BEC fastforward MCQ
The internal audit activity can be involved with systems development continuously, at the end of specific stages, after implementation, or not at all. An advantage of continuous internal audit involvement compared to the other two types of involvement is that:
Redesign costs can be minimized. To the extent designs are inadequate, rework will be necessary. The audit involvement approach that minimizes rework costs is continuous involvement.
This is the most appropriate activity for an internal auditor to perform during a review of systems development activity?
Review the methodology used to monitor and control the system development function. Objectivity is not impaired if the auditor recommends standards of control. Thus, the most appropriate activity for an internal auditor is to review the methodology used to monitor and control the system development function.
The size of a computer system may affect the accounting systems because of which of the following?
For small computer systems, purchased software may be used and for large systems, software may have to be developed. The size of a computer system may affect the accounting systems because a firm may purchase software for small systems but may have to develop its own software for larger systems. Software developed by a company's own personnel is referred to as "in-house" developed software and its quality will vary depending on the care and expertise of the people doing that development.
Bird In the Hand Theory (Dividend Preference)
Since investors are less certain of receiving future capital gains, investors value a dollar of current dividend more than a dollar of uncertain capital gains and this will result in a high firm value
A consumer has $40,000 of disposable income to spend on durable and nondurable goods. The price of durable goods is $1,000 per unit and the price of non-durable goods is $100 per unit. Which of the following is true?
The consumer's optimal consumption will occur where the ratio of the marginal utility of durable goods to the marginal utility of non-durable goods is 10 to 1.
An employee should not be able to visit the organization's safety deposit box containing investment securities without being accompanied by another employee. What would be a possible consequence of an employee's being able to visit the safety deposit box unaccompanied?
The employee could pledge organizational investments as security for a short-term personal bank loan. If an employee were able to visit the organizations safety deposit box containing investment securities then it would be possible for this employee to use the securities as collateral for a short-term personal bank loan.
While the system development life cycle (SDLC) approach to information system development has proven helpful, a major disadvantage of SDLC is
There is no necessary link between organizational strategy and system requirements.
normal spoilage is unavoidable and is included as an inventoriable product costs
abnormal spoilage is treated as a loss in the period incurred.
The best approach for minimizing the likelihood of software incompatibilities leading to unintelligible messages exchanged through EDI is for each company to
agree to synchronize their updating of EDI-related software
net domestic product is composed of the total market value of
all final goods and services produced in the economy in 1 year minus the capital consumption allowance. exclude the value of intermediate goods avoid double counting
An internal audit of the payroll function revealed several instances in which a payroll clerk had added fictitious employees to the payroll and deposited the checks in accounts of close relatives. What control should have prevented such actions?
allowing changes to the payroll to be authorized only the personnel department Only the personnel department should be authorized to make changes to the payroll, while only the payroll department should process payroll checks. Furthermore, to prevent an unauthorized person from adding a name of a fictitious employee to the payroll, payroll records should be reconciled with the active employee list from the personnel department each payday.
Stockout
an event that occurs when no inventory is available.. In an ABC system, the inventory is divided into three groups as follows: Group A - this group is about 10% of the total inventory, but includes high value items. Group B - this group is about 20% of the total inventory, and is made up of medium value items. Group C - this group is the remaining 70% of the inventory and is made up of low value items. Group A is reviewed more frequently and is more tightly controlled than the other groups. By more frequently reviewing these items, stockout costs can be prevented.
this will result in raising the breakeven point
an increase in the semi-variable cost per unit
this is true about short run cost structure of a firm as the quantity produced increases
average total costs reach a minimum when the average total cost equals marginal costs As the marginal cost continues to increase and rises above the average total cost the average total cost must begin to increase
this computerized control procedures would be most effective in ensuring that data uploaded from personal computers to a mainframe are complete and that no additional data is added?
batch control totals, including control totals and hash totals. these controls would provide the best information on the completion of data transfer batch control totals are used to ensure that all input is processed correctly by the computer.
this is an argument against the use of direct (variable) costing? (only variable costs are treated as product costs, fixed overhead costs are treated as period costs and are expensed) Fixed factory overhead is necessary for the production of a product.
because fixed manufacturing costs are a necessary part of production, one can argue that they should be included in the cost of the a unit produced
Leveraged Buyout (LBO)
buy something by taking on debt with very little cash
directive controls
cause or encourage the occurrence of a desirable event (direct something to happen)
financial intermediaries include
commercial bank, pension fund, life insurance company, savings and loans, mutual savings banks, credit unions, and mutual funds.
sales department should not approve a sale credit memo because of a product return.
credit memo should be approved only upon receipt of a receiving report evidencing the product's return. and the approval should not come from the sales department because of the potential for booking sales in one period and reversing them the next.
M1 is referred to as narrow money and is composed of:
currency, demand deposits, other checkable deposits, and travelers' check
three types of system documentation used by auditors and analysts are
data flow diagrams, system flowcharts, and entity relationship diagrams
a decrease in inventory order costs will
decrease the economic order quantity
system flowchart
depicts the relationships among system input, processing, storage, and output
the length of time required for an investment's discounted cash flow to equal its initial cost is the definition of this techniques
discounted payback period NPV is evaluated in dollars and IRR in percentages.
Total quality management (TQM) emphasizes
doing each job right the first time
participate budgeting
driven by lower level management and employees, the resulting budget should still be aligned with overall company strategy and top management will still have final approval
encryption key strength is determined by the bit length of the key
e.g 4096-bit RSA encryption is stronger than 2048-bit RSA encryption
Which of the following inventory items would be the most frequently reviewed in an ABC inventory control system?
expensive, frequently used, high stockout cost items with long lead time.
Criteria to determine how much control to build into an application system should include all of the following EXCEPT the
feasibility of using network monitoring software, this does not involve controls within an application system criteria that should be included are importance of data in the sytem level of risk if a specific activity or process is not properly controlled efficiency, complexity, and expense of each control technique
A checkpoint/restart procedure is primarily designed to recover from
hardware failures, Checkpoint processing is used to enable recovery in case of a hardware failure. Checkpoint control procedures are performed several times per hour, and the system stops and backs up all the data and other information needed to restart the system. This checkpoint is recorded on separate media. Then, if a hardware failure occurs, the company simply reverts to the last saved copy, and reprocesses only the transactions that were posted after that checkpoint. The effect of this is similar to the rollback and recovery method.
change controls for inventory software
if change controls are being followed, an unauthorized person would not be able to make a change in a program that would alter the way it performed its processing.
Data Flow Diagram (DFD)
illustrates the movement of information between external entities and the processes and data stores within the system
The gross domestic product (GDP) will fall following an increase in
import the formula is GDP = C + I + G + (X-M), where C is consumption, I is investment, G is government, X is exports and M is imports. Thus, an increase in consumption expenditures will increase GDP, not decrease.
this is a benefit of electronic data exchange (EDI)
improved business relationships with trading partners. conflicts between trading partners can be reduced and communication between them can be improved through the use of EDI
applications controls are dependent on the general controls
in other words, general controls must be in place before application controls can be relied upon
interest and dividends received by US citizens from foreign countries are treated as
income recorded in the current account a credit in the current account
when a specified level of safety stock is carried for an item in inventory, the average inventory level for that item
increased by 1/2 the amount of the safety stock
this represents the expected order of returns to scale as a firm expands production
increasing returns to scale, constant returns to scale, decreasing returns to scale the long run average cost curve falls, reaches a flat segment, and then rises.
expert system is utilizes in many industries
is a form of AI guides the decision making processes and provides decisions comparable to those of an expert utilizes expert knowledge programmed into a systematic approach
A joint process is a manufacturing operation yielding two or more identifiable products from the resources employed in the process. The two characteristics that identify a product generated from this type of process as a joint product are that it
is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products
compatibility test
matching the user's authentication credentials against the access control matrix to determine whether that employee should be allowed to access that resource and perform the requested action
a reason for a firm's repurchase of its own stock is to
meet the needs of a potential merger to acquire enough shares so that they can effect a potential merger
the basic prupose of a responsibility accounting system is
motivation, according to responsibility accounting, managers are responsible for those factors that they can control. their performance is evaluated on how well they manage the areas over which they exercise influence, whether they are costs, revenues or both.
money market securities have a maturity of
one year or less, examples of MMS are bankers acceptance commercial paper and negotiable certificate of deposit
The number of days between the time a firm acquires raw materials or inventory until it collects cash from the sale of its finished goods is called the
operating cycle also equal to inventory period +receivable period cash conversion cycle would subtract the payable period from the operating cycle
A perpetual inventory system uses a minimum quantity on hand to initiate procedures for restocking. In reviewing the appropriateness of the minimum quantity level established by the stores department, the auditor would be least likely to consider
optimal order sizes determined by the economic order quantity model because EOQ does not affect minimum stocking levels
using the NRV of the byproduct to reduce the joint costs means that the byproduct is recognized in the general ledger at the
point of production and is shown on the income statement as a reduction in cost.
Two phases of systems planning are project definition and project initiation. All of the following are steps in the project initiation phase
preparing the project proposal the project proposal is part the project definition, not the project initiation
You purchased a preferred stock that pays a $3 annual dividend. When you bought the stock the required rate of return was 10%. You sold the stock when the required rate of return was 8%.
You made a profit on the transaction. The value or price when you bought was the dividend divided by the required rate or 3/.10 = $30. When you sold the price was $3/.08 = $37.5. You made a profit of $7.50.
the online data entry controlled called preformatting is
a blank form for data to be entered.
zero-based budgeting
a budgeting approach in which each department starts from zero every year and must justify every item in the budget, rather than simply adjusting the previous year's budget amounts
A company stocks, maintains, and distributes inventory. The company decides to add to the safety stock and expedite delivery for several product lines on a trial basis. For the selected product lines the company will experience
a change in the service level the purpose of safety stock is to avoid stock outs, avoid stock outs improve service level to customers, but it also increases carrying out.
a program that edits a group of source language statements for syntax errors and translates the statements into an object program is
a compiler
factory overhead is increased by
a credit
sliding tax(change based on factor) based on the level of pollution results in
a greater business incentive to discover new methods of controlling pollution
Storage Area Network (SAN)
a high-speed network with the sole purpose of providing storage to other attached servers
Value at Risk (VaR)
a measure of potential financial loss,
a cost management system is
a planning and control system that measures the cost of significant activities, identifies non value-added cost, and identifies activities.
an overvalued currency can be considered as
a tax on exports and a subsidy to imports
super normal growth DDM
a way to value stocks that pay dividends
email security tips
1. 1. electronic mail can be no more secure than the computer system on which it operates 3. in larger organizations, there may be several email admin and locations with varying levels of security.
liquidity ratios examples
1. average collection period in days 2. merchandise inventory turnover 3. AR turnover
CEO would have the most controls over three variances
1. overhead efficiency variance 2. labor efficiency variance 3. material usage variance
during the analysis phase of a systems development project,
1. problems in the current system are identified, 2. systems benefits and objectives are identified, and 3 the information needs of end users are determined.
access to computers should be controlled as
1.restricted to individuals who have a need to know, and the access should be consistent with their responsibility. 2.The system should also be restricted at the field level, instead of at the workstation level. The problem with workstations is that they are connected to a larger network, and security may not be adequate. 3. In addition, passwords should be required to identify the user; 4. and users should be limited to deleting, adding and modifying data.
Mfg cycle efficiency
processing time/ (start of production to completion + inspection time + process time + move time)
this statement is true for a firm that uses variable costing
profits fluctuate with sales
during the development phase of system development project
program specifications are developed
the intent of antitrust laws is to
prohibit agreements that limit individual firm output
when management is willing to experiment with different approaches to system development because the requirements are evolving rapidly
prototyping would be an appropriate method of system development. prototyping is an iterative process initially, user requirements are estimated and implemented in a prototype which the users then try out.
a reduce in frequency of ordering will normally
reduce total carrying costs, because this implies that goods are ordered when needed and inventory balance is kept to a minimum, thus total carrying costs should be reduced.
if a product has a price elasticity of demand of 2.0 the demand is considered to be
relatively elastic, if ratio is greater then 1, the demand is relatively elastic. perfect elastic imply a elasticity of 1
Change control typically includes procedures for separate libraries for production programs and for test versions of programs. The reason for this practice is to
segregate incompatible duties separating production and test versions of programs is the means of restricting access to production programs to individual users. Thus, the effect is a separation of incompatible duties, such as programmers and operators.
trade credits are
subject to risk of buyer default and an expensive source of financing because of trade credit
Which of the following IT functions is responsible for the user environment and requirements?
system analyst he analyzes the user environment and requirements and may recommend changes to the current system, the purchase of a new system or design a new system. A systems flowchart is a tool or diagram used by the systems analyst to define system requirements.
the risk premium is made up of 1. business risk 2. financial risk 3. liquidity risk 4. currency risk 5. country risk
systematic risk is not one of the component of the risk premium
In which of the following organizational structures does total quality management (TQM) work best?
teams of people from different specialties, the essence of TQM is teamwork, people working together so quality and customer satisfaction can be improved, thus, TQM works best with teams of people from different specialties.
It may be easier for an auditor to audit smaller systems because:
the auditor may be familiar with the software
convertible bond has a lower coupon rate bc they are more attractive (more flexibility)
the holder is compensated for by the value of the holder's ability to convert the bond into shares of stock
A company needs to obtain $2 million to build a new warehouse and is trying to decide whether to issue debt or issue equity to get the money. Which of the following statements is true about that decision?
the potential impact on future borrowing is a disadvantage of debt if a company borrows money, it will cause a higher debt to equity ratio. As a company's debt to equity ratio goes up, the ability to borrow money becomes more difficult and interest rates tent to escalate.
a successful responsibility accounting reporting system is dependent upon
the proper delegation of responsibility and authority the identification of who is responsible for the costs being incurred and the control over the costs themselves is critical to the effectiveness of a responsibility accounting system
the important budget in the master budget process that is prepared first is
the sales budget, other budgets depend on sales budget
lead time
the time needed to respond to a customer order
the marginal revenue curve falls as more output is produced and sold
therefore, if the marginal revenue is less than marginal cost the quantity sold is at a level that is too high
What happens, according to the Dividend Discount Model, to the value of a share of common stock when the company's projected rate of growth in both earnings and dividends is expected to increase?
value increases
a strength of internal control for purchasing and AP is
vendor's invoices are matched against POs and receiving reports before a liability is recorded Vendor's invoices should be matched against purchase requisitions, purchase orders, and receiving reports before any liability is recorded. When the payment has been approved, the accounts payable department should prepare a voucher, which is an internal document that is the authorization for payment.
to combat inflation, which monetary policy works
you can sell government securities, reducing funds available for other investments, causing a contraction in the economy.
material usage variance is calculated as
(AQ-SQ) XSP
purchasing department should be segregated from receiving reports furthermore
AP matches PO to the receiving reports to the invoices for terms, prices, quantities and extensions
Who do the accounting provisions of the Foreign Corrupt Practices Act apply to?
Companies that are required to register with the SEC. The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions.
The amount of inventory that a company would tend to hold in stock would increase as the
Cost of carrying inventory decreases.
A manufacturing company properly classifies and accounts for one product as a by-product rather than as a main product because it:
Has low sales value when compared to the main products. This is the correct reason for treating a product generated from a joint process as a by-product.
When an office supply company is unable to fill an order completely, it marks the out-of-stock items as back-ordered on the customer's order and enters these items in a back-order file which management can view or print. The best approach for ensuring prompt delivery of out-of-stock items is to
Match the back-order file to goods received daily. Reconciling the back-order file to shipments daily would identify unfilled orders for appropriate action.
Osgood Products has announced that it plans to finance future investments so that the firm will achieve an optimum capital structure. Which one of the following corporate objectives is consistent with this announcement?
Maximize the net worth of the firm. Financial structure is the composition of the financing sources of the assets of a firm. Traditionally, the financial structure consists of current liabilities, long-term debt, retained earnings, and stock. For most firms, the optimum structure includes a combination of debt and equity. Debt is cheaper than equity, but excessive use of debt increases the firm's risk and drives up the weighted-average cost of capital
The auditor determined that the risks associated with the EDI purchases were less than the risks associated with the purchases made through the traditional system. Which one of the following factors best supports this prioritization of risks?
The internal auditors were involved with systems development and testing of the EDI software.
Which one of the following changes will cause the demand curve for gasoline to shift to the left?
The price of cars increases. Cars and gasoline are complementary goods meaning that as the price of one increases, the quantity demanded for both will decrease. Therefore, as the price of cars increases, fewer cars are demanded. Since gasoline is a complementary good to cars then the demand curve for gasoline shifts to the left implying less demand for gasoline.
An organization manufactures mirror frames. Scrap is adequately accounted for at the point of generation. The scrap is sorted and sold frequently to the organization's regular buyer at a price negotiated between the scrap manager and buyer. An exposure caused by these procedures is that
The price received for scrap may be inadequate. scrap manager may collude with buyer to establish an inadequate price
A balanced scorecard will include strategic objectives of the organization. A statement indicates what each strategy is intended to achieve and those factors that are critical to success. Performance measures for that strategy are then included. What information is provided about the performance measures that are going to be used by an organization?
The reason why particular performance measures will be used to gauge success in meeting the strategy and how those measures will be tracked
General controls are designed to ensure that a company's control environment is stable and well managed. Which of the following is not an example of general controls?
Using reasonableness checks to detect if data is inconsistent with past transactions.
