CHAPTER 1

1. Which of the following is NOT a financial transaction?

a. purchase of products
b. cash receipts
c. update valid vendor file
d. sale of inventory

2. The following are subsystems of the Accounting Information System, EXCEPT

a. Transaction Processing System.
b. Human Resources System.
c. General Ledger/Financial Reporting System.
d. Management Reporting System.

3. Which of the following is NOT a purpose of the Transaction Processing System?

a. managing and reporting on the status of financial investments
b. converting economic events into financial transactions
c. distributing essential information to operations personnel to support their daily operations
d. recording financial transactions in the accounting records

4. The objectives of the data collection activity of the general model for Accounting Information Systems are
to collect data that are
a. relevant and redundant.
b. efficient and objective.
c. efficient and redundant.
d. efficient and relevant.

5. Which of the following is NOT a characteristic of effective information?

a. relevance
b. accuracy
c. summarization
d. precision

6. Which of the following is NOT a database management task?

a. retrieval
b. storage
c. summarization
d. deletion

7. When viewed from the highest to most elemental level, the data hierarchy is
a. attribute, record, file.
b. record, attribute, key.
c. file, record, attribute.
d. file, record, key.
e. key, record, file.
8. Which is NOT an accountant’s primary role in information systems?
a. system user
b. system auditor
c. system designer
d. system programmer

9. Which of the following is NOT an objective of all information systems?

a. support for the stewardship function of management
b. support for management decision making
c. supportfortheday-to-dayoperationsofthefirm
d. all of the above are objectives

10. Which of the following best describes the activities of the materials management function?
a. purchasing, receiving, and inventory control
b. receiving, sales, distribution, and purchasing
c. receiving, storage, purchasing, and accounts payable
d. purchasing, receiving, and storage
e. purchasing, storage, and distribution

11. Which of the following best describes the activities of the production function?
a. maintenance, inventory control, and production planning
b. production planning, quality control, manufacturing, and cost accounting
c. quality control, production planning, manufacturing, and payroll
d. maintenance, production planning, storage, and quality control
e. manufacturing, quality control, and maintenance

12. Which of the following best describes the activities of the accounting function?
a. inventory control, accounts payable, fixed assets, and payroll
b. fixed assets, accounts payable, cash disbursements, and cost accounting
c. purchasing, cash receipts, accounts payable, cash disbursements, and payroll
d. inventory control, cash receipts, accounts payable, cash disbursements, and payroll
e. inventory control, cost accounting, accounts payable, cash disbursements, and payroll

13. Which statement best describes the issue of distributed data processing (DDP)?
a. The centralized and DDP approaches are mutually exclusive; an organization must choose one
approach or the other.
b. The philosophy and objective of the organization’s management will determine the extent of DDP in the
firm.
c. In a minimum DDP arrangement, only data input and output are distributed, leaving the tasks of data
control, data conversion, database management, and data processing to be centrally managed.
d. The greatest disadvantage of a totally distributed environment is that the distributed information
processing unit locations are unable to communicate and coordinate their activities.
e. Although hardware (such as computers, database storage, and input/output terminals) can be effectively
distributed, the systems development and maintenance tasks must remain centralized for better control and
efficiency.
14. Which of the following is a disadvantage of distributed data processing?
a. End-user involvement in systems operation is decreased.
b. Disruptions due to mainframe failures are increased.
c. The potential for hardware and software incompatibility across the organization is increased.
d. The time between project request and completion is increased.
e. All of the above are disadvantages.

15. Which of the following is least likely to be used as evidence by an external auditor?
a. Substantive tests results
b. Work performed by internal auditors who organizationally report to the controller
c. Tests of controls results
d. Work performed by internal auditors who report to the audit committee of the BOD

16. Which statement best describes cloud computing?

a. Cloud computing involves long-term contracts.
b. Cloud computing is location-independent computing.
c. Cloud computing involves an organization selling its IT resources to a vendor and leasing back IT
services from the vendor.
d. Cloud computing involves fixed price contracts.
e. Cloud computing involves entering into multiple contracts with several IP service providers to create a
cloud of resources.

17. Which of the following statements is most accurate?

a. ERP systems are commercial software packages that are sometimes called turnkey systems because
they can be implemented by the user with little or no modification.
b. Substantive tests provide evidence focused on the system controls.
c. Public accounting firms that provide attest services are not allowed under SOX to offer IT advisory
services.
d. Both small and large firms that have standardized information needs are potential customers for
commercial software.
e. External auditors may rely on the work of internal auditors only if they report to the controller or the CEO
of the client company.

18. Which of the following is not a task performed in the audit planning phase?
a. Reviewing an organization’s policies and practices.
b. Planning Substantive Testing Procedures.
c. Reviewing General Controls.
d. Determining the degree of reliance on controls.

19. Which of the following statements is true?

a. Both the SEC and the PCAOB require use of the COSO framework.
b. Any framework can be used that encompasses all of COSO’s general themes.
c. The SEC recommends COBIT, and the PCAOB recommends COSO.
d. Both the SEC and the PCAOB require COBIT framework.
e. None of the above are true.
20. Which of the following is a preventive control?
a. Credit check before approving a sale on account.
b. Bank reconciliation.
c. Physical inventory account.
d. Comparing the accounts receivable subsidiary ledger to the control account.

21. A physical inventory count is an example of

a. preventive control
b. detective control
c. corrective control
d. Feed-forward control

22. Which of the following is the best reason to separate duties in a manual system?
a. To avoid collusion between the programmer and the computer operator.
b. To ensure the supervision is not required.
c. To prevent the record keeper from authorizing transactions.
d. To enable the firm to function more efficiently.

23. The importance to the accounting profession of the Sarbanes-Oxley Act is that
a. bribery will be eliminated
b. management will not override the company’s internal controls
c. management are required to certify their internal control system
d. firms will not be exposed to lawsuits

24. The office manager forgot to record in the accounting records the daily bank deposit. Which control
procedure would most likely prevent or detect this error?
a. segregation of duties
b. independent verification
c. accounting records
d. supervision

25. Control activities under SAS 109/COSO include

a. IT Controls, preventative controls, and corrective controls
b. physical controls, preventative controls, and corrective controls
c. general controls, application controls, and physical controls
d. transaction authorizations, segregation of duties, and risk assessment

26. Which statement is not true?

a. Auditors must maintain independence.
b. IT auditors attest to the integrity of the computer system.
c. IT auditing is independent of the general financial audit.
d. IT auditing can be performed by both external and internal auditors.
27. When planning the audit, information is gathered by all of the following methods except
a. completing questionnaires
b. interviewing management
c. observing activities
d. confirming accounts receivable

28. All of the following are components of audit risk except

a. control risk
b. legal risk
c. detection risk
d. inherent risk

USERS OF INFORMATION
a. Internal Revenue Service - external user: stakeholder
b. Inventory control manager - internal user
c. Board of directors - external user: stakeholder
d. Customers - external user: trading partner
e. Lending institutions - external user: stakeholder
f. Securities and Exchange Commission - external user: stakeholder
g. Stockholders - external user: stakeholder
h. Chief executive officer - internal user
i. Suppliers - external user: trading partner
j. Bondholders - external user: stakeholder

INFORMATION SYSTEM CATEGORIZATION

a. Variance reports - management reporting system
b. Sales order capture - transaction processing system
c. Balance sheet - financial reporting system
d. Budgets - management reporting system
e. Purchase order preparation - transaction processing system
f. Tax returns - financial reporting system
g. Sales summary by product line - management reporting system
h. Cash disbursements preparation - transaction processing system
i. Annual report preparation - financial reporting system
j. Invoice preparation - transaction processing system
k. Cost-volume-profit analysis - management reporting system
 CHAPTER 2

1. Which statement is NOT true?

a. Business activities begin with the acquisition of materials, property, and labor in exchange for cash.
b. The conversion cycle includes the task of determining raw materials requirements.
c. Manufacturing firms have a conversion cycle but retail firms do not.
d. A payroll check is an example of a product document of the payroll system.
e. A journal voucher is actually a special source document.

2. A documentation tool that depicts the physical flow of information relating to a particular transaction
through an organization is a
a. system flowchart.
b. program flowchart.
c. decision table.
d. work distribution analysis.
e. systems survey.

3. Sequential file processing will not permit

a. data to be edited on a separate computer run.
b. the use of a database structure.
c. data to be edited in an offline mode.
d. batch processing to be initiated from a terminal.
e. data to be edited on a real-time basis.

4. The production subsystem of the conversion cycle includes all of the following EXCEPT
a. determining raw materials requirements.
b. make or buy decisions on component parts.
c. release of raw materials into production.
d. scheduling the goods to be produced.

5. Which of the following files is a temporary file?

a. transaction file
b. master file
c. reference file
d. none of the above

6. A documentation tool used to represent the logical elements of a system is a(n)

a. programming flowchart.
b. entity relationship diagram.
c. system flowchart.
d. data flow diagram.

7. Which of the following is NOT an advantage of real-time processing files over batch processing?
a. shorter transaction processing time
b. reduction of inventory stocks
c. improved customer service
d. all are advantages
8. Which statement is NOT correct?
a. Legacy systems may process financially significant transactions.
b. Some legacy systems use database technology.
c. Mainframes are exclusive to legacy systems, while modern systems use only the clientserver model.
d. All the above are true.

9. Which statement is NOT correct?

a. Indexed random files are dispersed throughout the storage device without regard for physical proximity
with related records.
b. Indexed random files use disk storage space efficiently.
c. Indexed random files are efficient when processing a large portion of a file at one time.
d. Indexed random files are easy to maintain in terms of adding records.

10. Which statement is NOT correct? The indexed sequential access method
a. is used for very large files that need both direct access and batch processing.
b. may use an overflow area for records.
c. provides an exact physical address for each record.
d. is appropriate for files that require few insertions or deletions.

11. Which statement is true about a hashing structure?

a. The same address could be calculated for two records.
b. Storage space is used efficiently.
c. Records cannot be accessed rapidly.
d. A separate index is required.

12. In a hashing structure

a. two records can be stored at the same address.
b. pointers are used to indicate the location of all records.
c. pointers are used to indicate location of a record with the same address as another record.
d. all locations on the disk are used for record storage.

13. An advantage of a physical address pointer is that

a. it points directly to the actual disk storage location.
b. it is easily recovered if it is inadvertently lost.
c. it remains unchanged when disks are reorganized.
d. all of the above are advantages of the physical address pointer.

14. Which of the following is NOT true of a turnaround document?

a. They may reduce the number of errors made by external parties.
b. They are commonly used by utility companies (gas, power, water).
c. They are documents used by internal parties only.
d. They are both input and output documents.
15. Which of the following is NOT a true statement?
a. Transactions are recorded on source documents and are posted to journals.
b. Transactions are recorded in journals and are posted to ledgers.
c. Infrequent transactions are recorded in the general journal.
d. Frequent transactions are recorded in special journals.

16. Which of the following is true of the relationship between subsidiary ledgers and general ledger
accounts?
a. The two contain different and unrelated data.
b. All general ledger accounts have subsidiaries.
c. The relationship between the two provides an audit trail from the financial statements to the source
documents.
d. The total of subsidiary ledger accounts usually exceeds the total in the related general ledger account.

17. Real-time systems might be appropriate for all of the following EXCEPT
a. airline reservations.
b. payroll.
c. point-of-sale transactions.
d. air traffic control systems.
e. all of these applications typically utilize real-time processing.

18. is the system flowchart symbol for:

a. on-page connector.
b. off-page connector.
c. home base.
d. manual operation.
e. document.

19. A chart of accounts would best be coded using a(n) ______________ coding scheme.
a. alphabetic
b. mnemonic
c. block
d. sequential

20. Which of the following statements is NOT true?

a. Sorting records that are coded alphabetically tends to be more difficult for users than sorting numeric
sequences.
b. Mnemonic coding requires the user to memorize codes.
c. Sequential codes carry no information content beyond their order in the sequence.
d. Mnemonic codes are limited in their ability to represent items within a class.

21. A coding scheme in the form of acronyms and other combinations that convey meaning is a(n)
a. sequential code.
b. block code.
c. alphabetic code.
d. mnemonic code.
22. Batch processing will not permit
a. Data to be edited on a separate computer run.
b. The use of a database structure.
c. Decision table.
d. Data flow diagram.
e. Systems survey.

23. Which of the following statements is not correct?

a. Database systems resolve task data dependency.
b. The flat-file model approach uses one common database to promote the concept of single user view.
c. The database approach uses one common database to promote the concept of single user view.
d. A primary goal of database systems is to minimize data redundancy.
e. Database systems provide increased accessibility to data and data integration.

CHAPTER 3

1. Management can expect various benefits to follow from implementing a system of strong internal control.
Which of the following benefits is least likely to occur?
a. reduction of cost of an external audit
b. prevention of employee collusion to commit fraud
c. availability of reliable data for decision-making purposes
d. some assurance of compliance with the Foreign Corrupt Practices Act of 1977
e. some assurance that important documents and records are protected

2. Which of the following situations is NOT a segregation of duties violation?

a. The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to
run the check-signing machine.
b. The warehouse clerk, who has custodial responsibility over inventory in the warehouse, selects the
vendor and authorizes purchases when inventories are low.
c. The sales manager has the responsibility to approve credit and the authority to write off accounts.
d. The department time clerk is given the undistributed payroll checks to mail to absent employees.
e. The accounting clerk who shares the recordkeeping responsibility for the accounts receivable subsidiary
ledger performs the monthly reconciliation of the subsidiary ledger and the control account.

3. The underlying assumption of reasonable assurance regarding implementation of internal control means
that
a. auditor is reasonably assured that fraud has not occurred in the period.
b. auditors are reasonably assured that employee carelessness can weaken an internal control structure.
c. implementation of the control procedure should not have a significant adverse effect on efficiency or
profitability.
d. management assertions about control effectiveness should provide auditors with reasonable assurance.
e. a control applies reasonably well to all forms of computer technology.
4. To conceal the theft of cash receipts from customers in payment of their accounts, which of the following
journal entries should the bookkeeper make?
DR CR
a. Miscellaneous Expense Cash
b. Petty Cash Cash
c. Cash Accounts Receivable
d. Sales Returns Accounts Receivable
e. None of the above

5. Which of the following controls would best prevent the lapping of accounts receivable?
a. Segregate duties so that the clerk responsible for recording in the accounts receivable subsidiary ledger
has no access to the general ledger.
b. Request that customers review their monthly statements and report any unrecorded cash payments.
c. Require customers to send payments directly to the company’s bank.
d. Request that customers make checks payable to the company.

6. Providing timely information about transactions in sufficient detail to permit proper classification and
financial reporting is an example of
a. the control environment.
b. risk assessment.
c. information and communication.
d. monitoring.

7. Ensuring that all material transactions processed by the information system are valid and in accordance
with management’s objectives is an example of
a. transaction authorization.
b. supervision.
c. accounting records.
d. independent verification.

8. Which of the following is often called a compensating control?

a. transaction authorization
b. supervision
c. accounting records
d. independent verification

9. Which of the following is NOT an element of the fraud triangle?

a. ethics
b. justifiable reliance
c. situational pressure
d. opportunity

10. The fraud scheme that is similar to the ‘‘borrowing from Peter to pay Paul’’ scheme is
a. expense account fraud.
b. bribery.
c. lapping.
d. transaction fraud.
11. Computer applications use routines for checking the validity and accuracy of transaction data called
Edit programs

12. How does a real-time file processing system edit individual transactions?
Takes place in online mode as transactions are entered.

13. Which of the following is an example of an input control?

Recalculating an amount to ensure its accuracy.

14. A control designed to validate a transaction at the point of data entry is

a. A record count.
b. A check digit.
c. Recalculation of the hash total.
d. Recalculation of a batch total.
e. Check points.

15. In a computer system, how are accounting reports posted?

Transaction file is updated to a master file.

16. An employee in a receiving department keyed in a shipment from a remote terminal and inadvertently
omitted the purchase order number. The best system control to detect this error would be a
Completeness test.

17. Passive techniques designed to reduce the frequency of occurrence of undesirable events are
a. IT controls
b. corrective controls
c. application controls
d. preventative controls
e. detective controls

18. Devices, techniques, and procedures designed to identify and expose undesirable events are
a. IT controls
b. corrective controls
c. application controls
d. preventative controls
e. detective controls

19. Which of the following is not a component of the COSO framework?

a. control activities
b. monitoring
c. control environment
d. risk assessment
e. database management
20. Which piece of legislation requires management of public companies to assess the effectiveness of the
organization’s internal controls?
a. SAS 109
b. SOX 404
c. PCAOB
d. SOX

21. Which of the following is not a type of physical control?

a. segregation of duties
b. IT controls
c. accounting records
d. supervision
e. access control

22. An auditor should report to:

a. controller
b. CEO
c. COO
d. either a, b, or c
e. Audit Committee of the Board of Directors