCCC
CCCCCCCCCCCCCCCC CCCCCCCC
CCCC00 CCCCCCCCCCC
CCCCCCCCCCCCCCC
CCCCCCCCC
CCCCC00 and
 CCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCC auditors.
auditors.
ANS:
internal0 e(ternal0 IT
PTS: 1
11. Sales of products
products to customers0 purc$ases
purc$ases of in!entor
in!entor from !endors0 and cas$ disbursements
disbursements are all
e(ample of CCCCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC..
ANS:
financial transactions
PTS: 1
12. T$e t$ree ma7or
ma7or subsstems
subsstems of t$e AIS AIS are CCCCCCCCCCC
CCCCCCCCCCCCCCCC
CCCCCCCCC
CCCCCCCC
CCCCCCCCC
CCCCCCC0CC0
 CCCCCCCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCCCCCCCCC0 CC0 and CCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC.
CCCCCCCC.
ANS:
t$e transaction processing sstem0 t$e general ledger?financial reporting sstem0 t$e management
reporting sstem
PTS: 1
13. T$e CCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCC and CCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCC standards t$at c$aracterie
c$aracterie t$e
t$e
AIS clearl distinguis$ it from t$e *IS.
ANS:
legal0 professional
PTS: 1
1". T$e transaction
transaction processing sstem is comprised
comprised of
of t$ree ccles: CCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC0 CC0
 CCCCCCCCCCCCCCCCCCCCCCCCC
 CCCCCCCCCCCCCCCCCCCCCCCCCC0 C0 and CCCCCCCCCCCCCCCCCCCCCCCC
CCCCCCCCCCCCCCCCCCCCCCCCCC. CC.
ANS:
re!enue0 e(penditure0 con!ersion
PTS: 1
1%. T$e tests
tests t$at focus
focus on t$e sstem
sstem itself
itself and
and $o& it is designe
designedd to reduce
reduce ris# is called
called
 CCCCCCCCCCCCCCCCCCCC.
 CCCCCCCCCCCCCCCCCCCC.
ANS:
Tests of controls
PTS: 1
1). Sarbanes-9(le legislation reEuires t$at management
management designs
designs and implements controls
controls o!er
o!er t$e entire
financial reporting process. /$at sstems does t$is include
ANS:
T$is includes t$e financial reporting sstem0 t$e general ledger sstem0 and t$e transaction processing
sstems t$at suppl t$e data for financial reporting.
PTS: 1
1,. /$ is it it necessar
necessar to distingu
distinguis$
is$ bet&een
bet&een AIS and *IS*IS
ANS:
>ecause of t$e $ig$l integrati!e nature of modern information sstems0 management and auditors need a
conceptual !ie& of t$e information sstem t$at distinguis$es #e processes and areas of ris# and legal
responsibilit
responsibilit from t$e ot$er 5non-legall binding6 aspects of t$e sstem. /it$out suc$ a model0 critical
management and audit responsibilities under S9; ma not be met.
PTS: 1
1. o& $as S9; legislation
legislation impacted t$e t$e consulting
consulting practices
practices of public accounting
accounting firms
firms
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ANS:
Prior to S9;0 a gra area of o!erlap e(isted bet&een assurance and consulting ser!ices. Auditors &ere
once allo&ed to pro!ide consulting ser!ices to t$eir audit clients. T$is is no& pro$ibited from doing so
under S9; legislation.
PTS: 1
1.
1. /$at
/$at is disc
discret
retion
ionar
ar repo
reporti
rting
ng
ANS:
+eports used b management t$at t$e compan is not obligated b la&0 la&0 regulation0 or contract to pro!ide.
T$ese are often used for internal problem-sol!ing issues rat$er t$an b e(ternal constituents.
PTS: 1
2. Name t$e fi!e c$aracteri
c$aracteristics
stics of infor
informatio
mation
n
ANS:
+ele!ance0 accurac0 completeness0 summariation0 and timeliness.
PTS: 1

ESSA'
1. 4ontrast
4ontrast t$e responsibi
responsibilitie
litiess of operatio
operations
ns management0
management0 middle
middle management0
management0 and top management.
management.
<(plain t$e different information needs for eac$ le!el of management.
ANS:
9perations management is directl responsible for controlling da-to-da operations. 9perations
managers reEuire detailed information on indi!idual transactions suc$ as sales0 s$ipment of goods0 usage
of labor and materials in t$e production process0 and internal transfers of resources from one department
to anot$er. >udgeting information and instructions flo& do&n&ard from top and middle management to
operations management.

*iddle managers perform s$ort-term planning and coordination of acti!ities necessar to accomplis$
organiational
organiational ob7ecti!es. *iddle management reEuires information t$at is more summaried and oriented
to&ard reporting on o!erall performance and problems0 rat$er t$an routine operations.

Top management is responsible for longer-term planning and setting organiational ob7ecti!es.
Information pro!ided to top management is $ig$l summaried.
PTS: 1
2. <(plain
<(plain t$e
t$e differen
difference
ce bet&een
bet&een data
data and
and informati
information.
on.
ANS:
=ata are facts &$ic$ ma or ma not be processed@ data $a!e no particular impact on t$e user.
Information is processed data t$at causes t$e user to ta#e action.
PTS: 1
3. /$ do auditors
auditors need to underst
understand
and t$e organi
organiatio
ational
nal structure
structure of t$e busines
business
s
ANS:
T$e structure of an organiation reflects t$e distribution of responsibilit0
responsibilit0 aut$orit0 and accountabilit
t$roug$out t$e organiation. Auditors need to #no& $o& t$e organiation functions to properl audit it.
PTS: 1
". Se!eral
Se!eral ad!antages
ad!antages of cloud
cloud computing
computing $a!e
$a!e been discuss
discussed.
ed. =iscuss
=iscuss at least t$ree.
t$ree.
ANS:
T$e ad!antages of cloud computing include access to &$ate!er computing po&er it needs0 paing onl
for &$at is used0 and fle(ible and relati!el s$ort term computing contracts.

PTS: 1
&. Came an!
an! e*plain
e*plain the purpos
purpose
e of the three
three ma$or subsy
subsystem
stemss of the )-:
)-:

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)C:
TPS records t$e financial transactions of t$e firm
'?F+S produces t$e financial statements etc. reEuired b la&
*+S pro!ides information to internal management for decision ma#ing
PTS: 1
). /$at are t$e
t$e t$ree primar
primar functions
functions performe
performed d b t$e transactio
transactionn processing
processing sstem
sstem
ANS:
con!erting economic e!ents into financial transaction0 recording financial transaction in t$e accounting
records 57ournals and ledgers60 and distributing essential
essential financial information to operations personnel to
support dail operations.
PTS: 1
,. /$at factors
factors moti!at
moti!atee managemen
managementt to outsourc
outsourcee IT
ANS:
*anagement ma be moti!ated to outsource It because t$e IT segmentsegment of an organiation comprises
$ig$l tec$nical0dnamicall
tec$nical0dnamicall c$anging0 and e(pensi!e acti!ities. T$e administrati!e burden and $ig$
costs associated &it$ managing and maintaining IT functions are also moti!ation.

PTS: 1
. =escribe
=escribe t$e problem
problem of data
data redundanc
redundanc..
ANS:
Information sstems $a!e limited collection0 processing0 and data storage capacit.
capacit. =ata redundanc
o!erloads facilities and reduces t$e o!erall efficienc of t$e sstem. Inconsistenc among redundant data
elements can result in inappropriate actions and bad decisions.

PTS: 1
. 4ompare
4ompare and contras
contrastt IT outsou
outsourcing
rcing and
and cloud
cloud computing
computing..
ANS:
IT outsourcing in!ol!ed an organiation selling its IT resources 5$ard&are0 soft&are0 and facilities6 to a
t$ird-part outsourcing
outsourcing !endor and t$en leasing bac# IT ser!ices from t$e !endor for a contract period of
tpicall bet&een fi!e and ten ears. A !ariant
!ariant of IT outsourcing0 called cloud computing0 is location-
independent computing &$ereb s$ared data centers deli!er $osted IT ser!ices o!er t$e Internet. An
organiation pursuing cloud computing signs a contract &it$ an IT ser!ice pro!ider to pro!ide computing
resources. /$en demand e(ceeds t$e pro!ider8s IT capacit0
capacit0 it acEuires additional capacit from data
centers in t$e GcloudH t$at are connected !ia t$e Internet. T$e ad!antage to t$e client organiation is
access to &$ate!er computing po&er it needs0 &$ile it pas onl for &$at it uses. Also0 cloud computing
contracts are fle(ible and relati!el s$ort term. In contrast0 traditional outsourcing contracts tend to be
fi(ed price0 infle(ible0 and muc$ longer term.

PTS: 1
1. =istinguis$ bet&een t$e
t$e accounting
accounting information
information sstem
sstem and t$e management
management information
information sstem.
sstem.
ANS:

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T$e AIS processes financial 5e.g.0 cas$ receipts6 and nonfinancial 5e.g.0 addition to t$e appro!ed !endor
list6 transactions t$at directl affect t$e processing of t$e financial transaction. T$ese are $andled b t$e
t$ree ma7or subsstems: transaction processing0 general ledger?financial reporting0 and management
reporting.
T$e *IS processes additional nonfinancial transactions
transactions t$at contribute to t$e decision ma#ing of
managers.
PTS: 1
11.
11. =escribe
=escribe t$e
t$e attest
attest functio
functionn and its
its ob7ecti
ob7ecti!es.
!es.
ANS:
T$e attest function0 or t$e ta#st of an e(ternal audit is an independent attestation performed b an e(pert
 t$e auditor&$o e(presses
e(presses an opinion regarding
regarding t$e presentation
presentation of financial statements.
statements. T$e attest
function is performed b 4ertified Public Accountants
Accountants 54PA6
54PA6 &$o &or# for public accounting firms t$at
are independent of t$e client organiation being audited. T$e audit ob7ecti!e is al&as associated &it$
assuring t$e fair presentation of financial statements. T$ese audits are0 t$erefore0 often referred to as
financial audits. T$e Securities and <(c$ange 4ommission 5S<46 reEuires all publicl traded companies
to undergo a financial audit annuall. 4PAs conducting suc$ audits represent t$e interests of outsiders:
stoc#$olders0 creditors0 go!ernment agencies0 and t$e general public.
PTS: 1
12. /$ is it important
important to organiationall
organiationall separate t$e accounting function
function from ot$er functions
functions of t$e
organiation
ANS:
T$e accounting function pro!ides record-#eeping ser!ices for all of t$e operations and da-to-da
acti!ities of ot$er departments0 &$ic$ affect t$e financial position of t$e organiation.
organiation. +ecord #eeping
tas#s must be #ept separate from an area t$at $as custod o!er assets. T$us0 t$e accounting function
must remain independent so t$at t$e protection of t$e firm8s assets is carried out in an en!ironment &it$
minimum possibilities for t$eft.
PTS: 1
13. o& doesdoes S9; affect
affect t$e pro!is
pro!ision
ion of attest
attest and ad!iso
ad!isor
r ser!ices
ser!ices

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ANS:
Prior to t$e passage of S9;0 accounting firms could pro!ide ad!isor ser!ices concurrentl to audit
5attest function6 clients. S9; legislation0 $o&e!er0 greatl restricts t$e tpes of non-audit ser!ices t$at
auditors ma render audit clients. It is no& unla&ful for a registered public accounting firm t$at is
currentl pro!iding attest ser!ices for a client to pro!ide t$e follo&ing ser!ices: boo##eeping or ot$er
ser!ices related to t$e accounting records or financial statements of t$e audit client0 financial information
sstems design and implementation0 appraisal or !aluation ser!ices0 fairness opinions0 or contribution-in-
#ind reports0 actuarial ser!ices0 internal audit outsourcing ser!ices0 management functions or $uman
resources0 bro#er or dealer0
dealer0 in!estment ad!iser0 or in!estment ban#ing ser!ices0 legal ser!ices and e(pert
ser!ices unrelated to t$e audit0 or an ot$er ser!ice t$at t$e >oard determines0 b regulation0 is
impermissible.
PTS: 1
1". /$at are t$e similarities
similarities and differences
differences bet&een
bet&een e(ternal auditors and internal
internal auditors
auditors
ANS:
T$e c$aracteristic t$at conceptuall distinguis$es e(ternal auditors from internal auditors is t$eir
respecti!e constituencies: &$ile e(ternal auditors represent outsiders0 internal auditors represent t$e
interests of t$e organiation. Ne!ert$eless0 in t$is capacit0 internal auditors often cooperate &it$ and
assist e(ternal auditors in performing aspects of financial audits. T$is cooperation is done to ac$ie!e audit
efficienc and reduce audit fees. For e(ample0 a team of internal auditors can perform tests of computer
controls under t$e super!ision of a single e(ternal auditor.
auditor. T$e independence and competence of t$e
internal audit staff determine t$e e(tent to &$ic$ e(ternal auditors ma cooperate &it$ and rel on &or#
 performed b internal auditors.
auditors. <(ternal auditors
auditors can rel in part on e!idence
e!idence gat$ered b internal
internal audit
departments t$at are organiationall
organiationall independent and report to t$e board of directors8 audit
audit committee. A
trul independent internal audit staff adds !alue to t$e e(ternal audit process.

PTS: 1

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1%. /$at are

are fraud
fraud audits
audits and
and &$ $a!e t$e
t$e become
become more
more common
common
ANS:
T$e ob7ecti!e of a fraud audit is to in!estigate anomalies and gat$er e!idence of fraud t$at ma lead to
criminal con!iction. Sometimes fraud audits are initiated &$en corporate management suspects emploee
fraud. Alternati!el
Alternati!el00 boards of directors ma $ire fraud auditors to in!estigate t$eir o&n e(ecuti!es if t$eft
of assets or financial fraud is suspected. 9rganiations !ictimied b fraud usuall contract &it$
specialied fraud units of public accounting firms or &it$ companies t$at specialie in forensic
accounting. In recent ears fraud audits $a!e increased in popularit as a corporate go!ernance tool. T$e
$a!e been t$rust into prominence b a corporate en!ironment in &$ic$ bot$ emploee t$eft of assets and
ma7or financial frauds b management 5e.g.0 <nron0 /orld4om0 etc.6 $a!e become rampant.

PTS: 1

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