AIS Chapter 16 Problem 16.2, Chapter 3 Intermediate Accounting, Accounting Information Systems 14e Test 1

What are the 5 categories of adjusting entries?

-Accruals -Deferrals -Estimates -Revaluations -Corrections

What are 2 threats associated with Preparing Financial Statements?

-Creation of inaccurate financial statements -Fraudulent financial reporting

What sources does the general ledger and reporting system use to collect and organize data? (4)

-Each of the accounting subsystems -The treasurer provides information about financing and investing activities -The budget department provides budget numbers -The controller provides adjusting entries

What 2 tags are used for each element?

-First tag presents the element name inside a pair of angle brackets -The second tag also uses a pair of angle brackets but precedes the element name with a slash

What are 2 threats associated with Posting Adjusting Entries?

-Inaccurate adjusting entries -Unauthorized adjusting entries

What are 3 general threats to the general ledger and reporting system?

-Inaccurate or invalid general ledger data -Unauthorized disclosure of financial information -Loss or destruction of master data

What are 2 threats associated with Updating the General Ledger?

-Inaccurate updating of general ledger -Unauthorized journal entries

What are the 5 types of linkbases?

-Reference -Calculation -Definition -Presentation -Label

What 2 things does taxonomy include?

-Schema -Linkbases

What are 2 types of reconciliations?

-Trial Balance -Comparing the general ledger control account balances to the total balance in the corresponding ledger

What are the 4 activities of the general ledger and reporting system?

-Updating the General Ledger -Posting Adjusting Entries -Preparing Financial Statements -Producing Managerial Reports

Entries made at the end of the accounting period to reflect events that have occurred by for which cash has not yet been received or disbursed

Accruals

A path that allows a transaction to be traced through a data processing system from point of origin to output or backwards from output to point of origin

Audit Trail

What is a control that could be used to prevent the risk of fraudulent financial reporting during Preparing Financial Statements?

Audits

What is a control that could be used to mitigate the risk of loss or destruction of master data in the GL and reporting system?

Backup and disaster recovery procedures

Linkbase specifies how to combine elements

Calculation

The spreadsheet used to calculate accruals had an error in a formula. As a result, the controller's adjusting entry was for the wrong amount (threat)

Control: • Audit spreadsheets used to support journal entries

The general ledger master file is stored on disk. For some reason, the disk is no longer readable. It takes the accounting department a week to reenter the past month's transactions from source documents in order to create a new general ledger master file.

Control: • Backup files more frequently. • Create two copies of the backup files and store one on-site and the other off-site.

The controller forgot to make an adjusting entry to record depreciation (threat)

Control: • Create a set of standard adjusting entries

The controller sent a spreadsheet containing a preliminary draft of the income statement to the CFO by e-mail. An investor intercepted the e-mail and used the information to sell his stock in the company before news of the disappointing results became public.

Control: • Encrypt sensitive financial information when it is transmitted over the Internet.

A sales manager tipped off friends that the company's financial results, to be released tomorrow, were unexpectedly good (threat)

Control: • Implement access controls to prevent the sales manager from obtaining access to the general ledger and reporting system.

A company's XBRL business report was incorrect because the controller selected the wrong element from the taxonomy.

Control: • Train users on the proper use of the taxonomy to prevent this.. • Audit or validate the instance document prior to submission to detect this.

When entering a journal entry to record issuance of new debt, the treasurer inadvertently transposes two digits in the debit amount (threat)

Control: • Use a cross-footing balance check to test the equality of debits and credits

Instead of a zero, the letter o was entered when typing in data values in an XBRL instance document.

Control: • Use processing integrity controls when entering data in instance documents. • Use a field check to detect this kind of error.

Entries made to counteract the effects of errors found in the general ledger

Corrections

Entries made at the end of the accounting period to reflect the exchange of cash prior to performance of the related event

Deferrals

Linkbase indicates hierarchical relationship among elements

Definition

A specific data item in an XBRL instance document, such as a financial statement line item

Element

Entries that reflect a portion of expenses expected to occur over a number of accounting periods

Estimates

A set of custom XBRL tags to define elements unique to the reporting organization that are not part of the standard generally accepted taxonomies for that industry

Extension Taxonomy

True/False: The SEC does not require U.S. public companies to use XBRL when submitting their files

False (do require)

An XBRL file that contains tagged data; contains facts about specific financial statement lines

Instance Document

The usefulness of the audit trail depends on its __________.

Integrity

A file that stores all journal entries used to update the general ledger

Journal Voucher File

Linkbase associates human-readable labels with elements

Label

One or more XBRL files that define the relationships among elements found in a specific instance document

Linkbases

What is a threat associated with Producing Managerial Reports?

Poorly designed reports and graphs

Linkbase describes how to group elements

Presentation

Linkbase identifies relevant authoritative pronouncements for that element

Reference

Entries made to reflect either differences between the actual and recorded value of an asset or a change in accounting principle

Revaluations

Verify the accuracy of journal voucher batch processing

Run-to-Run Totals

An XBRL file that defines every element that appears in a specific instance document

Schema

An XBRL file that provides instructions on how to display (render) an instance document on either a computer screen or printed report

Style Sheet

A set of XBRL files that defines elements and the relationships among them

Taxonomy

An instance document is created by applying a ______________ to a set of data.

Taxonomy

accounting cycle

The process by which companies produce their financial statements for a specific period

True/False: IFRS permits capitalization of development costs at an earlier stage of the process than does GAAP

True

eXtensible Business Reporting Language is a variant of XML (eXtensible Markup Language) specifically designed for use in communicating the content of financial data

XBRL

general ledger

a collection of all the asset, liability, stockholders' equity, revenue, and expense accounts

double-entry accounting

a company records the dual effect of each transaction in appropriate accounts; for every debit there is a credit

modified cash basis

a mixture of the cash basis and accrual basis; based on strict cash basis but with modifications that have substantial support, such as capitalizing and depreciating plant assets or recording inventory

account

a systematic arrangement that shows the effect of transactions and other events on a specific element

post-closing trial balance

a trial balance taken immediately after closing entries have been posted

transaction

an external event involving a transfer or exchange between two or more entities

prepaid expenses

assets paid for and recorded before a company uses them

accounting information system

collects and processes transaction data and then disseminates the financial information to interested parties

subsidiary ledger

contains the details related to a given general ledger account

journalizing

entering the transaction data in the journal

adjusting entry

entries made at the end of an accounting period to bring all accounts up to date on an accrual basis

accrued expenses

expenses incurred but not yet paid or recorded at the statement date

worksheet

facilitates the end-of-period accounting and reporting process

event

is the source or cause of changes in assets, liabilities, and equity

debit

left side of T account

income statement

measures the results of operations during the period

What are 2 controls that could be used to mitigate the risk of unauthorized disclosure of financial information in the GL and reporting system?

o Access controls o Encryption

What are 3 controls that could be used to mitigate the risk of unauthorized adjusting entries during Posting Adjust Entries?

o Access controls o Reconciliations and control reports o Audit trail creation and review

What are 3 controls that could be used to mitigate the risk of unauthorized journal entries during Updating the General Ledger?

o Access controls o Reconciliation and control reports o Audit trail creation and review

What are 3 ways that IFRS differs from GAAP in regards to the GL and reporting system?

o Accounting for fixed assets o Accounting for R&D costs o IFRS does not permit use of LIFO method of accounting for inventory

What are 5 controls that could be used to mitigate the risk of inaccurate adjusting entries during Posting Adjust Entries?

o Data entry processing controls o Spreadsheet error protection controls o Standard adjusting entries o Reconciliations and control reports o Audit trail creation and review

What are 3 controls that could be used to mitigate the risk of inaccurate updating of the general ledger during Updating the General Ledger?

o Data entry processing integrity controls o Reconciliation and control reports o Audit trail creation and review

What are 3 controls that could be used to mitigate the risk of inaccurate or invalid general ledger data in the GL and reporting system?

o Data processing integrity controls o Restriction of access to general ledger o Review of all changes to general ledger data

What are 4 controls that could be used to mitigate the risk of creation of inaccurate financial statements during Preparing Financial Statements?

o Data processing integrity controls o Use of packaged software o Training and experience in applying IFRS and XBRL o Audits

What are 2 types of control reports?

o Listing journal vouchers by general account number o Listing the journal vouchers by numerical sequence, date, and account number

What are the 2 sources of journal entries using for updating the general ledger?

o Summary journal entries from other AIS cycles o Direct entries made by the treasurer

What 2 tasks does a properly designed audit trail provide the ability to perform?

o Trace any transaction from its original source document to the journal entry that updated the general ledger and to any report or other document using that data o Trace any item appearing in a report back through the general ledger to its original source document

contra asset account

offsets an asset account on the balance sheet

real accounts

permanent accounts such as asset, liability, and equity accounts; they appear on the balance sheet

depreciation

process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner

accrual-basis accounting

recognize revenue when performance obligation is satisfied and expenses in the period incurred, without regard to the time of receipt or payment of cash

statement of retained earnings

reconciles the balance of the retained earnings account from the beginning to the end of the period

strict cash basis

record revenue only when cash is received and record expenses only when cash is dispersed

closing process

reduces the balance of nominal accounts to zero in order to prepare the accounts for the next period's transactions

statement of cash flows

reports the cash provided and used by operating, investing, and financing activities during the period

accrued revenues

revenues for services performed but not yet recorded at the statement date

credit

right side of T account

balance sheet

shows the financial condition of the enterprise at the end of a period

financial statements

statements that reflect the collection, tabulation, and final summarization of the accounting data. Balance sheet, income statement, statement of cash flows, and statement of retained earnings

special journals

summarize transactions possessing a common characteristic ex. cash receipts, sales, purchases, cash payments

nominal accounts

temporary accounts such as revenue, expense, and dividend accounts; except for dividends, they appear on the income statement; companies close these accounts to equity accounts at the end of the period

journal

the "book of original entry" where the company initially records transactions and selected other events

ledger

the book (or computer printouts) containing the accounts

book value

the difference between any depreciable asset's cost and its related accumulated depreciation

closing entries

the formal process by which the enterprise reduces all nominal accounts to zero and determines and transfers the net income/loss to a stockholders' equity account

T-account

the format of an account resembles a T

trial balance

the list of all open accounts in the ledger and their balances

reversing entries

the opposite of the adjusting entry made in the previous period

posting

the process of transferring the essential facts and figures from the book of original entry to the ledger accounts

adjusted trial balance

the trial balance taken immediately after all adjustments have been posted

unearned revenues

when cash is received before services are performed

general journal

where the company initially records transactions and selected other events