ACC 474 Exam 3
Which of the following will limit a firm's potential loss exposure from paycheck forgery? A) A separate payroll bank account. B) Prompt redeposit of unclaimed paychecks. C) Direct deposit of checks. D) Segregation of check distribution from payroll duties.
A) A separate payroll bank account.
Why might an organization find it most beneficial to involve accountants in product design? A) Because generally at least 65% of product costs are determined in the design stage and accountants can help minimize product costs B) Because involving accountants in product design boosts firm morale C) Because accountants are generally able to identify what consumers want in a new product D) Because accountants are generally able to improve the quality of new products
A) Because generally at least 65% of product costs are determined in the design stage and accountants can help minimize product costs
The threat of violation of employment laws relates directly to which activity? A) Hiring and recruiting. B) Payroll processing. C) The collection employee time data. D) Benefit processing.
A) Hiring and recruiting.
Traditionally, what did manufacturing firms use to track the amount of time a worker spends on each specific task? A) Job-time ticket. B) Punch card. C) RFID tags. D) Sign-in sheet.
A) Job-time ticket
Which type of payroll report contains information such as the employees' gross pay, payroll deductions, and net pay in a multicolumn format? A) Payroll register. B) Deduction register. C) Employee earnings statement. D) Federal W-4 form.
A) Payroll register.
Which of the following controls can minimize the threat of theft or fraudulent distribution of paychecks? A) Redepositing unclaimed paychecks and investigating cause. B) Issuing earnings statements to employees. C) Using biometric authentication. D) Conducting criminal background investigation checks of all applicants for finance related positions.
A) Redepositing unclaimed paychecks and investigating cause.
The acronym "RFP" stands for what? A) Request for Proposal B) Request for Project C) Request for Processing D) Request for Purchase
A) Request for Proposal
When a customer places an order (on account) for a certain product, what should be done before the order is checked for inventory availability? A) The customer's available credit should be checked. B) Shipping should be notified of an order in process. C) The sales order should be created and written to a file. D) A picking list should be generated for the warehouse.
A) The customer's available credit should be checked.
A number that enables customers to remit payments via an ACH credit without requiring the seller to divulge detailed information about its bank account is called A) UPIC. B) UPC C) EFT. D) EFDI.
A) UPIC.
A clerk at a grocery store scanned the bar code for a low cost bag of frozen chicken wings then gave his friend an expensive brand-name bag of frozen chicken wings. Which of the following controls would best prevent the clerk from getting away with doing this? A) Use of RFID tags. B) Physical inventory count. C) Limited physical access to bar codes. D) Segregation of duties.
A) Use of RFID tags.
The risks associated with over-production are likely of greatest concern to which company below? A) a manufacturer that produces designer clothing B) a manufacturer of printer paper C) a mailbox manufacturer D) a cereal manufacturer
A) a manufacturer that produces designer clothing
Source data automation is often effective in reducing A) accuracy. B) unintentional errors. C) intentional errors. D) theft.
A) accuracy (or unintentional errors)
Auditors have several techniques available to them to test computer-processing controls. An audit technique that immediately alerts auditors of suspicious transactions is known as A) an audit hook. B) the snapshot technique. C) reperformance. D) a SCARF.
A) an audit hook.
At the end of each production run, preventive maintenance is done on the assembly line. The expenses associated with this maintenance are ________ overhead. A) batch-related B) product-related C) company wide D) department-based
A) batch-related
Duc An Incorporated provides free coffee to employees. Starbucks delivers coffee packages, sugar, creamer, and filters each week. Every month, Starbucks sends Duc An an invoice. This arrangement is best described as a A) blanket purchase order. B) set purchase order. C) fixed purchase order. D) standard purchase order.
A) blanket purchase order.
In an Activity-Based Costing (ABC) system, a cause-and-effect relationship is known as a A) cost driver. B) cost stimulator. C) cost catalyst. D) overhead stimulator.
A) cost driver.
To ensure proper segregation of duties, only the ________ has authority to issue credit memos. A) credit manager B) accounts receivable supervisor C) cashier D) controller
A) credit manager
The possibility that a material error will occur even though auditors are following audit procedures and using good judgment is referred to as A) detection risk. B) control risk. C) investigating risk. D) inherent risk.
A) detection risk
An accounts receivable aging report is useful for doing everything except A) estimating future sales. B) deciding whether to increase a specific customer's credit limit. C) estimating bad debts. D) projecting the timing of future cash flows.
A) estimating future sales.
The cost of a product liability claim can be classified as a(n) A) external failure cost. B) inspection cost. C) internal failure cost. D) prevention cost.
A) external failure cost.
Just-In-Time (JIT) inventory is best characterized by A) frequent deliveries of smaller quantities of items to the work centers. B) frequent deliveries of large quantities to be held at the work centers. C) less frequent deliveries of large quantities of goods to central receiving. D) infrequent bulk deliveries of items directly to work centers.
A) frequent deliveries of smaller quantities of items to the work centers.
Restricting access to the approved supplier list can A) help reduce the risk of fraudulent disbursements. B) eliminate the risk of duplicate payment. C) improve the efficiency of the expenditure cycle. D) cause purchase order approval delays.
A) help reduce the risk of fraudulent disbursements.
What is the main reason a list of potential alternative suppliers be maintained? A) in case the primary supplier is out of stock B) in case the primary supplier is more expensive C) so the firm can sample different suppliers D) to segregate purchasing suppliers
A) in case the primary supplier is out of stock
The ________ audit reviews the general and application controls of an AIS to assess its compliance with internal control policies and procedures and its effectiveness in safeguarding assets. A) information systems B) internal control C) financial D) management
A) information systems
Inserting a dummy entity in a company's system; processing test transactions to update that will not affect actual records is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks.
A) integrated test facility
Which of the following is not a general threat to the revenue cycle? A) loss of customers B) inaccurate master data C) unauthorized disclosure of sensitive information D) poor performance
A) loss of customers
The ________ authorizes the transfer of raw materials from the storeroom to the production floor. A) materials requisition B) production order C) move ticket D) bill of materials
A) materials requisition
A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices. This describes the ________ method. A) open-invoice B) cycle billing C) monthly statement D) balance forward
A) open-invoice
A(n) ________ audit is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives. A) operational or management B) internal control C) financial D) information systems
A) operational or management
The information systems audit objective that pertains to protect computer equipment, programs, communications, and data from unauthorized access, modification, or destruction is known as A) overall security. B) program development. C) program modifications. D) processing.
A) overall security.
Payroll deductions fall into the broad categories of ________ and ________. A) payroll tax withholdings; voluntary deductions B) unemployment taxes; income taxes C) unemployment; social security taxes D) voluntary deductions; income taxes
A) payroll tax withholdings; voluntary deductions
Increasing the effectiveness of internal controls would have the greatest effect on A) reducing control risk. B) reducing inherent risk. C) reducing audit risk. D) reducing detection risk.
A) reducing control risk.
Increasing the effectiveness of internal controls would have the greatest effect on A) reducing control risk. B) reducing audit risk. C) reducing inherent risk. D) reducing detection risk.
A) reducing control risk.
One way a firm could reduce the risk of problems with supplier dependability is to A) require suppliers to be ISO 9000 certified. B) purchase inventory from only U.S.-based suppliers. C) automate the purchasing function. D) use an ERP system for purchases.
A) require suppliers to be ISO 9000 certified.
Control risk is defined as the A) risk that a material misstatement will get through the internal control structure and into the financial statements. B) risk auditors will not be given the appropriate documents and records by management who wants to control audit activities and procedures. C) risk that auditors and their audit procedures will not detect a material error or misstatement. D) susceptibility to material risk in the absence of controls.
A) risk that a material misstatement will get through the internal control structure and into the financial statements.
The ________ to auditing provides auditors with a clear understanding of possible errors and irregularities and the related risks and exposures. A) risk-based approach B) financial audit approach C) risk-adjusted approach D) information systems approach
A) risk-based approach
When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that variables defined during the early part of development become irrelevant. The occurrences of variables that are not used by the program can be found using A) scanning routines. B) mapping programs. C) program tracing. D) embedded audit modules.
A) scanning routines
The document that lists each employee's gross pay, payroll deductions, and net pay in a multicolumn format is called A) the payroll register. B) a deduction register. C) an employee earnings statement. D) an employee time sheet summary.
A) the payroll register.
A receiving clerk notes that a delivery of 10 units has been received, but the purchase order specified 12 units. A debit memo will need to be prepared to adjust for the difference between the quantity ordered and received. Who should prepare this document? A) the purchasing department manager B) the controller C) the vendor D) the receiving clerk
A) the purchasing department manager
An auditor sets an embedded audit module to flag all credit transactions in excess of $5,000. The flag causes the system state to be recorded before and after each transaction is processed. The auditor is using A) the snapshot technique. B) an integrated test facility. C) a system control audit review file. D) audit hooks.
A) the snapshot technique.
The purpose of a general ledger payroll clearing account is A) to check the accuracy and completeness of payroll recording and its allocation to cost centers. B) to make sure that all employees are paid correctly each week. C) to make the bank reconciliation easier. D) to prevent the cashier from having complete control of the payroll cycle.
A) to check the accuracy and completeness of payroll recording and its allocation to cost centers.
A type of business document in which part of the original document is returned to the source for further processing is called a ________ document. A) turnaround B) closed-loop C) feedback D) returnable
A) turnaround
The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast sweater sales by linking in to PetCo's sales database. GRCCo will then be responsible for shipping products to PetCo as needed. The relationship between GRCCo and PetCo is an example of A) vendor-managed inventory. B) electronic data interchange. C) sales force automation. D) optical character recognition.
A) vendor-managed inventory.
Which of the following is generally not a major source of input to a payroll system? A) Payroll rate changes. B) Checks to insurance and benefits providers. C) Withholdings and deduction requests from employees. D) Time and attendance data.
B) Checks to insurance and benefits providers.
Which of the following controls can minimize the threat of mistakes in counting incoming inventory? A) The use of positive pay. B) Do not inform receiving employees about quantity ordered. C) The use of ERS. D) Perpetual inventory system.
B) Do not inform receiving employees about quantity ordered.
Why is a separate payroll account used to clear payroll checks? A) To separate payroll and expense checks. B) For internal control purposes, to help limit any exposure to loss by the company. C) To make bank reconciliation easier. D) All of the above are correct.
B) For internal control purposes, to help limit any exposure to loss by the company.
Which of the following control can reduce the distribution of fraudulent paychecks? A) Allow department managers to investigate unclaimed paychecks. B) Have internal audit investigate unclaimed paychecks. C) Match up all paychecks with time cards. D) Immediately mark "void" across all unclaimed paychecks.
B) Have internal audit investigate unclaimed paychecks.
Which of the following controls can minimize the threat of errors in processing payroll? A) Redepositing unclaimed paychecks and investigating cause. B) Issuing earnings statements to employees. C) Using biometric authentication. D) Conducting criminal background investigation checks of all applicants for finance related positions.
B) Issuing earnings statements to employees.
Organizing the audit team and the physical examination of assets are components of which two separate audit stages? A) Planning; evaluating audit evidence. B) Planning; collecting audit evidence. C) Communicating audit results; evaluating audit evidence. D) Collecting audit evidence; communicating audit results.
B) Planning; collecting audit evidence.
Procurement cards differ from corporate credit cards in which of the following ways? A) Procurement card invoices are sent separately for each card, whereas corporate credit cards are consolidated into a single invoice. B) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere. C) Credit cards can be used to make purchases without an explicit sign off by supervisors, but procurement cards require a sign off. D) Credit limits can be set for procurement cards, but not corporate credit cards.
B) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere.
Which objective listed below is not a cost accounting objective for the production cycle? A) Provide cost data about products used in pricing and product mix decisions. B) Provide tests of audit control functions as part of the AIS. C) Provide information for planning, controlling, and evaluating the performance of production operations. D) Collect and process the information used to calculate inventory and cost of goods sold amounts that appear in the financial statements.
B) Provide tests of audit control functions as part of the AIS.
The best solution for maintaining accurate automated perpetual inventory system is to use A) closed-loop verification when inventory is received from vendors and recorded. B) RFID tags. C) point of sale devices integrated with inventory records. D) periodic physical counts to reconcile with perpetual inventory records.
B) RFID tags.
Consider the following revenue cycle scenario: The company has been exposed to customer dissatisfaction and the suggested control procedure to be implemented is to install and use bar-code scanners. What is the threat? A) The company may be shipping orders to the wrong address. B) The company may be shipping the wrong merchandise. C) The company may be shipping the wrong quantities of merchandise. D) All of the above threats may apply to this scenario.
B) The company may be shipping the wrong merchandise.
Which of the following controls can minimize the threat of theft of inventory? A) The use of innovative performance metrics. B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities. C) The use of encryption. D) The use of production planning systems.
B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities.
What is the purpose of an information systems audit? A) To examine the reliability and integrity of accounting records. B) To review and evaluate the internal controls that protect the system. C) To examine whether resources have been used in an economical and efficient manner in keeping with organization goals and objectives. D) To determine the inherent risk factors found in the system.
B) To review and evaluate the internal controls that protect the system.
What specific control can help restrict the rights of authorized users to only the portion of a database needed to complete their specific job duties? A) passwords and user IDs B) an access control matrix C) closed-loop verification D) specific authorization
B) an access control matrix
An auditor calculates the current ratio of the company to determine its ability to pay off its current financial obligation. This is an example of A) vouching. B) analytical review. C) confirmation. D) review of the documentation.
B) analytical review.
The evidence collection method that considers the relationships and trends among information to detect items that should be investigated further is called A) review of the documentation. B) analytical review. C) physical examination. D) vouching.
B) analytical review.
The purpose of ________ is to determine why, how, when, and who will perform the audit. A) the communication of audit results B) audit planning C) the collection of audit evidence D) the evaluation of audit evidence
B) audit planning
How does an MRP inventory system reduces inventory levels? A) by computing the exact costs of purchasing and carrying inventory B) by reducing the uncertainty regarding when materials are needed C) by receiving materials exactly when needed and in exact quantities D) none of the above
B) by reducing the uncertainty regarding when materials are needed
A surprise count of an imprest petty cash fund should find the total of ________ equal to the amount authorized for the fund. A) cash and checks B) cash and vouchers C) cash and credit memos D) cash
B) cash and vouchers
Auditing involves the A) testing, documentation, and certification of audit evidence. B) collection, review, and documentation of audit evidence. C) collection of audit evidence and approval of economic events. D) planning and verification of economic events.
B) collection, review, and documentation of audit evidence.
Verifying the accuracy of certain information, often through communication with third parties, is known as A) substantiation. B) confirmation. C) documentation. D) reperformance.
B) confirmation.
Regularly reviewing an accounts receivable aging report can help management do what? A) determine whether the firm's pricing policy is effective B) determine whether changes are needed in the firm's credit policies C) improve the speed which customers make payments D) identify customers who have not purchased anything lately
B) determine whether changes are needed in the firm's credit policies
Customers that send their payments electronically directly to the billing company's bank are using A) electronic data interchange (EDI). B) electronic funds transfer (EFT). C) procurement cards. D) an electronic lockbox
B) electronic funds transfer (EFT).
Once a vendor is selected for a product, the vendor's identity is recorded in the A) inventory transaction file. B) inventory master file. C) purchase requisition transaction file. D) purchase requisition master file.
B) inventory master file.
Bogumil Distributors is an Internet-based wholesaler. Customers enter their orders online. The manager of Cezary Foods was entering an order when the following error message popped up: "Your order exceeds your available credit. You will be contacted within 8 hours." This message is the result of a A) reasonableness test. B) limit check. C) sign check. D) validity check.
B) limit check.
Before a shipping notice is prepared during the revenue cycle, shipping department personnel should match the inventory received from the warehouse to the A) sales order and bill of lading. B) picking ticket and sales order. C) sales order. D) picking tickets.
B) picking ticket and sales
Yasamin Roshni owns and operates a small deli in Miami, Florida. Each morning she prepares a list that describes the quantity and variety of subs that will be prepared during the day. This list is an example of a(n) A) bill of materials. B) production order. C) operations list. D) materials requisition.
B) production order.
The auditor's objective is to seek ________ that no material error exists in the information audited. A) absolute reliability B) reasonable assurance C) reasonable objectivity D) reasonable evidence
B) reasonable assurance
The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size fits all pajama tops, the following error message popped up: "Did you mean to enter a quantity of 1000 for your order?" This message is the result of a A) validity check. B) reasonableness test. C) limit check. D) closed-loop verification.
B) reasonableness test.
The ________ specifies the point at which inventory is needed. A) economic order quantity B) reorder point C) stockout point D) company inventory policies
B) reorder point
What information is necessary to create the master production schedule? A) engineering department specifications and sales forecasts B) sales forecasts, special orders information, and inventory levels C) engineering department specifications and inventory levels D) special orders information and engineering department specifications
B) sales forecasts, special orders information, and inventory levels
Which of the following is not an activity performed in the expenditure cycle? A) receiving B) shipping C) cash disbursement D) ordering
B) shipping
One of the basic activities in the expenditure cycle is the receiving and storage of goods, supplies, and services. What is the counterpart of this activity in the revenue cycle? A) sales order entry process B) shipping function C) cash collection activity D) cash payments activity
B) shipping function
The ________ procedure for auditing computer process controls uses a hypothetical series of valid and invalid transactions. A) dual process B) test data processing C) integrated test facility D) concurrent audit techniques
B) test data processing
For strongest segregation of duties, the credit manager should never report to A) the IT department. B) the marketing department. C) the credit department. D) the accounting department.
B) the marketing department.
With regards to an accounting information system, a financial audit is most concerned with A) the system's input. B) the system's output. C) the system's storage. D) the system's processing.
B) the system's output.
The payroll transaction file should contain A) changes in tax rates. B) time card data. C) entries to add new hires. D) All of the above are correct.
B) time card data.
Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a A) field check. B) validity check. C) reasonableness test. D) completeness test.
B) validity check.
Which of the following factors is not of key importance when selecting inventory suppliers? A) product price B) vendor corporate structure C) product quality D) vendor delivery dependability
B) vendor corporate structure
An organization that has an antiquated accounting information system has more ________ risk than an organization that has a more advanced system. A) detection B) investing C) control D) inherent
C) control
Which of the following controls can minimize the threat of theft of inventory? A) Separation of billing and shipping functions. B) Use of cash registers. C) Bar-code and RFID technology. D) Restriction of access to master data.
C) Bar-code and RFID technology.
The auditor uses ________ to continuously monitor the system and collect audit evidence while live data are processed. A) analysis of program logic B) test data processing C) concurrent audit techniques D) parallel simulation
C) concurrent audit techniques
________ can determine whether the necessary control procedures are in place. A) Tests of controls B) A systems overhaul C) A systems review D) Both B and C
C) A systems review
How could auditors determine if unauthorized program changes have been made? A) By interviewing and making inquiries of the programming staff. B) By interviewing and making inquiries of recently terminated programming staff. C) By using a source code comparison program. D) By examining the systems design and programming documentation.
C) By using a source code comparison program.
Which control would be most appropriate to address the problem of inaccurate payroll processing? A) An imprest payroll checking account. B) Redepositing unclaimed paychecks and investigating cause. C) Cross-footing of the payroll register. D) Segregation of duties: HRM department updates master data, but only payroll department issues paychecks.
C) Cross-footing of the payroll register.
Identify the item below that is not a desired result of an employee bonus system. A) Employees may analyze their work environment and find ways to cut costs. B) Employees may work harder and may be more motivated to exceed target goals to earn a bonus. C) Employees may recommend unnecessary services to customers in order to exceed set sales quotas and earn a bonus. D) Employees may look for ways to improve service.
C) Employees may recommend unnecessary services to customers in order to exceed set sales quotas and earn a bonus.
Which type of work listed below is not typical of internal auditors? A) Financial audit of accounting records. B) Operational and management audits. C) Financial statement audit. D) Information system audits.
C) Financial statement audit.
How can CAD software help improve the efficiency and effectiveness of the product design process? A) It can simulate how new products will be manufactured. B) It can store all the data associated with all products. C) It can eliminate the costs associated with creating and destroying physical prototypes. D) All of the above
C) It can eliminate the costs associated with creating and destroying physical prototypes.
Which of the following would probably be the least effective control to mitigate the risk of paying a phony invoice payable for inventory purchases that were never made? A) Cancel all invoices and supporting documentation when paid. B) Establish strict access and authorization controls for the approved vendor master file. C) Only pay from original invoices. D) Require three-way match for all inventory purchase invoices.
C) Only pay from original invoices.
________ is not a basic activity of the revenue cycle. A) Sales order entry B) Shipping C) Receiving D) Billing
C) Receiving
What does the first term in the throughput formula, productive capacity, represent? A) The minimum number of units that can be produced given current technology. B) The percentage of "good" units produced given current technology. C) The maximum number of units that can be produced given current technology. D) The percentage of total production time used to manufacture a product.
C) The maximum number of units that can be produced given current technology.
The AIS compiles and feeds information among the business cycles. What is the relationship between the revenue and production cycles regarding the exchange of information? A) The revenue cycle receives information from the production cycle about raw materials needs. B) The production cycle sends cost of goods manufactured information back to the revenue cycle. C) The revenue cycle provides sales forecast and customer order information to the production cycle, but the production cycle sends information back to revenue about finished goods production. D) The production cycle does not exchange information with the revenue cycle.
C) The revenue cycle provides sales forecast and customer order information to the production cycle, but the production cycle sends information back to revenue about finished goods production.
Which of the following is not one way CAATS could be used? A) To query data files to retrieve records meeting specified criteria. B) To merge files. C) To process electronic transactions. D) To test files for specific risks.
C) To process electronic transactions.
What is the purpose of an information systems audit? A) To examine the reliability and integrity of accounting records. B) To examine whether resources have been used in an economical and efficient manner in keeping with organization goals and objectives. C) To review and evaluate the internal controls that protect the system. D) To determine the inherent risk factors found in the system.
C) To review and evaluate the internal controls that protect the system.
Which is the best control to prevent invoicing customers for more than the actual quantity shipped? A) Use the information from the bill of lading to prepare the sales invoice. B) Use the information from the picking ticket to prepare the sales invoice. C) Use the information from the packing slip to prepare the sales invoice. D) Use the information from the sales order to prepare the sales invoice.
C) Use the information from the packing slip to prepare the sales invoice.
To accomplish the objectives set forth in the expenditure cycle, a number of key management decisions must be addressed. Which of the decisions below is not ordinarily found as part of the expenditure cycle? A) What is the optimal level of inventory and supplies to carry on hand? B) How can cash payments to vendors be managed to maximize cash flow? C) What are the optimal prices for each product or service? D) Where should inventories and supplies be held?
C) What are the optimal prices for each product or service?
Identify one control that can be used to mitigate the threat of poor product design that results in excess costs. A) encryption B) insurance C) analysis of warranty and repair costs D) production planning systems
C) analysis of warranty and repair costs
An auditor calculates the current ratio of the company to determine its ability to pay off its current financial obligation. This is an example of A) confirmation. B) review of the documentation. C) analytical review. D) vouching.
C) analytical review.
The purpose of ________ is to determine why, how, when, and who will perform the audit. A) the evaluation of audit evidence B) the communication of audit results C) audit planning D) the collection of audit evidence
C) audit planning
The ________ is a legal contract that defines responsibility for goods that are in transit. A) back order B) packing slip C) bill of lading D) picking list
C) bill of lading
As each payroll transaction is processed, the system should also A) use cumulative totals generated from a payroll to create a summary journal entry to be posted to the general ledger B) allocate labor costs to appropriate general ledger accounts C) both A and B above D) The HRM system should not perform either activity A or B.
C) both A and B above
A payroll clearing account is used to A) eliminate the need to manually record payroll transactions. B) speed up payroll transaction processing. C) check the accuracy of payroll costs. D) reduce the transaction costs associated with payroll transaction processing.
C) check the accuracy of payroll costs.
When a control deficiency is identified, the auditor should inquire about A) tests of controls. B) the feasibility of a systems review. C) compensating controls. D) materiality and inherent risk factors.
C) compensating controls.
During the sales order entry process, a ________ is performed to verify that each transaction record contains all appropriate data items. A) redundant data check B) reasonableness test C) completeness test D) field check
C) completeness test
The use of various forms of information technology in the production process is referred to as A) computer intense manufacturing. B) computerized integration of machines. C) computer-integrated manufacturing. D) computerized investments and machines.
C) computer-integrated manufacturing.
Manufacturing overhead is best described as A) costs that cannot be traced directly to specific jobs or processes. B) costs that are economically feasible to trace directly to specific jobs or processes. C) costs that are not economically feasible to trace directly to specific jobs or processes. D) costs that management has decided not to trace directly to specific jobs or processes.
C) costs that are not economically feasible to trace directly to specific jobs or processes.
An organization can implement which of the following controls to reduce the threat of inventory theft or damage? A) improved and more timely reporting B) review and approval of fixed asset acquisitions C) document all movement of inventory through the production process D) better production and planning systems
C) document all movement of inventory through the production process
The ________ audit examines the reliability and integrity of accounting records. A) informational B) information systems C) financial D) operational
C) financial
A system that employs various types of advanced technology has more ________ risk than traditional batch processing. A) detection B) investing C) inherent D) control
C) inherent
For recording time spent on specific work projects, manufacturing companies usually use a A) time clock. B) labor time card. C) job time ticket. D) time card.
C) job time ticket.
The packing slip A) lists the quantity, price, and description of each item included in the shipment. B) lists the quantity and price of each item included in the shipment. C) lists the quantity and description of each item included in the shipment. D) lists the price and description of each item included in the shipment.
C) lists the quantity and description of each item included in the shipment.
The traditional approach to inventory management generally involves A) minimizing item cost. B) receiving goods or services just prior to the time they are needed. C) maintaining inventory levels so that production can continue even if inventory use is greater than expected. D) high stockout costs.
C) maintaining inventory levels so that production can continue even if inventory use is greater than expected.
The ________ is the production cycle document that specifies the quantity of each product to be produced and when production should begin. A) bill of lading B) operations list C) master production schedule D) receiving report
C) master production schedule
All of the following regarding payroll checks is correct except A) payroll checks should be sequentially pre-numbered. B) access to payroll checks should be restricted. C) payroll checks should be drawn on the organization's regular bank account(s). D) the cashier should sign payroll checks.
C) payroll checks should be drawn on the organization's regular bank account(s).
The information systems audit objective that pertains to having management's authorization and approval is known as A) overall security. B) program development. C) program modifications. D) processing.
C) program modifications
During the sales order entry process, a ________ is performed to compare the quantity ordered with the standard amounts normally ordered. A) completeness test B) redundant data check C) reasonableness test D) field check
C) reasonableness test
What is a key feature of materials requirements planning (MRP)? A) determine the optimal reorder point B) determine the optimal order size C) reduce required inventory levels by scheduling production rather than estimating needs D) minimize or entirely eliminate carrying and stockout costs
C) reduce required inventory levels by scheduling production rather than estimating needs
An auditor manually calculates accumulated depreciation on a delivery van and compares her calculation with the accounting records. The auditor is performing A) analytical review. B) vouching. C) reperformance. D) confirmation.
C) reperformance.
Using embedded audit modules to continuously monitor transactions, collect data on transactions with special audit significance, and store the data to later identify and investigate questionable transactions is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks.
C) system control audit review file
When would an MRP inventory approach be preferred to a JIT inventory approach? A) when a product has a short life cycle B) when demand for inventory is very unpredictable C) when demand for inventory is fairly predictable D) MRP is always a preferred method over JIT.
C) when demand for inventory is fairly predictable
In a revenue cycle with proper controls, the ________ who reports to the ________, is not involved in any cash handling activities. A) cashier; treasurer B) accounts receivable clerk; treasurer C) cashier; controller D) accounts receivable clerk; controller
D) accounts receivable clerk; controller
If available, a 1% discount for payment within 10 days instead of 30 days represents an approximate savings of ________% annually. A) 12 B) 36 C) 1 D) 18
D) 18
What is not a typical responsibility of an external auditor? A) Assisting in the design and implementation of an AIS. B) Preparation of the company's financial statements. C) Helping management to improve organizational effectiveness. D) All of the above.
D) All of the above.
What is not a typical responsibility of an external auditor? A) Preparation of the company's financial statements. B) Helping management to improve organizational effectiveness. C) Assisting in the design and implementation of an AIS. D) All of the above.
D) All of the above.
The results of an internal audit finds that there is a problem with inaccurate time data being entered into the payroll system. What is an applicable control that can help prevent this event from occurring in the future? A) Review of appropriate performance metrics. B) Sound hiring procedures. C) Proper segregation of duties. D) Automation of data collection.
D) Automation of data collection.
A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is A) e-commerce. B) to use procurement cards. C) an electronic lockbox. D) Financial Electronic Data Interchange.
D) Financial Electronic Data Interchange.
What is a test data generator? A) It is an application that records how well systems personnel have performed on company competency examinations. B) It is an application that records which professional examinations systems personnel have obtained. C) It is a backup generator application that can be used to generate data if the original storage device fails. D) It is an application that prepares data that can be used for auditing the effectiveness of computer processing.
D) It is an application that prepares data that can be used for auditing the effectiveness of computer processing.
Which of the following is not a product design objective? A) Design a quality product. B) Design a product that meets customer requirements. C) Minimize production costs. D) Make the design easy to track for cost accounting purposes.
D) Make the design easy to track for cost accounting purposes.
Who generally receives the findings and conclusions of an operational audit? A) The external auditor. B) The IRS. C) The board of directors. D) Management.
D) Management.
What is the best way to prevent the acceptance of goods that were never ordered? A) Require specific authorization from the purchasing manager before accepting any goods. B) Enforce an appropriate conflict of interest policy in place. C) Order only from approved vendors. D) Match the packing slip to a purchase order before accepting delivery.
D) Match the packing slip to a purchase order before accepting delivery.
his document appears to be a A) Production Order. B) Move Ticket between production and warehouse functions. C) Bill of Materials. D) Materials Requisition.
D) Materials Requisition.
Which statement below is incorrect regarding program modifications? A) During the change process, the developmental version of the program must be kept separate from the production version. B) When a program change is submitted for approval, a list of all required updates should be compiled and then approved by management and program users. C) After the modified program has received final approval, the change is implemented by replacing the developmental version with the production version. D) Only material program changes should be thoroughly tested and documented.
D) Only material program changes should be thoroughly tested and documented.
Which of the following is a control that addresses the threat of unauthorized changes to the payroll master file? A) Sound hiring procedures. B) Biometric authentication. C) Restriction of access to the EFT system. D) Segregation of duties.
D) Segregation of duties.
The accounts receivable clerk destroys all invoices for sales made to family and friends and does not record the sales in the accounts receivable subsidiary ledgers. The family and friends usually give the clerk cash as a "thank you." Which procedure will not prevent or detect this fraud? A) Reconcile sales invoices in the billing department to the total debits to accounts receivable subsidiary ledgers. B) Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger. C) Sequentially prenumber all invoices and prepare a sequence check at the end of each day. D) Send monthly statements to all customers with balances owed.
D) Send monthly statements to all customers with balances owed.
What is a typical procedure for processing sales orders from new customers or customers making a purchase that causes their credit limit to be exceeded? A) The sales clerk should order a report from a credit bureau before approving the order. B) General authorization to approve the order is given to sales clerks. C) The sale should be rejected. D) Specific authorization must be granted by the credit manager.
D) Specific authorization must be granted by the credit manager.
A "zero balance check" refers to which of the following control procedures? A) The ACH clearing account shows a zero balance once all entries are posted. B) trial balance showing that debits equal credits C) cross-footing the payroll register D) The payroll clearing account shows a zero balance once all entries are posted.
D) The payroll clearing account shows a zero balance once all entries are posted.
Which of the following controls can minimize the threat of over- and underproduction? A) The use of innovative performance metrics. B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities. C) The use of encryption. D) The use of production planning systems.
D) The use of production planning systems.
Which of the following is not a key decision that needs to be made in the revenue cycle? A) How should merchandise be delivered to customers? B) How can customer payments be processed to maximize cash flow? C) Should credit be extended to customers? D) Which vendor should inventory be purchased from?
D) Which vendor should inventory be purchased from?
One objective of accounts payable is to authorize payment only for goods or services actually ordered and received. The best way to process supplier invoices is to use A) EDI for all small, occasional purchases from suppliers. B) a nonvoucher system. C) electronic funds transfer for small, occasional purchases from suppliers. D) a disbursement voucher system.
D) a disbursement voucher system.
A type of software that auditors can use to analyze program logic and detect unexecuted program code is A) a scanning routine. B) program tracing. C) an audit log. D) a mapping program.
D) a mapping program.
Identify the role below that accountants can play in the production cycle. A) help an organization choose an inventory control system B) perform cost analysis C) participate in product design D) all of the above
D) all of the above
The operations list shows A) the time expected to complete each step or operation. B) the labor and machine requirements. C) the steps and operations in the production cycle. D) all of the above
D) all of the above
Audit routines that notify auditors of questionable transactions, often as they occur is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks.
D) audit hooks.
In the ________ method of tracking accounts receivable, customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance. A) specific identification B) remittance advice C) open-invoice D) balance forward
D) balance forward
The disbursement voucher and supporting documents are sent to the ________ for payment prior to the due date. A) controller B) treasurer C) accounts payable department D) cashier
D) cashier
When a control deficiency is identified, the auditor should inquire about A) the feasibility of a systems review. B) materiality and inherent risk factors. C) tests of controls. D) compensating controls.
D) compensating controls.
Verifying the accuracy of certain information, often through communication with third parties, is known as A) reperformance. B) documentation. C) substantiation. D) confirmation.
D) confirmation.
An organization that has an antiquated accounting information system has more ________ risk than an organization that has a more advanced system. A) detection B) investing C) inherent D) control
D) control
If a firm does not use an ERP, the best way to mitigate the risk of the destruction of master data is to A) use an ERP. B) use multiple master data files. C) proper segregation of duties. D) implement backup and disaster recovery procedures.
D) implement backup and disaster recovery procedures.
What control would best mitigate the threat of paying an invoice twice? A) maintaining adequate perpetual inventory records B) double-checking mathematical accuracy of invoices C) approval of purchase orders D) never authorizing payment of a photocopy of an invoice
D) never authorizing payment of a photocopy of an invoice
A(n) ________ system posts an approved invoice to the vendor account and stores it in an open invoice file until payment is made by check. A) voucher B) evaluated receipt settlement C) cycle D) nonvoucher
D) nonvoucher
A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) ________ method. A) specific identification B) balance forward C) cycle billing D) open-invoice
D) open-invoice
The scope of a(n) ________ audit encompasses all aspects of systems management. A) information systems B) financial C) internal control D) operational
D) operational
Laz Chance wears roller blades and headphones when he is at work at the Squishy Things Toy Company. He is a product packer. The headphones give him computer-generated instructions so he knows the location of each item and quantity that should be included in the order. These instructions are the equivalent of a A) packing slip. B) bill of lading. C) sales order. D) picking ticket.
D) picking ticket.
Detailed data about reasons for warranty and repair costs is considered an applicable control used to mitigate the threat of A) underproduction. B) overproduction. C) suboptimal investment of fixed assets. D) poor product design.
D) poor product design.
Although there are some similarities between JIT and MRP, identify one major difference below. A) reducing the opportunity for inventory theft B) requires more analysis than EOQ C) reducing inventory carrying costs D) production scheduling
D) production scheduling
A monthly statement sent to customers serves a control purpose by A) triggering the process to record a customer payment. B) reminding customers of the balance due and due date. C) summarizing invoices and amounts due for customers. D) providing an opportunity for customers to verify the balance owed and activity on the account.
D) providing an opportunity for customers to verify the balance owed and activity on the account.
The auditor's objective is to seek ________ that no material error exists in the information audited. A) absolute reliability B) reasonable objectivity C) reasonable evidence D) reasonable assurance
D) reasonable assurance
The basic document created in the billing process is call a ________. A) bill of lading B) packing list C) sales order D) sales invoice
D) sales invoice
The legitimacy of customer orders is established by ________ in paper-based customer orders. A) the customer's verbal authorization B) the customer's pin number C) prior experience with the customer D) the customer's signature
D) the customer's signature
A JIT inventory system would be especially useful for a company that manufactures A) toothpaste. B) alarm clocks. C) motor oil. D) toys associated with new movie releases.
D) toys associated with new movie releases.
An effective way an organization can eliminate paper paychecks while maintaining adequate accounting records is to A) pay with money orders. B) use Electronic Funds Transfer. C) pay in cash only. D) use direct deposit.
D) use direct deposit.
The evidence collection method that examines all supporting documents to determine the validity of a transaction is called A) review of documentation. B) physical examination. C) analytical review. D) vouching.
D) vouching.
T/F? Auditors have the ability to change control risk.
False
T/F? Auditors have the ability to change inherent risk.
False
T/F? During the evidence evaluation stage of an operational audit, the auditor measures the system against generally accepted accounting principles (GAAP).
False
T/F? One of the advantages of CAATS software is that it can replace the auditor's judgment in specific areas of an audit.
False
T/F? The bill of lading is a legal contract that defines responsibility for the goods in the company's warehouse.
False
T/F? There is a direct relationship between inherent risk and detection risk.
False
T/F? Auditors have the ability to change detection risk.
True
T/F? Auditors often use reperformance to test a company's internal control.
True
T/F? Embedded audit molecules can be used to continually monitor the system and collect audit evidence
True
T/F? There is an inverse relationship between control risk and detection risk.
True
