ch. 1 hw & quiz

sources of audit evidence for an external audit come directly from internal auditors true or false

false because external audits are intended to be independent attestations of financial statements, an external auditor cannot rely solely on the work of an internal auditor. evidence is gathered from both substantive tests and tests of controls.

when viewing data from the highest level to the most elemental, the hierarchy is: attribute, record, file. true or false

false data attributes are the most elemental piece of data in a database. they are logical and relevant characteristics of an entity about which the firm captures data. a record is a complete set of attributes for a single occurrence within and entity class. a file is a complete set of records of an identical class. from the highest level to the most elemental, the data hierarchy is: file, record, attribute.

systems designers do not need to know anything about auditing true or false

false systems designers do need to know about auditing; the designer must understand the nature of a particular audit risk before he or she can plan the design of internal control techniques needed to mitigate the risk.

the role of the Audit Committee of the Board of Directors is to simply hire and fire external auditors true or false

false the audit committee serves as an independent "check and balance" for the internal audit function and liaison with external auditors. the role of the Audit Committee of the Board of Directors is not to simply hire and fire external auditors. while the committee does have this authority, it is also in place to resolve disputes

auditors use evidence from either test of controls or substantive tests, but not both. true or false

false the audit objective is to assure the fair presentation of corporate financial statements. this requires auditors to perform tests over internal controls as well as substantive test of data that reside in the system's databases. auditors always require some level of both in order to gain confidence over the financial statements.

which of the following is NOT a financial transaction? a. update valid vendor file b. purchase of inventory c. cash receipts d. sale of products

a. update valid vendor file a financial transaction is an economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms

which one of these is NOT a fundamental task of Database Management? a. retrieval b. sorting c. storage d. deletion

b. sorting database management involves 3 fundamental record keeping tasks: storage, retrieval, and deletion. storage is the task of assigning keys to new records and storing them in their proper location. retrieval is the task of locating and extracting an existing record from the database. deletion is the task of permanently removing obsolete or redundant records from the database.

which of the following is most accurate?

c. both small and large firms that have standardized information needs are potential customers for commercial software commercial software packages are pre-coded software that a user purchases from a vendor. base ERP systems are purchased and implemented, with modifications made to better suit the company's information needs. substantive tests provide evidence about data that is stored in the system's databases. under SOX , public accounting firms are unable to provide a variety of services to clients that they currently provide attest services to. IT advisory is called by different names in different firms, but they all engage in tasks generally known as risk management.

which of the following is NOT a characteristic of effective information? a. summarization b. accuracy c. precision d. relevance

c. precision the purpose of information is to lead the user to a desired action and therefore information must be free of material errors. materiality is, however, a difficult concept to quantify. it has no absolute value; it is a problem-specific concept.

which of the following cycles is NOT considered part of a transaction processing system. a. expenditure cycle b. revenue cycle c. reporting cycle d. conversion cycle

c. reporting cycle the transaction processing system (TPS) deals with business transactions that cycle through or occur frequently

as mandated by SOX, external auditors report to: a. the CEO b. the COO c. the audit committee of the board of directors d. all management

c. the audit committee of the board of directors some of the most significant changes imposed by SOX have been to the relationship between management and the external auditors, as well as to the composition or and reporting function of the external auditors

which statement best describes cloud computing?

cloud computing is location-independent computing cloud computing is a variant of IT outsourcing that is location independent. shared data centers deliver hosted IT services over the internet. an organization signs a single contract with one IT service provider. when demand exceeds the provider's IT capacity, it acquires additional capacity from data centers in the "cloud" that are connected via the internet. the client organization has access to whatever computing power it needs, while it only pays for what it uses. cloud computing contracts are flexible and relatively short term. in contrast, traditional outsourcing contracts tend to be fixed price, inflexible, and much longer term. cloud computing, while seemingly complex in pricing, location, and contract benefits, does support a rich vendor network infrastructure.

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

d. purchasing, receiving, and storage the objective of materials management is to plan and control the materials inventory of the company. materials management has 3 sub-functions: purchasing, receiving, and storage. purchasing is responsible for ordering inventory from vendors when inventory levels fall to reorder points. receiving is the task of accepting inventory previously ordered (by the purchasing function). storage is responsible for physical custody of the inventory and releasing these resources into production when necessary.

in which of the following scenarios is the independence of the auditor(s) maintained? a. the external auditors report to the CEO b. the external auditors report to the controller c. the external auditors report to the CEO and the Board of Directors d. the external auditors report to the audit committee

d. the external auditors report to the audit committee the audit committee is essentially an independent guardian of the entity's assets, and as such, should be comprised of 3 outsiders. at least one member should be considered a "financial expert." in order to maintain independence, the external auditor should report only to the audit committee of the Board of Directors. a relationship between management and external auditors erodes independence, especially when disputes arise.

the terms AIS and MIS are essentially interchangeable true or false

false the distinction between AIS and MIS centers on the concept of a transaction. management often requires information that goes beyond the scope of an AIS. the MIS processes nonfinancial transactions that may not directly affect the processing of financial transactions.

which of the following best describes the activities of the accounting function?

inventory control, accounts payable, fixed assets, and payroll the accounting function manages the financial information resources of the firm. it plays two important roles in transaction processing. first, accounting captures and records the financial effects of the economic events that constitute the firm's transactions. second, accounting distributes the transaction information to operations personnel to coordinate many of their key tasks. there are 8 accounting functions that contribute directly to business operations: inventory control, cost accounting, payroll, accounts payable, accounts receivable, billing, fixed assets, and the general ledger.

which of the following best describes the activities of the production function?

production planning, quality control, manufacturing, and maintenance production activities occur in the conversion cycle in which raw materials, labor, and plant assets are used to create finished products. the specific activities are determined by the nature of the products being manufactured. primary manufacturing activities shape and assemble raw materials into finished products. production support activities ensure that primary manufacturing activities operate efficiently and effectively. these include production planning, quality control, and maintenance.

the two rules that govern data collection are relevance and efficiency true or false

true 2 rules govern the design of data collection procedures: relevance and efficiency. the information system should capture only relevant data. efficient data collection procedures are designed to collect data only once.

cloud computing services fall into 3 categories: software as a service (SaaS), infrastructure as a service (IaaS), and platform as a service (PAAS). true or false

true cloud computing is a variant of IT that utilizes location-dependent computing. shared data centers deliver a variety of hosted IT services over the internet.

data and information are not equivalent true or false

true data are facts, which may or may not be processed (edited, summarized, or refined) and have no direct effect on a user's actions. information causes the user to take an action that he or she otherwise could not, or would not, have taken. information is not simply processed data. it is determined by the effect it has on the user, not by its physical form.

the value of information to a user is determined by its reliability true or false

true the value of information is determined for each user by its reliability. reliability is established when the information possesses certain characteristics. information must possess the attributes of relevance, accuracy, completeness, summarization, and timeliness. when these attributes are consistently present, information has reliability and provides value to the user.

which of the following is least likely to be used as evidence by an external auditor?

work performed by internal auditors who organizationally report to the controller an external auditor performs tests of controls and substantive testing to gather evidence for an external audit. internal auditing auditing is an independent appraisal function established within an organization to examine and evaluate its activities.