Exam 3 Risk and Controls

5) The accounting system for The Assembly, a growing restaurant, requires that all transactions be entered as journal entries. When the bookkeeper for The Assembly enters the transactions, he discards the paperwork associated with the transaction. As an auditor for the accounting firm, which of the following recommendations should be shared with the bookkeeper? A) As an auditor, I need to be able to review the source documents to verify the accuracy and validity of the accounting transactions. Therefore, source documents should be stored either physically or electronically. B) Source documents do not provide an accurate audit trail as they can fade or be altered after entered in the system, so discarding them is an efficient operational decision. C) As an auditor, I follow the audit trail generated by the AIS and do not consider the source documents when reviewing accounting transactions for accuracy. D) Source documents take up too much physical storage space and are too difficult to sort through to be reviewed during an audit.

A) As an auditor, I need to be able to review the source documents to verify the accuracy and validity of the accounting transactions. Therefore, source documents should be stored either physically or electronically.

Which of the following human resources activities is frequently outsourced? A) Benefits administration B) Annual performance reviews C) Involuntary termination D) Maintaining employee master data

A) Benefits administration

The Human Resources (HR) department is responsible for determining salaries and benefits. Which of these activities is related to that function? A) Determining paid time off B) Training and development C) Determining promotions D) Updating employee data

A) Determining paid time off

Choose from the list below the best definition of Inventory management. A) Inventory management is the process that coordinates the communication of inventory availability and needs across the purchasing, conversion and sales processes. B) Inventory management oversees the lifecycle of a product from procuring raw materials through customer sales. C) Inventory management receives the orders along with a supplier-generated packing slip, which shows quantities and descriptions. D) Inventory management are products in the process of being manufactured.

A) Inventory management is the process that coordinates the communication of inventory availability and needs across the purchasing, conversion and sales processes.

The data collected during the purchasing of raw materials can be converted into several purchasing reports. Below is a list of some of those reports. Which report is summarized to show what products have been received within a period of time? A) Product received — by time B) Purchase requisitions filled and open C) Purchase orders filled and open D) Purchase orders aging

A) Product received — by time

Julia's Cookies has identified the following B2C delivery control activity risk: "Customers filing fictitious claims that products were damaged upon receipt may result in fraudulent refunds to customers." Choose from the list of control activities below one of the appropriate control activities for this risk statement. A) Refunds and returns require customers to submit a photo of the product condition. B) Social media posts subject to review and approval before posting C) Only cashless payments accepted in stores D) Food tampering stickers or seals on delivery containers

A) Refunds and returns require customers to submit a photo of the product condition.

Julia's Cookies has identified the following B2B sales order control activity risk: "An unauthorized sales order may result in fraudulent or inappropriate sales." Choose from the list of control activities below one of the appropriate control activities for this risk statement. A) The ERP system matches the customer on the sales order to the main customer data. B) The ERP system matches the amount of the sales order with the credit limit in the main customer data. C) All shipments must have properly authorized shipping documents with an appropriate delivery address. D) Restrict access to the shipping area.

A) The ERP system matches the customer on the sales order to the main customer data.

What type of audit technique involves using a calculation to verify the completeness of the journal entry by adding a journal entry to the beginning balance and comparing it to the ending balance? A) Trial balance roll forward B) Trial balance roll backward C) General ledger roll forward D) General ledger roll backward

A) Trial balance roll forward

Cash collections for B2C customers usually occurs A) at the time the sale is made. B) on credit. C) one week later. D) one month later.

A) at the time the sale is made.

A trial balance roll forward analytics technique allows auditors to determine if the journal entry data is A) complete. B) balanced. C) correct. D) clear.

A) complete

Unrecorded payments may result in duplicate payments to vendors or misstatement of financial statements by overstating cash and accounts payable. Choose the best control activity to address this risk. A) Comparison of vendor ID in cash payments journal with vendor ID on supporting documentation and payments voucher B) Comparison of the total of the authorized vouchers submitted for payment to the total in the cash disbursements journal for a specific period C) A three-way match against the purchase order, receiving report, and vendor's invoice D) Take advantage of all supplier discounts if favorable to the company.

B) Comparison of the total of the authorized vouchers submitted for payment to the total in the cash disbursements journal for a specific period

Choose the best definition of program documentation from the list below. A) Overview of the computer system with details of system design and architecture B) Detailed description of the system's programming logic and source code C) Information necessary for technical operators to execute and support the system D) Instructions for system users on how to interact with the system

B) Detailed description of the system's programming logic and source code

Which relationship between human resources (HR) and payroll is best for business? A) HR and payroll both deal with employees and should be one department. B) HR and payroll have distinctive functions and should be separate. C) Payroll deals with paychecks. HR deals with employee benefits. D) Payroll is processed by the HR department.

B) HR and payroll have distinctive functions and should be separate.

Julia's Cookies has identified the following B2B marketing control activity risk: "An unauthorized user may access the marketing database causing inappropriate access to sensitive data related to business customers and leads, resulting in legal and reputational damage." Choose from the list of control activities below one of the appropriate control activities for this risk statement. A) Standardized scripts and templates for marketing materials B) Policies and procedures for user access are clearly documented and authorized. C) Independent checks on pricing and sales team member's work D) Defined roles and responsibilities for pricing functions

B) Policies and procedures for user access are clearly documented and authorized.

Public accounting firms often require terminated employees to exit on the same day as a resignation is submitted, even in the event of a voluntary termination. Why is the same-day exit necessary? A) Public accounting firms are required by accounting regulations to not allow employees to work after submitting a resignation. B) Public accounting firms must prevent conflicts of interest if the employee has already accepted a job offer from a direct competitor. C) Public accounting firms are required by HR standards to interview and escort ex-employees from the building and immediately terminate electronic access. D) Public accounting firms must prevent ex-employees from discussing any company matters with others at the company after termination.

B) Public accounting firms must prevent conflicts of interest if the employee has already accepted a job offer from a direct competitor.

There are four departments in a company that are directly involved in the purchasing processes. Which department receives the purchase requisitions and transforms them into purchase orders? A) Inventory Control B) Purchasing C) Receiving D) Accounts Payable

B) Purchasing

The textbook discussed four of the stages of the Fixed Asset acquisitions process. Which stage corresponds to the following description? "Routine purchases of fixed assets follow a common pattern; the fixed asset is inspected, the receiving report is prepared, the fixed asset is delivered to the requesting department for installation and/or use, fixed assets are tagged for future identification purposes." A) Stage 1: Asset Procurement B) Stage 2: Receiving and Tagging C) Stage 3: Recording Assets D) Stage 4: Asset Reconciliation

B) Stage 2: Receiving and Tagging

________ oversees the lifecycle of a product from procuring raw materials through customer sales. A) Inventory management B) Supply chain management C) Customer relationship management D) Enterprise resource planning

B) Supply chain management

Choose from the list below the best definition of Supply chain management. A) Supply chain management is the process that coordinates the communication of inventory availability and needs across the purchasing, conversion and sales processes. B) Supply chain management oversees the life cycle of a product from procuring raw materials through customer sales. C) Supply chain management receives the orders along with a supplier-generated packing slip, which shows quantities and descriptions. D) Supply chain management are products in the process of being manufactured.

B) Supply chain management oversees the life cycle of a product from procuring raw materials through customer sales.

As a risk advisory consultant, you are asked to evaluate and recommend improvements for the employee onboarding process for Swiftly Tech. During your evaluation you discover that Swiftly Tech's employee data was part of a data breach from a third-party background check provider. What action do you recommend that Swiftly Tech take? A) Swiftly Tech should forgo background checks to avoid sharing confidential employee data with other companies. B) Swiftly Tech should require background check providers to have their own internal controls to ensure confidentiality and security of data. C) Swiftly Tech should require employees to acquire and provide their own background check data. D) All of these answer choices are correct.

B) Swiftly Tech should require background check providers to have their own internal controls to ensure confidentiality and security of data.

Companies mitigate risks associated with employee onboarding by implementing and enforcing A) external payroll administration. B) control activities. C) background checks. D) All of these answer choices are correct.

B) control activities.

The Accounting Standards Codification 606 of the U.S. GAAP has five steps for revenue recognition. They are listed below. Properly order these five steps. i. Recognize revenue when (or as) the entity satisfies a performance obligation. ii. Determine the transaction price. iii. Identify the contract with a customer. iv. Allocate the transaction price to the performance obligations in the contract. v. Identify the performance obligations in the contract. A) i, ii, iii, iv, v B) iii, v, ii, iv, i C) v, iv, iii, ii, i D) iv, iii, I, ii, v

B) iii, v, ii, iv, i

3) Melody Corporation owns 51% of a subsidiary, A-Plus Realty (A+), which maintains its own legal public entity and financial information. Considering the ownership stake of Melody in A+, which of the following statement is TRUE? A) A+ reports individually, and Melody reports both sets of financial statements. B) Melody and A+ report separately. C) A+ reports individually, and Melody reports a set of consolidated financial statements. D) Melody reports a consolidated set of financial statements for both entities.

C) A+ reports individually, and Melody reports a set of consolidated financial statements.

In an entity relationship diagram for the general ledger, each journal entry includes a foreign key field for the Employee_ID of the employee who both posted and approved the transaction. Which of the following statements concerning the Employee_ID field used in this context is TRUE? A) The Employee_ID field is not enough information. The transaction should also include the employees' names and departments to allow auditors to complete their review. B) The Employee_ID would be a good candidate key for the primary key of the JournalEntry table listing each entry in the general ledger. C) Additional employee information required can be pulled from the Employee table as the Employee_ID field is a foreign key related to the Employee table inserted into the JournalEntry table. D) All of these answer choices are correct.

C) Additional employee information required can be pulled from the Employee table as the Employee_ID field is a foreign key related to the Employee table inserted into the JournalEntry table.

Payments recorded in the wrong vendor account may result in duplicate payments to vendors. Choose the best control activity to address this risk. A) Comparison of the total of the authorized vouchers submitted for payment to the total in the cash disbursements journal for a specific period B) A three-way match against the purchase order, receiving report, and vendor's invoice C) Comparison of vendor ID in cash payments journal with vendor ID on supporting documentation and payments voucher D) Take advantage of all supplier discounts if favorable to the company.

C) Comparison of vendor ID in cash payments journal with vendor ID on supporting documentation and payments voucher

2) Which characteristic of useful information is most clearly expressed by a company who always discloses information in the same order and style each reporting period? A) Predictive value B) Confirmatory value C) Consistency D) Understandability

C) Consistency

7) Farm Fresh Bites offers dine-in, carry-out, frozen meals, and bakery items using locally-sourced meat, produce, and grains. Farm Fresh Bites appeals to many groups of customers and has pricing based on their quality products that is competitive in the restaurant market. Which type of strategy is Farm Fresh Bites utilizing? A) Low cost, broad market B) Low cost, narrow market C) Differentiation, broad market D) Differentiation, narrow market

C) Differentiation, broad market

Mario works in the human resources (HR) department of the Jimmy Sub Corporation. Mario's focus in HR involves employee hiring and transition. Which of the following employee activities will require Mario's involvement for the HR department? A) April attends company orientation. B) May undergoes an annual performance review. C) June receives a promotion and a raise. D) July gets married and needs to update her W4.

C) June receives a promotion and a raise.

In which module of the ERP system do the raw material management and product costing features reside? A) Supply chain management B) Sales management C) Production D) Financial

C) Production

There are four departments in a company that are directly involved in the purchasing processes. Which department receives the orders along with a supplier-generated packing slip, checks the condition of the shipment and counts the quantities? A) Inventory Control B) Purchasing C) Receiving D) Accounts Payable

C) Receiving

Jonah Brothers Entertainment received a notice of legal action related to a job applicant that was not hired based on his thought that the interviewer asked illegal questions during the interview that caused the interviewer to discriminate against the applicant. What HR activity area should be responsible for making sure this issue does not occur again? A) Updating and maintaining employee data B) Monitoring and evaluation C) Recruiting and hiring employees D) Training and developing employees

C) Recruiting and hiring employees

The textbook discussed four of the stages of the Fixed Asset acquisitions process. Which stage corresponds to the following description? "The accounting for a fixed asset occurs when the asset is recorded." A) Stage 1: Asset Procurement B) Stage 2: Receiving and Tagging C) Stage 3: Recording Assets D) Stage 4: Asset Reconciliation

C) Stage 3: Recording Assets

Which of the following is an element captured in systems documentation? A) Programming logic B) Error messages C) Systems architecture D) Instructions for inputting data into the system

C) Systems architecture

Viktoria suggests that the Well Market human resources (HR) department needs to become more innovative in retaining employees. They suggest that remote work or rotations might entice employees to maintain their status at Well Market and reduce the costs associated with hiring and training new staff. To administer either program, Well Market's HR department needs to either hire more staff or find a way to manage more work with the same sized team. Choose the best option for Viktoria and the Well Market HR team? A) The HR team could work more hours and hope that no one gets burned out. B) The HR team could hire new people and try the new programs once the new team members are trained, which could take months. C) The HR team could outsource some administrative tasks and focus on the retention programs themselves. D) The HR team could not change anything and hope that things work out.

C) The HR team could outsource some administrative tasks and focus on the retention programs themselves.

Brandon, an auditor for XYZ Accounting, is set to perform an audit of the general ledger for a new client tomorrow morning. Which audit analytics should Brandon perform first? A) General ledger prescriptive analytics B) General ledger roll forward C) Trial balance roll forward D) Trial balance prescriptive analytics

C) Trial balance roll forward

Invoices paid twice may result in overpayments to vendors. Choose the best control activity to address this risk. A) Comparison of the total of the authorized vouchers submitted for payment to the total in the cash disbursements journal for a specific period B) Comparison of payment information with purchase order and receiving report information C) Vendor invoice, payment voucher and supporting documentation must be tagged or cancelled to prevent reuse. D) Take advantage of all supplier discounts if favorable to the company.

C) Vendor invoice, payment voucher and supporting documentation must be tagged or cancelled to prevent reuse.

6) Which of the following benefits of XBRL would be most beneficial for a company that just acquired an organization that utilized different accounting software? A) XBRL improves data extraction capabilities. B) XBRL can integrate nonfinancial data. C) XBRL data is software agnostic. D) All of these answer choices are correct.

C) XBRL data is software agnostic.

Inventory management is important because ________ and ________ determine inventory requirements, which in turn drives purchases of raw materials and supplies. A) forecasts, raw materials B) purchase orders, demand C) sales orders, forecasts D) raw materials, supplies

C) sales orders, forecasts

1) The cost effectiveness of accounting information is determined by evaluating the cost of providing the information versus the A) consistency of the information. B) timeliness of the information. C) value of the information. D) accuracy of the information.

C) value of the information.

There are four departments in a company that are directly involved in the purchasing processes. Which department receives the vendor invoices? A) Inventory Control B) Purchasing C) Receiving D) Accounts Payable

D) Accounts Payable

As a risk advisory consultant, you are asked to evaluate and recommend improvements for the employee onboarding process for Swiftly Tech. During your evaluation you discover that Swiftly Tech's payroll department adds employees based on an email from the HR department. The lack of controls could result in payroll fraud. What do you recommend that Swiftly Tech do to avoid potential payroll fraud? A) Swiftly Tech could require completed new hire documentation paperwork prior to employee record creation in the payroll system. B) Swiftly Tech could require that all employee data be secured and changes are only made by authorized individuals. C) Swiftly Tech could schedule frequent independent reviews of new hire data in the system to ensure validity and accuracy. D) All of these answer choices are correct.

D) All of these answer choices are correct.

As a risk advisory consultant, you are asked to review a company's employee onboarding process. What should you ask for to begin your evaluation? A) Process flowchart B) Onboarding documentation C) Appointments to meet with employees D) All of these answer choices are correct.

D) All of these answer choices are correct.

Company A acquires Company Z. Company Z uses an ERP system that is incompatible to the one used by Company A. As a corporate manager, you must carefully consider the cost of switching Company Z to Company A's ERP system versus the A) decision usefulness of the financial data. B) corporate leadership appetite for adopting a new system. C) time investment to make the switch. D) All of these answer choices are correct.

D) All of these answer choices are correct.

Henri joined a public accounting firm as an intern for the summer. Henri's final project involved evaluating the firm's employee termination control activities with a goal of developing additional control activities to prevent unnecessary reputation damages for the firm. Which of the following control activities might Henri suggest? A) Complete an HR-authorized employee termination checklist and submit to HR. B) Require HR presence at firings to ensure proper procedures and mitigate risks. C) Remove employee's authority to act on behalf of the firm and conduct firm business. D) All of these answer choices are correct.

D) All of these answer choices are correct.

JIT Technologies promoted Jorge during his last performance evaluation. The promotion also included a raise. What HR related activity is involved with Jorge's good news? A) Monitoring and evaluation B) Transitioning employees C) Payroll processing D) All of these answers are correct.

D) All of these answers are correct.

4) External auditors for a firm found errors in the recent financial statements. After further investigation into the issue, the auditors discovered a strong control environment that should have prevented the financial statement errors. Based on the information provided by the auditors, who do you suggest would be responsible for the errors? A) Controller B) Internal auditors C) External auditors D) Chief financial officer

D) Chief financial officer

Which of the following statements about control activities related to employee onboarding is FALSE? A) The cost of employee onboarding control activities should not exceed the benefit. B) Business processes like HR, payroll, and onboarding do not have a master list of controls. C) Companies should establish and document policies and procedures for hiring. D) Control activities focus on fraud prevention to prevent financial loss for the company.

D) Control activities focus on fraud prevention to prevent financial loss for the company.

Choose the best definition of user documentation from the list below. A) Overview of the computer system with details of system design and architecture B) Detailed description of the system's programming logic and source code C) Information necessary for technical operators to execute and support the system D) Instructions for system users on how to interact with the system

D) Instructions for system users on how to interact with the system

Choose from the following list one of the elements captured in operator documentation. A) System architecture B) Instructions for inputting data into the system C) Program source code D) Protocols for backup and recovery of data

D) Protocols for backup and recovery of data

What type of control activity is implemented to prevent a terminated employee from using proprietary company information elsewhere? A) All employee issued technology, including storage devices, are collected at the exit interview. B) Company credit cards are collected from the employee, paid, and closed at the end of the billing cycle. C) Employee access to the system is disabled immediately upon termination. D) Terminated employees sign a noncompete agreement during the exit interview.

D) Terminated employees sign a noncompete agreement during the exit interview.