TEST BANK for Accounting Information Systems 4th Edition by Robert Hurt ISBN 978-0078025884. by StudyGuide

Chapter 01 Role and Purpose of Accounting Information Systems

Multiple Choice Questions

1. An accounting information system is a set of interrelated:

A. Activities and documents only. B. Activities and technologies only. C. Documents and technologies only. D. Activities, documents and technologies.

2. The components of an accounting information system are designed to collect ___ and report ___.

A. Data; information B. Data; data C. Information; information D. Information; data

3. An accounting information system is defined by the text as a set of three interrelated elements. Which of the following choices best gives an example of each element?

A. Buying inventory, selling inventory, balance sheet B. Buying inventory, sales invoice, general ledger software C. Selling inventory, sales invoice, balance sheet D. Selling inventory, writing a check, general ledger software

4. An accounting information system transforms inputs into outputs via processes such as:

A. Journalizing transactions and posting them to the ledger B. Identifying the elements of the FASB Conceptual Framework C. Always utilizing information technology D. Recognizing and adapting to the cost-benefit constraint

5. Which of the following best fits the definition of an accounting information system explained in the text?

A. A checkbook register B. A publicly-traded corporation's financial statements C. Processed source documents leading to the general purpose financial statements D. An Excel spreadsheet of financial statement ratios

6. April compiled checks, receipts and invoices, then entered them into Quickbooks. She printed out her financial statements and took them to the bank as documentation for a loan application. In that scenario, checks, receipts and invoices could be referred to as:

A. Documents and data B. Data and information C. Documents and information D. Documents, data and information

7. Claudia borrowed money from her bank, signing a five-year note payable. She then calculated the monthly payment needed to pay off the loan within three years. Which of the following statements is/are most true?

A. The required monthly payment is an example of "information," as the term is used in the definition of an accounting information system. B. The five-year note payable would be considered a "technology" if it were prepared with computer software. C. Both the required monthly payment is an example of "information," as the term is used in the definition of an accounting information system and the five-year note payable would be considered a "technology" if it were prepared with computer software are true. D. Neither the required monthly payment is an example of "information," as the term is used in the definition of an accounting information system nor the five-year note payable would be considered a "technology" if it were prepared with computer software is true.

8. Claudia borrowed money from her bank, signing a five-year note payable. She then calculated the monthly payment needed to pay off the loan within three years. Based on the definition of an accounting information system provided in the text, the five-year note payable could be considered: (i) an input, (ii) an output, (iii) a document.

A. I and II only B. I and III only C. II and III only D. I, II and III

9. Eugene is a self-employed business owner. In February 2011, he gathered together his income and expense records for 2010. He used them, along with appropriate software, to prepare his tax return, which he then transmitted to the Internal Revenue Service. Has Eugene used an accounting information system based on the definition provided in the text?

A. Yes, because he used software to prepare his tax return. B. Yes, because all elements of the definition are present. C. No, because all accounting information systems must produce general purpose financial statements. D. No, because no internal decision maker is mentioned.

10. The vice president for customer service of First United Bank determined that Lee had overpaid his mortgage. The bank sent Lee a letter asking him if he wanted a refund of the overpayment or if he wanted to apply it to future mortgage payments. Has the vice president for customer service used an accounting information system based on the definition provided in the text?

A. No, because no mention is made of software. B. No, because the letter does not constitute an output. C. No, because no mention is made of general purpose financial statements. D. Yes, because all elements of the definition are present or implied.

11. Accounting information systems is an important area of study for future accountants because: (i) Developing a strong accounting information system helps achieve some of the components of the FASB Conceptual Framework of Accounting, (ii) Studying AIS helps students develop many of the core competencies suggested by the AICPA, (iii) Acquiring knowledge about AIS helps students learn more about common business processes.

A. (i) and (ii) only B. (ii) and (iii) only C. (i) and (iii) only D. (i), (ii) and (iii)

12. Accounting information systems is an important area of study for future accountants because a well-designed AIS can respond to many elements of the FASB Conceptual Framework. All of the following are parts of the conceptual framework except:

A. Principles of debit and credit B. Objective of financial reporting C. Elements of financial statements D. Qualitative characteristics of accounting information

13. Which of the following best explains why AIS is an important area of study for future accountants?

A. AIS connects other areas of accounting, such as intermediate and cost accounting. B. AIS connects accounting with other subjects, such as finance and management. C. Both AIS connects other areas of accounting, such as intermediate and cost accounting and AIS connects accounting with other subjects, such as finance and management. D. Neither AIS connects other areas of accounting, such as intermediate and cost accounting nor AIS connects accounting with other subjects, such as finance and management.

14. AIS is an important area of study for future accountants because a well-designed AIS can recognize and adapt to the cost-benefit constraint. Which of the following statements is most true?

A. Nonfinancial costs and benefits are less important than financial costs and benefits in designing an AIS. B. Resistance to change is a potential cost when making changes to the AIS. C. Financial statement users benefit from more information when it comes from the AIS. D. Source documents should be electronic, rather than paper-based, because electronic documents are more cost effective.

15. AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the conceptual framework. Which of the following best pairs an element of the conceptual framework with a specific example of that element?

A. Relevance, land reported at historical cost B. Consistency, land reported at historical cost C. Matching, land is not depreciated D. Gain, difference between historical cost and current market value for land used in operations

16. AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the conceptual framework. Which of the following statements is most true?

A. Land is reported as an asset on the balance sheet; assets are one element of financial statements in the conceptual framework. B. The difference between land's current market value and its historical cost is reported as a gain on the income statement; gains are one element of financial statements in the conceptual framework. C. Because of the qualitative characteristic of consistency, publicly traded corporations cannot change their accounting methods. D. Because of the qualitative characteristic of reliability, publicly traded corporations cannot change their accounting methods.

17. AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the conceptual framework. Which of the following statements about qualitative characteristics of accounting information is most true?

A. Reliability is more important than relevance. B. Relevance is more important than reliability. C. Reliability must sometimes be sacrificed to attain relevance. D. Tradeoffs between relevance and reliability violate the cost-benefit constraint.

18. VTR Corporation's accounting information system recently reported the following information: Cost of goods sold, $1,500. Inventory, $15,000. Unearned service fees, $3,000. Service fees earned, $8,000. Which element of financial statements is not included in the preceding data?

A. Assets B. Equity C. Expense D. Liabilities

19. Which of the following elements of the conceptual framework fit within the same category?

A. Economic entity, historical cost B. Conservatism, historical cost C. Economic entity, conservatism D. Conservatism, materiality

20. Which of the following exemplifies "materiality" as the term is used in the FASB conceptual framework?

A. BCC Corporation purchased a $30 wastebasket with an expected useful life of 10 years. BCC charged the entire cost to expense in the period incurred. B. Reported account balances in DPT Corporation's financial statements are rounded to the nearest whole dollar. C. Both BCC Corporation purchased a $30 wastebasket with an expected useful life of 10 years. BCC charged the entire cost to expense in the period incurred and reported account balances in DPT Corporation's financial statements are rounded to the nearest whole dollar. D. Neither BCC Corporation purchased a $30 wastebasket with an expected useful life of 10 years. BCC charged the entire cost to expense in the period incurred nor reported account balances in DPT Corporation's financial statements are rounded to the nearest whole dollar.

21. Which of the following statements about AIS is most true?

A. Compared to introductory accounting, AIS is more likely to have problems with nondeterministic answers. B. Compared to introductory accounting, AIS is less likely to have problems with nondeterministic answers. C. Introductory accounting and AIS are equally likely to have problems with nondeterministic answers. D. All problems in AIS have nondeterministic answers.

22. Which of the following statements about AIS is most true?

A. The topics studied in an AIS course are unrelated to those in other accounting courses. B. AIS is the only area of accounting that involves questions with nondeterministic answers. C. The five generic elements of an AIS can be discussed in other areas of accounting. D. All of these statements are true.

23. AIS study sometimes involves questions with deterministic answers. Which of the following questions is most likely to have a deterministic answer?

A. How should a company record the purchase of supplies on account in its AIS? B. In a corporation with sales of $100,000 annually, what dollar amount should be considered material? C. Which processing tools should the AIS use? D. Has the conceptual framework achieved the FASB's original objective for developing it?

24. Joe has completed all his accounting coursework and is ready to graduate. In his education, he has learned how to: analyze source documents, use Excel, make journal entries and prepare tax returns. Which generic element of the AIS is missing from that list?

A. Inputs B. Outputs C. Storage D. Processes

25. Which of the following statements best demonstrates a similarity between AIS and other areas of study in accounting?

A. AIS is primarily concerned with numbers. B. Communication skills are important in AIS. C. Both AIS is primarily concerned with numbers and communication skills are important in AIS. D. Neither AIS is primarily concerned with numbers nor communication skills are important in AIS.

26. Which of the following statements best demonstrates a difference between AIS and other areas of study in accounting?

A. General ledger software can only be used in AIS. B. The matching principle is less important in AIS than in other areas of accounting. C. AIS often looks at the "big picture" of accounting. D. Topics studied in AIS courses are not typically included on accounting professional exams.

27. AIS can be linked to other areas of study in accounting by focusing on the five generic elements of the AIS. Which of the following is a process that might be studied in management or cost accounting?

A. Components of the master budget B. How to prepare the master budget C. Both components of the master budget and how to prepare the master budget D. Neither components of the master budget nor how to prepare the master budget

28. AIS can be linked to other areas of study in accounting by focusing on the five generic elements of the AIS. Which of the following pairs a generic element of the AIS with a specific example from financial accounting?

A. Bank reconciliation, internal control B. Adjusting entries, output C. Financial statements, storage D. FASB Conceptual Framework, input

29. In an auditing course, students develop their decision making skills, learn how to conduct a financial statement audit and learn the various types of audit reports. Which of the following therefore links AIS with auditing?

A. Communication skills B. Professional judgment C. Both communication skills and professional judgment D. Neither communication skills nor professional judgment

30. In management accounting, students learn to prepare budgets, calculate cost variances and interpret those variances. Which of the following best links those topics with AIS study?

A. Use of professional judgment B. Journal entry preparation C. Both use of professional judgment and journal entry preparation D. Neither use of professional judgment nor journal entry preparation

31. The generic structure of most accounting information systems comprises ___ elements.

A. Three B. Four C. Five D. More than five

32. Which generic element of the AIS is focused on master files, transaction files and junction files?

A. Inputs B. Processes C. Outputs D. Storage

33. Which of the following is an example of an AIS output?

A. Journal entries B. Statement of cash flows C. Sales transaction file D. General ledger software

34. Ethan is an accountant for a small startup business. He is trying to decide if the business should use paper-based journals and ledgers or a spreadsheet to record transactions. He is therefore making a decision about which generic element of the AIS?

A. Inputs B. Processes C. Outputs D. Technology

35. Sienna used a stack of sales invoices to record journal entries in the AIS. She used those entries and others to prepare an income statement that was later reviewed by her supervisor. All the generic elements of the AIS are represented in Sienna's actions except:

A. Internal controls B. Outputs C. Storage D. Inputs

36. Sienna used a stack of sales invoices to record journal entries in the AIS. She used those entries and others to prepare an income statement that was later reviewed by her supervisor. The supervisor's review could best be described as which generic element of the AIS?

A. Input B. Output C. Process D. Internal control

37. The generic elements of an AIS include inputs and outputs. Which of the following statements about them is most true?

A. Inputs should be paper-based; outputs should be electronic. B. Outputs should be paper-based; inputs should be electronic. C. If inputs are paper-based, outputs should also be paper-based. D. If inputs are electronic, outputs could be either paper-based or electronic.

38. The generic elements of an AIS include processes and storage. Which of the following statements about them is most true?

A. Both require internal controls, but the specific controls may be different. B. Both require identical internal controls. C. Storage is not subject to internal controls, but processes are. D. Processes are not subject to internal controls, but storage is.

39. Storage is one generic element of the AIS; the text explains that data stored electronically often are grouped into three types of files. Which of the following includes three examples of the same file type?

A. Purchases, cash receipts, sales B. Inventory, cash receipts, sales C. Purchases, cash, sales D. Inventory, cash, sales

40. Storage is one generic element of the AIS; the text explains that data stored electronically often are grouped into three types of files. Which of the following includes one example of each file type?

A. Purchases, sales, inventory B. Purchases, inventory, purchases/inventory C. Cash receipts, cash payments, cash on hand D. Sales, cost of goods sold, inventory

41. Information literacy is the ability to ___ information in all of its various formats.

A. Find and evaluate B. Use and communicate C. Find, evaluate, use and communicate D. Use and evaluate

42. According to the University of Maryland's University College, information should be evaluated based on ___ criteria.

A. Two B. Three C. Four D. Five E. More than five

43. Which of the following best summarizes "authority," as the term is used in information evaluation?

A. Only people with college degrees have true authority to publish. B. An author cannot evaluate information. C. The author's credentials should be described as clearly and completely as possible. D. The more authors a paper has, the more authoritative it is.

44. Which of the following best explains the idea of "currency," as the term is used in evaluating information?

A. Information more than five years old should never be used. B. Financial information is always more accurate than nonfinancial information. C. Authors without a current college degree have no authority to publish. D. Users should consider the relationship between the subject and the publication date.

45. Bumble Beasley, a recent accounting graduate from a private, for-profit university, started his own accounting consulting firm. His web page discussed internal controls, inputs, processes and outputs in relation to the design and implementation of accounting information systems. Should his web page be considered a good source of information about the generic structure of AIS?

A. Yes. Because he has a college degree, he has authority. B. Yes. Because he is a recent graduate, the information is current. C. No. Since his degree is from a private, for-profit university, he cannot be objective. D. No. He is in violation of at least one of the UMUC criteria for evaluating information.

46. A consulting company summarized the key provisions of the Sarbanes-Oxley Act in a halfpage flyer, which was then mailed to prospective clients. The flyer contained the name of the consulting company, but did not identify any of its employees by name. In addition to objectivity, the flyer is most likely in violation of which UMUC criterion for information evaluation?

A. Authority B. Accuracy C. Currency D. Coverage

47. UMUC identified several criteria for evaluating information. Which of the following statements is most true?

A. Any piece of information that does not meet all five should be ignored. B. Meeting any three of the five criteria indicates that information must be considered. C. Authority and accuracy are more important than the other criteria. D. The importance of each category depends upon the source and intended use of the information.

48. Ahmed was writing a paper summarizing three processes common in most organizations; his specific focus was on for-profit manufacturing organizations. In terms of the UMUC criteria for information evaluation, Ahmed's paper is most likely to violate:

A. Coverage, because it discusses only three processes. B. Currency, because it does not focus on dollar amounts. C. Authority, because Ahmed has no authority to write such a paper. D. Relevance, because it focuses on for-profit manufacturing organizations.

49. As a requirement of his AIS course, Ahmed was preparing a short paper on why AIS is an important area of study for future accountants. In terms of the UMUC information literacy criteria, which of the following statements is most true?

A. Ahmed has sufficient authority to write the paper; he does not need to consult outside sources. B. To meet the accuracy criterion, he must discuss exactly three reasons. C. By consulting at least five sources, Ahmed will be sure to meet the objectivity criterion. D. His paper may have sufficient coverage if he discusses at least three reasons.

50. Gloria wrote a paper on the AICPA core competencies for her accounting information systems class. She organized the paper in three main parts: broad business perspective competencies, functional competencies, conceptual framework competencies. In terms of the UMUC criteria for information evaluation, which of the following statements is most true?

A. Gloria must add at least one section for the paper to have sufficient coverage. B. Gloria must add one section and delete one section for the paper to have sufficient coverage. C. Unless the paper is published within six months, it will not be current. D. The section on conceptual framework competencies must discuss all elements of the conceptual framework.

51. The AICPA Core Competency framework comprises three parts. Which of the following best pairs a specific competency with the correct part?

A. Resource management, broad business perspective B. Risk analysis, functional C. Both resource management, broad business perspective and risk analysis, functional D. Neither resource management, broad business perspective nor risk analysis, functional

52. The AICPA Core Competency framework comprises three parts. All of the following competencies belong to the same part except:

A. Problem solving B. Decision making C. Communication D. Research

53. Studying AIS helps students understand business processes from an accounting perspective. Which of the following activities would commonly be associated with the financing process?

A. Selling goods and services on credit B. Issuing equity securities C. Making payments to vendors D. Hiring employees to work in the finance department

54. Studying AIS helps students understand business processes from an accounting perspective. Which of the following general ledger accounts would be unique to a company with a conversion process?

A. Work in process B. Inventory C. Supplies D. Payroll expense

55. An accounting information system comprises five generic parts. Which of the following gives an example of an internal control associated with the sales/collection process?

A. Depositing cash in the bank daily B. Adequately supervising employees who handle inventory C. Both depositing cash in the bank daily and adequately supervising employees who handle inventory D. Neither depositing cash in the bank daily nor adequately supervising employees who handle inventory

56. An accounting information system comprises five generic parts. Which of the following gives an example of an internal control associated with the financing process?

A. Maintaining a good credit rating to facilitate the issuance of bonds and other debt securities. B. Evaluating employees in the finance department on a quarterly basis. C. Both maintaining a good credit rating to facilitate the issuance of bonds and other debt securities and evaluating employees in the finance department on a quarterly basis. D. Neither maintaining a good credit rating to facilitate the issuance of bonds and other debt securities nor evaluating employees in the finance department on a quarterly basis.

57. Most accounting information systems comprise five parts. Which of the following must be used as a processing tool in the AIS?

A. Spreadsheets B. Relational databases C. Both spreadsheets and relational databases D. Neither spreadsheets nor relational databases

58. JPS Corporation's accounting information system includes sales invoices, general ledger software, spreadsheets and customer files. JPS is careful to maintain adequate separation of duties as well. To provide one example of each generic element of the AIS, that list should replace ___ with ___.

A. Spreadsheets; operational budgets B. Customer files; sales transaction files C. General ledger software; satellites D. Adequate separation of duties; regular AIS data backup

59. Accounting information systems has links with other areas of accounting study, including financial accounting. Which of the following combines an example of an AIS output with information you would expect to find in the output?

A. Income statement, net sales broken down by product line B. Journal entries, accounts to debit and credit C. Balance sheet, listing of current asset accounts with their balances D. All of these

60. Accounting information systems has links with other areas of accounting study, including financial accounting. Which of the following combines an example of AIS storage with information you would expect to find in it?

A. Balance sheet, listing of current asset accounts with their balances B. Master file, customer address C. Both balance sheet, listing of current asset accounts with their balances and master file, customer address D. Neither balance sheet, listing of current asset accounts with their balances nor master file, customer address

Essay Questions

61. Which generic element of the AIS is most closely associated with each of the following questions? a. Beyond the general-purpose financial statements, what other reports will managers and system users need? b. How many copies of each source document will be required? c. How should the AIS be designed to facilitate the production of other reports? d. If computer-based tools are used in the AIS, which software and hardware packages should be implemented? e. Should AIS tools be manual, computer-based or both? f. Under what conditions can/should data be destroyed? g. What behavioral effects are controls likely to have? h. What controls are necessary to promote information integrity in the AIS? i. What kinds of source documents will system users need? j. Where should data be stored?

62. Which UMUC evaluation criterion is indicated by each of the following questions? a. Can you establish the writer's credentials? b. Can you tell when the source was created/written? c. Can you tell who created the information? d. Does the information contain advertising? e. Does the information contain any obvious errors of fact? f. Does the source cover the subject with sufficient depth? g. Does the source tell you where the information came from? h. Is the information available freely? i. Is the source still under construction? j. When was the last time the source was updated?

63. Which generic AIS element is exemplified by each item below? a. Balance sheet b. Customer's check c. General ledger software d. Requiring two signatures on checks over $500 e. Sales invoice f. Sales transaction file g. Spreadsheet software h. Statement of cash flows i. Storing accounting records in a locked filing cabinet j. Vendor master file

64. AIS is an important area of study for future accountants, since a well-designed AIS can respond to many elements of the FASB Conceptual Framework. Indicate which element of financial statements from the FASB Conceptual Framework best describes each item below. a. Accounts payable b. Cash c. Common stock d. Cost of goods sold e. Depreciation expense f. Interest earned g. Inventory h. Loss on sale of land i. Retained earnings j. Sales

65. Thuy is an accountant at RPA Corporation. When RPA sells inventory, Thuy receives a sales invoice indicating the number of units sold, the sales price, sales tax assessed and the total amount paid by the customer. Thuy makes a journal entry using general ledger software. At the end of each quarter, Thuy prepares RPA's general-purpose financial statements, as well as a comparison of budgeted sales to actual sales. The general-purpose financial statements are sent to the SEC, while the budgeted-to-actual comparison is reviewed by RPA's management. From the preceding paragraph, give one example of each of the following elements from the definition of AIS presented in the text: a. Activity b. Data c. Document d. External decision maker e. Information f. Internal decision maker g. Processing h. Technology

66. In contrast with other areas of accounting, AIS more frequently involves problems with nondeterministic answers. Which questions in the list below have non-deterministic answers? a. How do you calculate depreciation using the straight-line method? b. How many accountants should ITI Corporation hire? c. Should ITI Corporation expand its operations to other countries? d. Should ITI Corporation reconcile its bank statement at least once a month? e. Should ITI Corporation use Quickbooks or Peachtree for transaction processing? f. Should Thai use information from textbooks as one source in a paper for her AIS course? g. What is the journal entry to record a cash sale? h. Which inventory cost flow assumption (FIFO, LIFO) does ITI Corporation use? i. Which local bank should ITI Corporation do business with? j. With respect to financial reporting, is relevance more important than reliability?

67. For each independent case below: (1) indicate which source better fulfills the indicated UMUC criterion for information evaluation AND (2) circle the phrase that led you to your decision. a. Objectivity: i. A Wall Street Journal article about financial statement fraud cases, written by an investigative reporter whose contact information is provided ii. A presentation on financial statement fraud cases, given by an experienced independent consultant to prospective clients b. Accuracy: i. A web site that correctly defines six elements of financial statements from the FASB Conceptual Framework ii. An article that accurately gives examples of four constraints from the FASB Conceptual Framework c. Authority: i. A presentation delivered by a retired IRS agent on tax fraud ii. An attorney's web site recommending strategies for avoiding tax audits d. Currency: i. A web site last modified in 2010 that gives examples of internal controls for international companies ii. A 2009 article in a practitioner journal that gives examples of how companies are implementing international financial reporting standards e. Coverage: i. An article titled "Elements of the Balance Sheet" that explains (only) the difference between current assets and plant assets ii. An article titled "Emerging Technologies in Accounting" that briefly discusses three new technologies used by a single company

68. Bumble Beasley was preparing a paper for his AIS course that explained the connections between the definition of AIS and the generic elements of the AIS. He created the pairings listed in the table below:

Complete the table by suggesting one item that exemplifies both the definition component and the generic element. For example, "making journal entries" is both an activity (in terms of the definition) and a process (in terms of the generic elements).

69. A well-designed AIS can respond to many parts of the FASB Conceptual Framework. Descriptions of the assumptions, principles and constraints of the framework are listed below in alphabetic order. Group them as they are found in the conceptual framework. a. A company will continue in business long enough to satisfy its current obligations. b. A company's accounting records should be kept separate from those of its owner. c. Absent other information, assets are recorded and reported at their purchase price. d. Financial statements should include complete information for making decisions. e. For financial reporting purposes, we divide the life of a business into quarters, years or some other measurement of time. f. Revenue should be recorded in the AIS when goods and services are exchanged. g. The benefits of obtaining information should outweigh the cost of obtaining it. h. The costs of earning revenue should be put on the same income statement with the revenue they generate. i. The value of a dollar is constant over time. j. When a dollar amount is too small to make a significant difference in decision making, other accounting rules may be ignored. k. When faced with a choice of methods, make the choice that puts the business in the worst possible financial light.

70. Indicate whether each of the following statements is: (a) always true, (b) sometimes true or (c) never true. 1. AIS outputs are important only in AIS and financial accounting. 2. An accounting information system can determine materiality without human intervention. 3. Financial accounting can involve unstructured problems. 4. Internal controls cut across many areas of accounting study. 5. The objective of an accounting information system is to report true financial data.

Short Answer Questions

71. In your own words, define "accounting information system."

72. AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the FASB Conceptual Framework. List the parts of the FASB Conceptual Framework. (You do not need to list the items in each part.)

73. You have been hired as a consultant to design and implement a new accounting information system for PRI Corporation. Explain how you would structure the AIS. Give two examples of each structural element; also indicate one question you would ask PRI's management to assist in your work. (Do not use examples and questions listed in the text.)

74. List and discuss two similarities and two differences between AIS and other areas of accounting.

75. The accounting staff at NSR Corporation have compiled a list of risks the company needs to address for its information technology; they plan to prepare a report recommending internal controls that address each risk. They have located the five sources of information listed below, but want to use no more than three in their report. Use the UMUC criteria to explain which sources they should use. a. A software documentation manual for the general ledger system used at NSR Corporation. The manual contains a section on troubleshooting the software, which briefly discusses common risks and problems associated with its installation. The manual's title page lists the software company as its author. b. A web site, first published in 2009 and last updated in 2014, for an information technology consulting firm. The web site lists and discusses twenty common internal controls for information technology based on the firm's past clients. c. An article published in Information Security, a practitioner journal. The article, published in 2013, was co-authored by a university professor and the chief information officer of a Fortune 100 corporation. It analyzes five common internal controls for information technology, including a description of each control, the costs of implementing it and the benefits of implementing it. d. The American Institute of CPAs list of "top ten technologies" for 2014, published on the AICPA web site. The list was developed via a survey of practicing CPAs throughout the United States; it includes several items related to information technology control, and also provides suggestions about where to find additional information. e. The third edition of a management information systems textbook. It was published in 1999 and includes two chapters on information technology security. The textbook was written by a team of three authors: one information systems auditor with three years' experience, and two university professors with advanced degrees but little experience.

Chapter 01 Role and Purpose of Accounting Information Systems Answer Key

Multiple Choice Questions

An accounting information system is a set of interrelated:

A. Activities and documents only. B. Activities and technologies only. C. Documents and technologies only. D. Activities, documents and technologies.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define "accounting information systems." Topic: Definition of AIS

The components of an accounting information system are designed to collect ___ and report ___.

A. Data; information B. Data; data C. Information; information D. Information; data

AACSB: Analytical Thinking

AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define "accounting information systems." Topic: Components of AIS

An accounting information system is defined by the text as a set of three interrelated elements. Which of the following choices best gives an example of each element?

An accounting information system transforms inputs into outputs via processes such as:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium

Learning Objective: 01-01 Define "accounting information systems." Topic: Components of AIS

Which of the following best fits the definition of an accounting information system explained in the text?

April compiled checks, receipts and invoices, then entered them into Quickbooks. She printed out her financial statements and took them to the bank as documentation for a loan application. In that scenario, checks, receipts and invoices could be referred to as:

A. Documents and data B. Data and information C. Documents and information D. Documents, data and information

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-01 Define "accounting information systems." Topic: Definition of AIS 1-38 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Claudia borrowed money from her bank, signing a five-year note payable. She then calculated the monthly payment needed to pay off the loan within three years. Which of the following statements is/are most true?

Claudia borrowed money from her bank, signing a five-year note payable. She then calculated the monthly payment needed to pay off the loan within three years. Based on the definition of an accounting information system provided in the text, the five-year note payable could be considered: (i) an input, (ii) an output, (iii) a document.

A. I and II only B. I and III only C. II and III only D. I, II and III

Eugene is a self-employed business owner. In February 2011, he gathered together his income and expense records for 2010. He used them, along with appropriate software, to prepare his tax return, which he then transmitted to the Internal Revenue Service. Has Eugene used an accounting information system based on the definition provided in the text?

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Difficulty: 2 Medium Learning Objective: 01-01 Define "accounting information systems." Topic: Definition of AIS

10.

The vice president for customer service of First United Bank determined that Lee had overpaid his mortgage. The bank sent Lee a letter asking him if he wanted a refund of the overpayment or if he wanted to apply it to future mortgage payments. Has the vice president for customer service used an accounting information system based on the definition provided in the text?

11.

Accounting information systems is an important area of study for future accountants because: (i) Developing a strong accounting information system helps achieve some of the components of the FASB Conceptual Framework of Accounting, (ii) Studying AIS helps students develop many of the core competencies suggested by the AICPA, (iii) Acquiring knowledge about AIS helps students learn more about common business processes.

A. (i) and (ii) only B. (ii) and (iii) only C. (i) and (iii) only D. (i), (ii) and (iii)

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: Importance of AIS

12.

Accounting information systems is an important area of study for future accountants because a well-designed AIS can respond to many elements of the FASB Conceptual Framework. All of the following are parts of the conceptual framework except:

A. Principles of debit and credit B. Objective of financial reporting C. Elements of financial statements D. Qualitative characteristics of accounting information

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants.

Topic: Importance of AIS

13.

Which of the following best explains why AIS is an important area of study for future accountants?

14.

AIS is an important area of study for future accountants because a well-designed AIS can recognize and adapt to the cost-benefit constraint. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: Importance of AIS

15.

AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the conceptual framework. Which of the following best pairs an element of the conceptual framework with a specific example of that element?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 1-44 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: Importance of AIS

16.

AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the conceptual framework. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: Importance of AIS

17.

AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the conceptual framework. Which of the following statements about qualitative characteristics of accounting information is most true?

18.

VTR Corporation's accounting information system recently reported the following information: Cost of goods sold, $1,500. Inventory, $15,000. Unearned service fees, $3,000. Service fees earned, $8,000. Which element of financial statements is not included in the preceding data?

A. Assets B. Equity C. Expense D. Liabilities

19.

Which of the following elements of the conceptual framework fit within the same category?

A. Economic entity, historical cost B. Conservatism, historical cost C. Economic entity, conservatism D. Conservatism, materiality

20.

Which of the following exemplifies "materiality" as the term is used in the FASB conceptual framework?

21.

Which of the following statements about AIS is most true?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-03 Compare and contrast AIS with other areas of study in accounting. Topic: Similarities and differences between AIS and other accounting areas

22.

Which of the following statements about AIS is most true?

23.

AIS study sometimes involves questions with deterministic answers. Which of the following questions is most likely to have a deterministic answer?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-03 Compare and contrast AIS with other areas of study in accounting. Topic: Similarities and differences between AIS and other accounting areas

24.

Joe has completed all his accounting coursework and is ready to graduate. In his education, he has learned how to: analyze source documents, use Excel, make journal entries and prepare tax returns. Which generic element of the AIS is missing from that list?

A. Inputs B. Outputs C. Storage D. Processes

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS structure

25.

Which of the following statements best demonstrates a similarity between AIS and other areas of study in accounting?

26.

Which of the following statements best demonstrates a difference between AIS and other areas of study in accounting?

Topic: Similarities and differences between AIS and other accounting areas

27.

AIS can be linked to other areas of study in accounting by focusing on the five generic elements of the AIS. Which of the following is a process that might be studied in management or cost accounting?

28.

AIS can be linked to other areas of study in accounting by focusing on the five generic elements of the AIS. Which of the following pairs a generic element of the AIS with a specific example from financial accounting?

A. Bank reconciliation, internal control B. Adjusting entries, output C. Financial statements, storage D. FASB Conceptual Framework, input

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-03 Compare and contrast AIS with other areas of study in accounting. Topic: Similarities and differences between AIS and other accounting areas 1-52 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

29.

In an auditing course, students develop their decision making skills, learn how to conduct a financial statement audit and learn the various types of audit reports. Which of the following therefore links AIS with auditing?

A. Communication skills B. Professional judgment C. Both communication skills and professional judgment D. Neither communication skills nor professional judgment

30.

In management accounting, students learn to prepare budgets, calculate cost variances and interpret those variances. Which of the following best links those topics with AIS study?

A. Use of professional judgment B. Journal entry preparation C. Both use of professional judgment and journal entry preparation D. Neither use of professional judgment nor journal entry preparation

31.

The generic structure of most accounting information systems comprises ___ elements.

A. Three B. Four C. Five D. More than five

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS generic elements

32.

Which generic element of the AIS is focused on master files, transaction files and junction files?

A. Inputs B. Processes C. Outputs D. Storage

33.

Which of the following is an example of an AIS output?

A. Journal entries B. Statement of cash flows C. Sales transaction file D. General ledger software

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS generic elements

34.

Ethan is an accountant for a small startup business. He is trying to decide if the business should use paper-based journals and ledgers or a spreadsheet to record transactions. He is therefore making a decision about which generic element of the AIS?

A. Inputs B. Processes C. Outputs D. Technology

35.

Sienna used a stack of sales invoices to record journal entries in the AIS. She used those entries and others to prepare an income statement that was later reviewed by her supervisor. All the generic elements of the AIS are represented in Sienna's actions except:

A. Internal controls B. Outputs C. Storage D. Inputs

36.

Sienna used a stack of sales invoices to record journal entries in the AIS. She used those entries and others to prepare an income statement that was later reviewed by her supervisor. The supervisor's review could best be described as which generic element of the AIS?

A. Input B. Output C. Process D. Internal control

Topic: AIS generic elements

37.

The generic elements of an AIS include inputs and outputs. Which of the following statements about them is most true?

38.

The generic elements of an AIS include processes and storage. Which of the following statements about them is most true?

39.

Storage is one generic element of the AIS; the text explains that data stored electronically often are grouped into three types of files. Which of the following includes three examples of the same file type?

A. Purchases, cash receipts, sales B. Inventory, cash receipts, sales C. Purchases, cash, sales D. Inventory, cash, sales

40.

Storage is one generic element of the AIS; the text explains that data stored electronically often are grouped into three types of files. Which of the following includes one example of each file type?

A. Purchases, sales, inventory B. Purchases, inventory, purchases/inventory C. Cash receipts, cash payments, cash on hand D. Sales, cost of goods sold, inventory

41.

Information literacy is the ability to ___ information in all of its various formats.

A. Find and evaluate B. Use and communicate C. Find, evaluate, use and communicate D. Use and evaluate

AACSB: Communication AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

42.

According to the University of Maryland's University College, information should be evaluated based on ___ criteria.

A. Two B. Three C. Four D. Five E. More than five

43.

Which of the following best summarizes "authority," as the term is used in information evaluation?

AACSB: Communication AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

44.

Which of the following best explains the idea of "currency," as the term is used in evaluating information?

45.

Bumble Beasley, a recent accounting graduate from a private, for-profit university, started his own accounting consulting firm. His web page discussed internal controls, inputs, processes and outputs in relation to the design and implementation of accounting information systems. Should his web page be considered a good source of information about the generic structure of AIS?

46.

A consulting company summarized the key provisions of the Sarbanes-Oxley Act in a halfpage flyer, which was then mailed to prospective clients. The flyer contained the name of the consulting company, but did not identify any of its employees by name. In addition to objectivity, the flyer is most likely in violation of which UMUC criterion for information evaluation?

A. Authority B. Accuracy C. Currency D. Coverage

AACSB: Communication AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand 1-61 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

47.

UMUC identified several criteria for evaluating information. Which of the following statements is most true?

48.

Ahmed was writing a paper summarizing three processes common in most organizations; his specific focus was on for-profit manufacturing organizations. In terms of the UMUC criteria for information evaluation, Ahmed's paper is most likely to violate:

AACSB: Communication AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 1-62 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

49.

As a requirement of his AIS course, Ahmed was preparing a short paper on why AIS is an important area of study for future accountants. In terms of the UMUC information literacy criteria, which of the following statements is most true?

50.

Gloria wrote a paper on the AICPA core competencies for her accounting information systems class. She organized the paper in three main parts: broad business perspective competencies, functional competencies, conceptual framework competencies. In terms of the UMUC criteria for information evaluation, which of the following statements is most true?

51.

The AICPA Core Competency framework comprises three parts. Which of the following best pairs a specific competency with the correct part?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 1-64 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: AICPA core competencies

52.

The AICPA Core Competency framework comprises three parts. All of the following competencies belong to the same part except:

A. Problem solving B. Decision making C. Communication D. Research

53.

Studying AIS helps students understand business processes from an accounting perspective. Which of the following activities would commonly be associated with the financing process?

A. Selling goods and services on credit B. Issuing equity securities C. Making payments to vendors D. Hiring employees to work in the finance department

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: Business processes 1-65 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

54.

Studying AIS helps students understand business processes from an accounting perspective. Which of the following general ledger accounts would be unique to a company with a conversion process?

A. Work in process B. Inventory C. Supplies D. Payroll expense

55.

An accounting information system comprises five generic parts. Which of the following gives an example of an internal control associated with the sales/collection process?

Topic: Business processes

56.

An accounting information system comprises five generic parts. Which of the following gives an example of an internal control associated with the financing process?

57.

Most accounting information systems comprise five parts. Which of the following must be used as a processing tool in the AIS?

A. Spreadsheets B. Relational databases C. Both spreadsheets and relational databases D. Neither spreadsheets nor relational databases

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS structure

58.

JPS Corporation's accounting information system includes sales invoices, general ledger software, spreadsheets and customer files. JPS is careful to maintain adequate separation of duties as well. To provide one example of each generic element of the AIS, that list should replace ___ with ___.

A. Spreadsheets; operational budgets B. Customer files; sales transaction files C. General ledger software; satellites D. Adequate separation of duties; regular AIS data backup

59.

Accounting information systems has links with other areas of accounting study, including financial accounting. Which of the following combines an example of an AIS output with information you would expect to find in the output?

A. Income statement, net sales broken down by product line B. Journal entries, accounts to debit and credit C. Balance sheet, listing of current asset accounts with their balances D. All of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS structure

60.

Accounting information systems has links with other areas of accounting study, including financial accounting. Which of the following combines an example of AIS storage with information you would expect to find in it?

Essay Questions

61.

Which generic element of the AIS is most closely associated with each of the following questions? a. Beyond the general-purpose financial statements, what other reports will managers and system users need? b. How many copies of each source document will be required? c. How should the AIS be designed to facilitate the production of other reports? d. If computer-based tools are used in the AIS, which software and hardware packages should be implemented? e. Should AIS tools be manual, computer-based or both? f. Under what conditions can/should data be destroyed? g. What behavioral effects are controls likely to have? h. What controls are necessary to promote information integrity in the AIS? i. What kinds of source documents will system users need? j. Where should data be stored?

a. output b. input c. process d. process e. process f. storage g. internal control h. internal control i. input j. storage

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS structure 1-70 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

62.

Which UMUC evaluation criterion is indicated by each of the following questions? a. Can you establish the writer's credentials? b. Can you tell when the source was created/written? c. Can you tell who created the information? d. Does the information contain advertising? e. Does the information contain any obvious errors of fact? f. Does the source cover the subject with sufficient depth? g. Does the source tell you where the information came from? h. Is the information available freely? i. Is the source still under construction? j. When was the last time the source was updated?

a. authority b. currency c. authority d. objectivity e. accuracy f. coverage g. accuracy h. objectivity i. coverage j. currency

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

63.

Which generic AIS element is exemplified by each item below? a. Balance sheet b. Customer's check c. General ledger software d. Requiring two signatures on checks over $500 e. Sales invoice f. Sales transaction file g. Spreadsheet software h. Statement of cash flows i. Storing accounting records in a locked filing cabinet j. Vendor master file

a. output b. input c. process d. internal control e. output f. storage g. process h. output i. internal control j. storage

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS structure

64.

AIS is an important area of study for future accountants, since a well-designed AIS can respond to many elements of the FASB Conceptual Framework. Indicate which element of financial statements from the FASB Conceptual Framework best describes each item below. a. Accounts payable b. Cash c. Common stock d. Cost of goods sold e. Depreciation expense f. Interest earned g. Inventory h. Loss on sale of land i. Retained earnings j. Sales

a. liability b. asset c. equity d. expense e. expense f. revenue g. asset h. loss i. equity j. revenue

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: Elements of financial statements 1-73 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

65.

Thuy is an accountant at RPA Corporation. When RPA sells inventory, Thuy receives a sales invoice indicating the number of units sold, the sales price, sales tax assessed and the total amount paid by the customer. Thuy makes a journal entry using general ledger software. At the end of each quarter, Thuy prepares RPA's general-purpose financial statements, as well as a comparison of budgeted sales to actual sales. The generalpurpose financial statements are sent to the SEC, while the budgeted-to-actual comparison is reviewed by RPA's management. From the preceding paragraph, give one example of each of the following elements from the definition of AIS presented in the text: a. Activity b. Data c. Document d. External decision maker e. Information f. Internal decision maker g. Processing h. Technology

a. sells inventory b. number of units sold c. sales invoice d. SEC e. comparison of budgeted sales to actual sales f. RPA management g. makes a journal entry h. general ledger software

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-01 Define "accounting information systems." 1-74 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: AIS definition

66.

In contrast with other areas of accounting, AIS more frequently involves problems with non-deterministic answers. Which questions in the list below have non-deterministic answers? a. How do you calculate depreciation using the straight-line method? b. How many accountants should ITI Corporation hire? c. Should ITI Corporation expand its operations to other countries? d. Should ITI Corporation reconcile its bank statement at least once a month? e. Should ITI Corporation use Quickbooks or Peachtree for transaction processing? f. Should Thai use information from textbooks as one source in a paper for her AIS course? g. What is the journal entry to record a cash sale? h. Which inventory cost flow assumption (FIFO, LIFO) does ITI Corporation use? i. Which local bank should ITI Corporation do business with? j. With respect to financial reporting, is relevance more important than reliability?

B, C, E, F, I, J

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 01-03 Compare and contrast AIS with other areas of study in accounting. Topic: Similarities and differences between AIS and other accounting areas

67.

For each independent case below: (1) indicate which source better fulfills the indicated UMUC criterion for information evaluation AND (2) circle the phrase that led you to your decision. a. Objectivity: i. A Wall Street Journal article about financial statement fraud cases, written by an investigative reporter whose contact information is provided ii. A presentation on financial statement fraud cases, given by an experienced independent consultant to prospective clients b. Accuracy: i. A web site that correctly defines six elements of financial statements from the FASB Conceptual Framework ii. An article that accurately gives examples of four constraints from the FASB Conceptual Framework c. Authority: i. A presentation delivered by a retired IRS agent on tax fraud ii. An attorney's web site recommending strategies for avoiding tax audits d. Currency: i. A web site last modified in 2010 that gives examples of internal controls for international companies ii. A 2009 article in a practitioner journal that gives examples of how companies are implementing international financial reporting standards e. Coverage: i. An article titled "Elements of the Balance Sheet" that explains (only) the difference between current assets and plant assets ii. An article titled "Emerging Technologies in Accounting" that briefly discusses three new technologies used by a single company

a. I, investigative reporter b. ii, four examples of constraints c. I, retired IRS agent d. I, internal controls for international companies e. ii, three new technologies

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

68.

Bumble Beasley was preparing a paper for his AIS course that explained the connections between the definition of AIS and the generic elements of the AIS. He created the pairings listed in the table below:

Activity/process: preparing adjusting entries Information/output: statement of cash flows Data/storage: customer name Technology/internal control: passwords Document/input: purchase order

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-01 Define "accounting information systems." Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: AIS structure and definition

69.

A well-designed AIS can respond to many parts of the FASB Conceptual Framework. Descriptions of the assumptions, principles and constraints of the framework are listed below in alphabetic order. Group them as they are found in the conceptual framework. a. A company will continue in business long enough to satisfy its current obligations. b. A company's accounting records should be kept separate from those of its owner. c. Absent other information, assets are recorded and reported at their purchase price. d. Financial statements should include complete information for making decisions. e. For financial reporting purposes, we divide the life of a business into quarters, years or some other measurement of time. f. Revenue should be recorded in the AIS when goods and services are exchanged. g. The benefits of obtaining information should outweigh the cost of obtaining it. h. The costs of earning revenue should be put on the same income statement with the revenue they generate. i. The value of a dollar is constant over time. j. When a dollar amount is too small to make a significant difference in decision making, other accounting rules may be ignored. k. When faced with a choice of methods, make the choice that puts the business in the worst possible financial light.

Assumptions: a, b, e, i Principles: c, d, f, h Constraints: g, j, k

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: AIS importance

70.

Indicate whether each of the following statements is: (a) always true, (b) sometimes true or (c) never true. 1. AIS outputs are important only in AIS and financial accounting. 2. An accounting information system can determine materiality without human intervention. 3. Financial accounting can involve unstructured problems. 4. Internal controls cut across many areas of accounting study. 5. The objective of an accounting information system is to report true financial data.

1. never true 2. never true 3. always true 4. always true 5. never true

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-03 Compare and contrast AIS with other areas of study in accounting. Topic: Similarities and differences between AIS and other accounting areas

Short Answer Questions

71.

In your own words, define "accounting information system."

An accounting information system comprises several parts with the common goal of producing information for making decisions. The parts include, for example, source documents, relational databases, tax returns, computer files and separation of duties. Examples of decision makers include management, employees, government agencies and customers.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-01 Define "accounting information systems." Topic: AIS definition

72.

AIS is an important area of study for future accountants because a well-designed AIS can respond to many elements of the FASB Conceptual Framework. List the parts of the FASB Conceptual Framework. (You do not need to list the items in each part.)

Objective of financial reporting Elements of financial statements Qualitative characteristics of accounting information Assumptions, principles and constraints

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 01-02 Discuss why AIS is an important area of study for future accountants. Topic: AIS importance

73.

You have been hired as a consultant to design and implement a new accounting information system for PRI Corporation. Explain how you would structure the AIS. Give two examples of each structural element; also indicate one question you would ask PRI's management to assist in your work. (Do not use examples and questions listed in the text.)

Inputs: customer checks, bank statements Processes: making journal entries, preparing financial statements Outputs: payroll register, depreciation schedule Storage: employee file, pay employees file Internal controls: adequate supervision, bank reconciliations

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-04 Explain the structure of most accounting information systems. Topic: AIS structure

74.

List and discuss two similarities and two differences between AIS and other areas of accounting.

Similarities between AIS and other areas of accounting include the presence of nondeterministic problems and a focus on providing information for making decisions. Differences include the focus of AIS on the "big picture" and the incorporation in AIS of concepts and ideas from outside accounting.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium

Learning Objective: 01-03 Compare and contrast AIS with other areas of study in accounting. Topic: Similarities and differences between AIS and other accounting areas

75.

The accounting staff at NSR Corporation have compiled a list of risks the company needs to address for its information technology; they plan to prepare a report recommending internal controls that address each risk. They have located the five sources of information listed below, but want to use no more than three in their report. Use the UMUC criteria to explain which sources they should use. a. A software documentation manual for the general ledger system used at NSR Corporation. The manual contains a section on troubleshooting the software, which briefly discusses common risks and problems associated with its installation. The manual's title page lists the software company as its author. b. A web site, first published in 2009 and last updated in 2014, for an information technology consulting firm. The web site lists and discusses twenty common internal controls for information technology based on the firm's past clients. c. An article published in Information Security, a practitioner journal. The article, published in 2013, was co-authored by a university professor and the chief information officer of a Fortune 100 corporation. It analyzes five common internal controls for information technology, including a description of each control, the costs of implementing it and the benefits of implementing it. d. The American Institute of CPAs list of "top ten technologies" for 2014, published on the AICPA web site. The list was developed via a survey of practicing CPAs throughout the United States; it includes several items related to information technology control, and also provides suggestions about where to find additional information. e. The third edition of a management information systems textbook. It was published in 1999 and includes two chapters on information technology security. The textbook was written by a team of three authors: one information systems auditor with three years' experience, and two university professors with advanced degrees but little experience.

The strongest sources are A and C. The particular strength of A is its authority, since it was written by the software company. C's greatest strengths are objectivity and currency. D may be an acceptable source as well.

AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 01-05 Locate and evaluate information sources on accounting information systems. Topic: Information literacy

Chapter 02 Transaction Processing in the AIS

Multiple Choice Questions

1. The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information is called:

A. Accounting B. Bookkeeping C. Making journal entries D. Preparing financial statements

2. Which of the following phrases most closely relates to bookkeeping?

A. Identifying and measuring economic information B. Communicating economic information C. Permitting informed judgments by users D. Permitting informed decisions by users

3. Which of the following most clearly differentiates accounting and bookkeeping?

A. Bookkeeping always involves information technology; accounting does not. B. Accounting always involves information technology; bookkeeping does not. C. Bookkeeping is the part of accounting most focused on rules and procedures. D. A college degree is required for bookkeeping, but not for accounting.

4. Which of the following statements about accounting and bookkeeping is most true?

A. The FASB Conceptual Framework is relevant in accounting, but not in bookkeeping. B. The FASB Conceptual Framework is relevant in bookkeeping, but not in accounting. C. As an element of the AIS, internal controls are irrelevant to bookkeeping. D. As an element of the AIS, outputs are relevant to accounting.

5. Communicating information to external decision makers is accomplished through ___ as part of the process of ___.

A. Financial statements; bookkeeping B. Financial statements; accounting C. Journal entries; bookkeeping D. Journal entries; accounting

6. Plant assets, such as equipment, are reported on financial statements at their book value, thus exemplifying:

A. The measuring process in accounting only. B. The measuring process in bookkeeping only. C. The measuring process in both accounting and bookkeeping. D. Informed judgments as part of the definition of bookkeeping.

7. An accountant received a stack of sales invoices. Which of the following statements is most true?

A. The stack of sales invoices can help the accountant identify economic information, which is part of both accounting and bookkeeping. B. The accountant is a "user of information" as the phrase is used in the definition of bookkeeping only. C. The accountant is a "user of information" as the phrase is used in the definition of accounting only. D. The stack of sales invoices can help the accountant identify economic information, which is part of bookkeeping, but not accounting.

8. Which of the following best pairs an element of bookkeeping with an example of the element?

A. Identifying economic information, reading a balance sheet B. Identifying economic information, preparing a balance sheet C. Measuring economic information, reading a balance sheet D. Measuring economic information, preparing a balance sheet

9. The concept of bookkeeping includes: (i) distinguishing relevant from irrelevant information, (ii) calculating amounts to record in the AIS, (iii) reporting financial results.

A. I and II only. B. I and III only. C. II and III only. D. I, II and III.

10. The definition of accounting has three principal elements. Which of the following is not one of them?

A. Distinguishing relevant from irrelevant information B. Calculating amounts to record in the AIS C. Reporting financial results D. Using the information to make informed judgments

11. Which of the following steps in the accounting cycle occurs first?

A. Analyze transactions. B. Close the temporary accounts to retained earnings. C. Prepare an unadjusted trial balance. D. Record the transactions in a journal.

12. Which step in the accounting cycle immediately precedes closing the temporary accounts?

A. Analyze transactions. B. Prepare an adjusted trial balance. C. Prepare financial statements. D. Record adjusting entries.

13. In what way is the fifth step in the accounting cycle different from the seventh step in the accounting cycle?

A. The fifth step comes before preparing financial statements; the seventh step comes afterward. B. The fifth step focuses only on permanent accounts; the seventh step focuses only on temporary accounts. C. The fifth step focuses only on temporary accounts; the seventh step focuses only on permanent accounts. D. The seventh step includes the results of internal transactions; the fifth step does not.

14. Which of the following is an example of a deferred revenue?

A. A university receives cash from students prior to the start of classes. B. A convenience store sells newspapers to its customers. C. Both a university receives cash from students prior to the start of classes and a convenience store sells newspapers to its customers. D. Neither a university receives cash from students prior to the start of classes nor a convenience store sells newspapers to its customers.

15. Please refer to the following unadjusted trial balance in answering the below question.

VLN had unpaid wages totaling $800 at the end of the accounting period. When VLN's accountant makes an adjusting entry for the unpaid wages, the new trial balance totals will be:

A. $49,600 B. $51,200 C. Some other amount D. Cannot be determined from the information given

16. Please refer to the following unadjusted trial balance in answering the below question.

When VLN completes the ninth step in the accounting cycle, all of the following accounts will be involved except:

A. Advertising expense B. Deferred revenue C. Retained earnings D. Sales

17. Adjusting entries for accrued revenues and accrued expenses are similar in that:

A. They both involve cash flows after service. B. They both involve cash flows before service. C. They both debit temporary accounts. D. They both credit temporary accounts.

18. Most companies make adjusting entries for depreciation because:

A. Their plant assets lose market value over time. B. The matching concept must be upheld in financial statements. C. Both their plant assets lose market value over time and the matching concept must be upheld in financial statements. D. Neither their plant assets lose market value over time nor the matching concept must be upheld in financial statements.

19. Which of the following sets includes amounts from a single financial statement?

A. Cash, sales, interest earned B. Cash, accounts receivable, interest earned C. Cash, accounts receivable, accounts payable D. Sales, accounts receivable, interest earned

20. Which of the following sets includes examples of the same element of financial statements?

A. Accounts payable, deferred revenue, prepaid wages B. Accounts receivable, deferred revenue, prepaid wages C. Accounts payable, deferred revenue, wages payable D. Deferred revenue, wages payable, prepaid wages

21. Common internal controls associated with source documents include: (i) sequential numbering, (ii) physical security, (iii) equality of debits and credits.

A. I and II only B. I and III only C. II and III only D. I, II and III

22. Requiring ___ on certain source documents is associated with transaction limits as an internal control.

A. Sequential numbering B. Physical security C. Supervisory approval D. Internal transaction notifications

23. TCP Corporation issues a purchase order whenever it buys inventory. Internal controls associated with the purchase order may include:

A. Sequential numbering B. Transaction limits C. Both sequential numbering and transaction limits D. Neither sequential numbering nor transaction limits

24. As an internal control measure in the accounting cycle, physical security most clearly applies to:

A. Source documents B. The balance sheet C. The income statement D. The statement of cash flows

25. Just before preparing financial statements, an inexperienced accountant recorded the use of supplies by debiting supplies expense $100 and debiting supplies $100. Which of the following is most true?

A. The transaction was recorded correctly. B. The unadjusted trial balance will be an effective internal control for detecting any error. C. The adjusted trial balance will be an effective internal control for detecting any error. D. Sequential transaction numbering will be an effective internal control for detecting any error.

26. Linda embezzled cash from her employer by forging a signature on a check. Which of the following internal controls for source documents would most likely prevent such occurrences in the future?

A. Sequential numbering B. Physical security C. Transaction limits D. Bank reconciliation

27. As an internal control for source documents, sequential numbering is most likely to ___ an error.

A. Prevent B. Detect C. Correct D. Eliminate

28. As an internal control for source documents, transaction limits are most likely to ___ an error.

A. Prevent B. Detect C. Correct D. Eliminate

29. As a form of internal control, sequential numbering is most likely to be associated with which step in the accounting cycle?

A. First B. Fifth C. Sixth D. Last

30. As a form of internal control, transaction limits are most likely to be associated with which step in the accounting cycle?

A. Second B. Fourth C. Ninth D. Last

31. All of the following are common coding systems used in organizations except:

A. Block B. Hierarchical C. Random D. Sequential

32. Which type of coding system helps people remember the meaning of the code?

A. Sequential B. Block C. Hierarchical D. Mnemonic

33. The accounting department at a local university uses the prefix ACC for all its courses, thus exemplifying which type of coding system?

A. Sequential B. Block C. Hierarchical D. Mnemonic

34. Courses intended for freshmen at a local university are numbered from 100 to 199, while courses intended for seniors at the same university are numbered from 400 to 499. Which coding system is the university using?

A. Sequential B. Block C. Hierarchical D. Mnemonic

35. Most organizations use purchase orders to authorize inventory and other purchases. If a company's purchase order contains a column labeled "product code," it most likely uses what kind of coding?

A. Sequential B. Block C. Hierarchical D. Mnemonic

36. Most organizations use purchase orders to authorize inventory and other purchases. If a company's purchase order contains a field labeled "purchase order number," it most likely uses what kind of coding?

A. Sequential B. Block C. Hierarchical D. Mnemonic

37. NTR Corporation has offices in both Los Angeles and San Francisco. In the Los Angeles office, the account number for cash is 001.101. In San Francisco, the account number for cash is 002.101. Which of the following statements is most true?

A. NTR uses sequential coding for its chart of accounts. B. One of the offices should change its account number for cash to promote consistency and efficiency. C. The first set of digits denotes the office. D. The second set of digits denotes the office.

38. NTR Corporation has offices in both Los Angeles and San Francisco. In the Los Angeles office, the account number for cash is 001.101. In San Francisco, the account number for cash is 002.101. The account number for accounts receivable in the Los Angeles office is therefore likely to be:

A. 001.102 B. 002.102 C. 102.002 D. 002.110

39. ABT Corporation uses block coding for its chart of accounts, which includes Cash (101), Land (201), Accounts payable (301) and Retained Earnings (501). Which of the following account numbers is most likely associated with an account that will appear on the income statement?

A. 101 B. 102 C. 401 D. 601

40. ABT Corporation uses block coding for its chart of accounts, which includes Cash (101), Land (201), Accounts payable (301) and Retained Earnings (501). Which of the following account numbers is most likely associated with an account that will appear on the adjusted trial balance but not on the post-closing trial balance?

A. 203 B. 405 C. 504 D. 701

41. Human judgment is important in which of the following AIS tasks: (i) designing source documents, (ii) recognizing recordable transactions.

A. I only B. II only C. Both I and II D. Neither I nor II

42. Information technology:

A. Has replaced human judgment in accounting. B. Has cut down on the tedium associated with many steps in the accounting cycle. C. Is an essential element of any AIS. D. Is the defining feature of the AIS.

43. Which of the following statements about human judgment and information technology in the AIS is most true?

A. Information technology is a substitute for human judgment. B. Human judgment is a substitute for information technology. C. Information technology can enhance human judgment. D. Both information technology and human judgment are essential in any AIS.

44. In an AIS, human judgment is important in:

A. The second step of the accounting cycle. B. The design and implementation of internal controls. C. Both the second step of the accounting cycle and the design and implementation of internal controls. D. Neither the second step of the accounting cycle nor the design and implementation of internal controls.

45. Information technology can be an important tool in which of the five generic elements of an AIS?

A. Inputs and outputs only B. Outputs and storage only C. Processes and storage only D. Any of the elements

46. Which type of adjusting entry is most likely to involve human judgment?

A. Uncollectible accounts B. Accrued liabilities C. Deferred revenue D. Prepaid expenses

47. As an internal control, RSR Corporation requires two signatures on all checks over $500, thus illustrating the importance of:

A. Human judgment. B. Information technology. C. Both human judgment and information technology. D. Neither human judgment nor information technology.

48. SRE Corporation is a software development company; it uses block coding in its chart of accounts. Which of the following statements is most true?

A. Information technology may not be necessary to assign new account numbers. B. Human judgment may be involved in assigning new account numbers. C. Both information technology may not be necessary to assign new account numbers and human judgment may be involved in assigning new account numbers. D. Neither information technology may not be necessary to assign new account numbers nor human judgment may be involved in assigning new account numbers.

49. SBL Corporation's accounting records were destroyed in a fire. In reconstructing them:

A. Human judgment will be important, but information technology will not. B. Information technology will be important, but human judgment will not. C. Both human judgment and information technology may be important. D. Neither human judgment nor information technology will be useful.

50. Both human judgment and information technology are important in accounting information systems. In which of the following pairs of tasks will information technology be more critical than human judgment?

A. Steps 4 and 9 of the accounting cycle B. Calculating depreciation and creating a new customer order form in Word C. Step 4 of the accounting cycle and calculating depreciation D. Step 9 of the accounting cycle and creating a new customer order form in Word

51. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. All of the following transactions will be part of the third step in the accounting cycle except:

A. Transaction G. B. Transaction I. C. Transaction E. D. Transaction D.

52. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. Sequential numbering is a common internal control applied to source documents in the accounting information system. Which of the following transactions will involve sequential numbering? 2-21 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

A. Transaction A. B. Transaction F. C. Transaction G. D. Transaction J.

53. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC uses block coding for its chart of accounts. Which of the following accounts will have the same final digit?

A. Cash B. Inventory C. Both cash and inventory D. Neither cash nor inventory

54. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. The sixth step in the accounting cycle involves six broad types of entries. Which of the indicated transactions is likely to lead to the specified type?

A. Transaction D, change in market value B. Transaction H, prepaid expense C. Transaction D, depreciation D. Transaction I, uncollectible accounts

55. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. The ninth step in the accounting cycle prepares the accounting information system for a new period. Which of the following accounts in CNC's trial balance will be part of the ninth step?

A. Accounts receivable B. Supplies C. Retained earnings D. Equipment

56. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC uses block coding for its chart of accounts. Which of the following includes accounts that should all have the same first digit?

A. Accounts receivable, accounts payable, retained earnings B. Supplies, land, equipment C. Common stock, additional paid-in capital, retained earnings D. Bonds payable, discount on bonds payable, cash

57. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC's operations are currently confined to a single state, but management is considering expanding to additional states. Which of the following statements is most true?

A. After the expansion, sequential numbering of source documents will no longer be an effective internal control. B. After the expansion, the chart of accounts may need to use hierarchical coding. C. After the expansion, CNC will add at least two steps to the accounting cycle. D. After the expansion, CNC must employ more information technology in its accounting information system.

58. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC uses block coding for its chart of accounts. The balance in account #101 at the end of January 2015 will be:

A. $5000 on the debit side. B. $5000 on the credit side. C. Some other amount on the debit side. D. Some other amount on the credit side.

59. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. In CNC's general ledger, the account number for inventory is 105. The account number for land is 201. Which of the following transactions will involve the account numbered 301?

A. Transaction A only. B. Transaction I only. C. Both transactions A and I. D. Neither transactions A nor I.

60. At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. The accounting cycle includes three different versions of the trial balance. For CNC, the totals of the trial balance prepared in the seventh step at the end of January will be:

A. $17,650. B. some other amount. C. CNC cannot complete the seventh step in the accounting cycle at the end of January. D. Cannot be determined from the information given.

Matching Questions

61. MNR Corporation uses block coding for its chart of accounts. Selected account titles are listed below on the left in alphabetic order; account numbers for those accounts are listed in random order on the right. Match each account name with the most appropriate number using the principles of block coding.

1. Capital stock

302 ____

2. Accumulated depreciation--equipment

520 ____

3. Wages payable

304 ____

4. Notes payable

107 ____

5. Inventory

203 ____

6. Bonds payable

409 ____

7. Discount on bonds payable

515 ____

8. Treasury stock

204 ____

9. Retained earnings

408 ____

10. Prepaid rent

110 ____

11. Equipment

105 ____

12. Accounts receivable

510 ____

Essay Questions

62. Which type of account is debited in each of the following adjusting entries? Which type of account is credited?

63. Supply the correct word for each lettered item below to complete the American Accounting Association's definition of accounting. Accounting is the process of (a), (b), and (c) economic information to permit (d), (e) and decisions by (f) of the information. a. __________________ b. __________________ c. __________________ d. __________________ e. __________________ f. __________________

64. Put the following statements in the correct order based on the steps in the accounting cycle. a. Assemble AIS outputs. b. Debit cash and credit sales. c. Determine the correct way to enter a transaction in the AIS. d. Examine a bank statement to determine the amount of a bank service charge. e. Make entries that account for timing differences between cash flows and accrual basis revenue and expense. f. Prepare the AIS for a new fiscal year. g. Reorganize AIS information from chronological to account-based. h. Verify, for the first time, the equality of debits and credits in the ledger. i. Verify, for the second time, the equality of debits and credits in the ledger. j. Verify, for the third time, the equality of debits and credits in the ledger.

65. Accounting information systems have five generic parts, one of which is internal control. Please give two examples of applicable internal controls for each of the remaining parts of the AIS. 1) Inputs a. Example 1: _________________________________________________ b. Example 2: _________________________________________________ 2) Processes a. Example 1: _________________________________________________ b. Example 2: _________________________________________________ 3) Outputs a. Example 1: _________________________________________________ b. Example 2: _________________________________________________ 4) Storage a. Example 1: _________________________________________________ b. Example 2: _________________________________________________

66. The American Accounting Association's definition of accounting includes the items listed on the right. Which item is most clearly related to the examples on the left? Some elements of the definition may be used more than once; others may not be used at all. Each item on the left has only one best answer.

67. BLP Company is a consulting firm with offices in Atlanta and San Diego; it provides consulting services in three main areas: finance, marketing and operations. Selected account titles from BLP's accounting information system appear below:

In addition to its overall company financial statements, BLP wants to report selected financial data by geographic location and/or by consulting area. Use the principles of hierarchical coding to assign account numbers to the items listed above to facilitate BLP's financial reporting for marketing consulting in San Diego.

68. Consider the accounting-related tasks below:

Divide the tasks into two groups of equal size.

Short Answer Questions

69. Eric and Gloria were recently hired as entry-level accountants for RSP Corporation. They had the following conversation about their duties and responsibilities. Eric: I'm really excited to have this job; I've wanted to work in this industry for a couple years now. Gloria: I completed an internship with RSP last year, and I can tell you it's a terrific place to work. Eric: I wonder what kinds of things we'll be doing in our first few months. Gloria: Well, I can tell you some of the things I did during my internship. I helped input data for the corporate tax return in TaxEasy; I also developed initial estimates of bad debts based on an analysis of credit sales. And, I downloaded cost and budget information from the AIS so I could calculate cost variances. Eric: That's quite a diverse group of tasks for an intern! I was hoping to be able to work with RSP's internal audit department at some point; I hear they are the ones in charge of investigating potential fraud in the company. Gloria: Really? How do they know where fraud might exist? Eric: Well, the company has a dedicated phone line employees can call when they suspect fraud may be occurring; the internal auditors listen to those calls, then determine which cases they should investigate. Also, internal auditors analyze spending patterns throughout the company; if they see a sharp increase in spending, they investigate it further. Required: Analyze Eric and Gloria's conversation for tasks that require human judgment and/or information technology. List five examples of such tasks in the space provided below. For each task, indicate whether it involves human judgment, information technology or both.

70. The procedures manual for THM Corporation included the following statements: a. Accounting department employees are encouraged to obtain a professional certification. b. Adjusting entries involving estimates must have those estimates approved by the CFO before they are recorded in the AIS. c. All employees accrue sick time at the rate of one hour per month. d. All purchase orders must be prepared in triplicate, with the original going to the vendor, the blue copy staying in purchasing and the yellow copy returning to department that initiated the purchase request. e. All transactions must be recorded in the journal, then posted to the ledger. f. Employees are paid twice a month; journal entries for payroll are recorded two days prior to each pay date. g. New account numbers must follow the principles of hierarchical coding; they must be reviewed and approved before becoming part of the AIS. h. THM is organized in five major departments: accounting, marketing, human resources, information systems and operations. i. THM uses Great Plains Dynamics as its general ledger software. Great Plains will not allow transactions to be recorded unless the equality of debits and credits is maintained. j. THM's accounting information system is audited annually by Dewey, Cheatam and Howe, CPAs. Which five statements from the procedures manual most directly explain internal controls related to the accounting cycle?

71. List the steps in the accounting cycle in their proper order.

72. Explain, in your own words, two similarities and two differences between "accounting" and "bookkeeping."

73. The text discussed four common coding systems for AIS documents, charts of accounts and other applications. It also discussed a few common internal controls associated with the steps in the accounting cycle. Can the use of block or hierarchical coding in the chart of accounts be considered a form of internal control? Justify your response.

74. The text discussed common internal controls associated with the steps in the accounting cycle; it also discussed the role of human judgment and information technology in the cycle. Identify and describe: a. One way human judgment can improve internal control in the accounting cycle. b. One way information technology can improve internal control in the accounting cycle. c. One way human judgment can create internal control challenges in the accounting cycle. d. One way information technology can create internal control challenges in the accounting cycle.

75. WDN Corporation recently purchased JZN Corporation; the two companies are now trying to merge their separate charts of accounts into a single chart of accounts. Selected block-coded accounts from the two separate accounting information systems appear below:

Management wants to retain the ability to produce separate financial statements for each company, as well as a combined set of financial statements for the two companies together. Use the principles of hierarchical coding to assign new account numbers to the ten accounts listed above in a way that will achieve management's objectives. Explain how the account numbers illustrate the principles of hierarchical coding and how they help achieve management's objectives.

Chapter 02 Transaction Processing in the AIS Answer Key

Multiple Choice Questions

The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information is called:

A. Accounting B. Bookkeeping C. Making journal entries D. Preparing financial statements

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Differentiate accounting and bookkeeping. Topic: Definition of accounting

Which of the following phrases most closely relates to bookkeeping?

A. Identifying and measuring economic information B. Communicating economic information C. Permitting informed judgments by users D. Permitting informed decisions by users

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation 2-51 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Differentiate accounting and bookkeeping. Topic: Definition of accounting

Which of the following most clearly differentiates accounting and bookkeeping?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-01 Differentiate accounting and bookkeeping. Topic: Definition of accounting

Which of the following statements about accounting and bookkeeping is most true?

Communicating information to external decision makers is accomplished through ___ as part of the process of ___.

A. Financial statements; bookkeeping B. Financial statements; accounting C. Journal entries; bookkeeping D. Journal entries; accounting

Plant assets, such as equipment, are reported on financial statements at their book value, thus exemplifying:

An accountant received a stack of sales invoices. Which of the following statements is most true?

Which of the following best pairs an element of bookkeeping with an example of the element?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-01 Differentiate accounting and bookkeeping.

Topic: Definition of accounting

The concept of bookkeeping includes: (i) distinguishing relevant from irrelevant information, (ii) calculating amounts to record in the AIS, (iii) reporting financial results.

A. I and II only. B. I and III only. C. II and III only. D. I, II and III.

10.

The definition of accounting has three principal elements. Which of the following is not one of them?

A. Distinguishing relevant from irrelevant information B. Calculating amounts to record in the AIS C. Reporting financial results D. Using the information to make informed judgments

11.

Which of the following steps in the accounting cycle occurs first?

A. Analyze transactions. B. Close the temporary accounts to retained earnings. C. Prepare an unadjusted trial balance. D. Record the transactions in a journal.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle. Topic: Accounting cycle

12.

Which step in the accounting cycle immediately precedes closing the temporary accounts?

A. Analyze transactions. B. Prepare an adjusted trial balance. C. Prepare financial statements. D. Record adjusting entries.

13.

In what way is the fifth step in the accounting cycle different from the seventh step in the accounting cycle?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle. Topic: Accounting cycle

14.

Which of the following is an example of a deferred revenue?

Topic: Accounting cycle

15.

Please refer to the following unadjusted trial balance in answering the below question.

VLN had unpaid wages totaling $800 at the end of the accounting period. When VLN's accountant makes an adjusting entry for the unpaid wages, the new trial balance totals will be:

A. $49,600 B. $51,200 C. Some other amount D. Cannot be determined from the information given

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle.

Topic: Accounting cycle

16.

Please refer to the following unadjusted trial balance in answering the below question.

When VLN completes the ninth step in the accounting cycle, all of the following accounts will be involved except:

A. Advertising expense B. Deferred revenue C. Retained earnings D. Sales

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle. Topic: Accounting cycle

17.

Adjusting entries for accrued revenues and accrued expenses are similar in that:

A. They both involve cash flows after service. B. They both involve cash flows before service. C. They both debit temporary accounts. D. They both credit temporary accounts.

18.

Most companies make adjusting entries for depreciation because:

19.

Which of the following sets includes amounts from a single financial statement?

A. Cash, sales, interest earned B. Cash, accounts receivable, interest earned C. Cash, accounts receivable, accounts payable D. Sales, accounts receivable, interest earned

20.

Which of the following sets includes examples of the same element of financial statements?

21.

Common internal controls associated with source documents include: (i) sequential numbering, (ii) physical security, (iii) equality of debits and credits.

A. I and II only B. I and III only C. II and III only D. I, II and III

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-03 Identify common internal controls associated with the accounting cycle. Topic: Internal control

22.

Requiring ___ on certain source documents is associated with transaction limits as an internal control.

A. Sequential numbering B. Physical security C. Supervisory approval D. Internal transaction notifications

23.

TCP Corporation issues a purchase order whenever it buys inventory. Internal controls associated with the purchase order may include:

A. Sequential numbering B. Transaction limits C. Both sequential numbering and transaction limits D. Neither sequential numbering nor transaction limits

24.

As an internal control measure in the accounting cycle, physical security most clearly applies to:

A. Source documents B. The balance sheet C. The income statement D. The statement of cash flows

25.

Just before preparing financial statements, an inexperienced accountant recorded the use of supplies by debiting supplies expense $100 and debiting supplies $100. Which of the following is most true?

26.

Linda embezzled cash from her employer by forging a signature on a check. Which of the following internal controls for source documents would most likely prevent such occurrences in the future?

A. Sequential numbering B. Physical security C. Transaction limits D. Bank reconciliation

27.

As an internal control for source documents, sequential numbering is most likely to ___ an error.

A. Prevent B. Detect C. Correct D. Eliminate

28.

As an internal control for source documents, transaction limits are most likely to ___ an error.

A. Prevent B. Detect C. Correct D. Eliminate

29.

As a form of internal control, sequential numbering is most likely to be associated with which step in the accounting cycle?

A. First B. Fifth C. Sixth D. Last

30.

As a form of internal control, transaction limits are most likely to be associated with which step in the accounting cycle?

A. Second B. Fourth C. Ninth D. Last

31.

All of the following are common coding systems used in organizations except:

A. Block B. Hierarchical C. Random D. Sequential

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-04 Describe common coding systems and how they are used in the AIS. Topic: Coding systems

32.

Which type of coding system helps people remember the meaning of the code?

A. Sequential B. Block C. Hierarchical D. Mnemonic

33.

The accounting department at a local university uses the prefix ACC for all its courses, thus exemplifying which type of coding system?

A. Sequential B. Block C. Hierarchical D. Mnemonic

34.

Courses intended for freshmen at a local university are numbered from 100 to 199, while courses intended for seniors at the same university are numbered from 400 to 499. Which coding system is the university using?

A. Sequential B. Block C. Hierarchical D. Mnemonic

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-04 Describe common coding systems and how they are used in the AIS. Topic: Coding systems

35.

Most organizations use purchase orders to authorize inventory and other purchases. If a company's purchase order contains a column labeled "product code," it most likely uses what kind of coding?

A. Sequential B. Block C. Hierarchical D. Mnemonic

36.

Most organizations use purchase orders to authorize inventory and other purchases. If a company's purchase order contains a field labeled "purchase order number," it most likely uses what kind of coding?

A. Sequential B. Block C. Hierarchical D. Mnemonic

37.

NTR Corporation has offices in both Los Angeles and San Francisco. In the Los Angeles office, the account number for cash is 001.101. In San Francisco, the account number for cash is 002.101. Which of the following statements is most true?

38.

A. 001.102 B. 002.102 C. 102.002 D. 002.110

Topic: Coding systems

39.

ABT Corporation uses block coding for its chart of accounts, which includes Cash (101), Land (201), Accounts payable (301) and Retained Earnings (501). Which of the following account numbers is most likely associated with an account that will appear on the income statement?

A. 101 B. 102 C. 401 D. 601

40.

A. 203 B. 405 C. 504 D. 701

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 02-04 Describe common coding systems and how they are used in the AIS. Topic: Coding systems

41.

Human judgment is important in which of the following AIS tasks: (i) designing source documents, (ii) recognizing recordable transactions.

A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-05 Explain how human judgment and information technology affect the accounting cycle. Topic: Human judgment and information technology

42.

Information technology:

43.

Which of the following statements about human judgment and information technology in the AIS is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-05 Explain how human judgment and information technology affect the accounting cycle. Topic: Human judgment and information technology

44.

In an AIS, human judgment is important in:

45.

Information technology can be an important tool in which of the five generic elements of an AIS?

A. Inputs and outputs only B. Outputs and storage only C. Processes and storage only D. Any of the elements

46.

Which type of adjusting entry is most likely to involve human judgment?

A. Uncollectible accounts B. Accrued liabilities C. Deferred revenue D. Prepaid expenses

47.

As an internal control, RSR Corporation requires two signatures on all checks over $500, thus illustrating the importance of:

A. Human judgment. B. Information technology. C. Both human judgment and information technology. D. Neither human judgment nor information technology.

48.

SRE Corporation is a software development company; it uses block coding in its chart of accounts. Which of the following statements is most true?

49.

SBL Corporation's accounting records were destroyed in a fire. In reconstructing them:

50.

Both human judgment and information technology are important in accounting information systems. In which of the following pairs of tasks will information technology be more critical than human judgment?

51.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

A. Transaction G. B. Transaction I. C. Transaction E. D. Transaction D.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle. Topic: Accounting cycle

52.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. Sequential numbering is a common internal control applied to source documents in the accounting information system. Which of the following transactions will involve sequential numbering? 2-79 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

A. Transaction A. B. Transaction F. C. Transaction G. D. Transaction J.

53.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC uses block coding for its chart of accounts. Which of the following accounts will have the same final digit?

A. Cash B. Inventory C. Both cash and inventory D. Neither cash nor inventory

54.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. The sixth step in the accounting cycle involves six broad types of entries. Which of the indicated transactions is likely to lead to the specified type?

A. Transaction D, change in market value B. Transaction H, prepaid expense C. Transaction D, depreciation D. Transaction I, uncollectible accounts

55.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. The ninth step in the accounting cycle prepares the accounting information system for a new period. Which of the following accounts in CNC's trial balance will be part of the ninth step? 2-85 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

A. Accounts receivable B. Supplies C. Retained earnings D. Equipment

56.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC uses block coding for its chart of accounts. Which of the following includes accounts that should all have the same first digit?

57.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC's operations are currently confined to a single state, but management is considering expanding to additional states. Which of the following statements is most true?

58.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. CNC uses block coding for its chart of accounts. The balance in account #101 at the end of January 2015 will be:

A. $5000 on the debit side. B. $5000 on the credit side. C. Some other amount on the debit side. D. Some other amount on the credit side. $6400 + $500 - $900 - $700 - $150 - $150 = $5000

59.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. In CNC's general ledger, the account number for inventory is 105. The account number for land is 201. Which of the following transactions will involve the account numbered 301?

A. Transaction A only. B. Transaction I only. C. Both transactions A and I. D. Neither transactions A nor I.

60.

At the end of 2014, CNC Corporation's accounting information system produced the following trial balance:

CNC completed the following transactions in January 2015: a. Purchased inventory on account, $300. b. Collected cash from customers for prior year sales, $500. c. Paid current month's wages, $900. d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value of land, $3,000. e. Sold inventory with a cost basis of $200 on account, $800. f. Declared dividends, $50. g. Hired additional sales staff. Expected monthly salaries, $80. h. Purchased supplies for cash, $150. i. Paid creditors for previous purchases, $150. j. Signed a contract for annual employee retreat, $450. The accounting cycle includes three different versions of the trial balance. For CNC, the totals of the trial balance prepared in the seventh step at the end of January will be:

A. $17,650. B. some other amount. C. CNC cannot complete the seventh step in the accounting cycle at the end of January. D. Cannot be determined from the information given.

Matching Questions

61.

MNR Corporation uses block coding for its chart of accounts. Selected account titles are listed below on the left in alphabetic order; account numbers for those accounts are listed in random order on the right. Match each account name with the most appropriate number using the principles of block coding.

1. Capital stock

302 3

2. Accumulated depreciation--equipment

520 8

3. Wages payable

304 4

4. Notes payable

107 5

5. Inventory

203 11

6. Bonds payable

409 7

7. Discount on bonds payable

515 9

8. Treasury stock

204 2

9. Retained earnings

408 6

10. Prepaid rent

110 10

11. Equipment

105 12

12. Accounts receivable

510 1

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-04 Describe common coding systems and how they are used in the AIS. Topic: Coding systems

Essay Questions

62.

Which type of account is debited in each of the following adjusting entries? Which type of account is credited?

Accrued revenue: asset, revenue Accrued expense: expense, liability Deferred revenue: liability, revenue Prepaid expense: expense, asset Depreciation: expense, contra-asset

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle. Topic: Accounting cycle

63.

Supply the correct word for each lettered item below to complete the American Accounting Association's definition of accounting. Accounting is the process of (a), (b), and (c) economic information to permit (d), (e) and decisions by (f) of the information. a. __________________ b. __________________ c. __________________ d. __________________ e. __________________ f. __________________

a. identifying b. measuring c. communicating d. informed e. judgments f. users

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 02-01 Differentiate accounting and bookkeeping. Topic: Definition of accounting

64.

Put the following statements in the correct order based on the steps in the accounting cycle. a. Assemble AIS outputs. b. Debit cash and credit sales. c. Determine the correct way to enter a transaction in the AIS. d. Examine a bank statement to determine the amount of a bank service charge. e. Make entries that account for timing differences between cash flows and accrual basis revenue and expense. f. Prepare the AIS for a new fiscal year. g. Reorganize AIS information from chronological to account-based. h. Verify, for the first time, the equality of debits and credits in the ledger. i. Verify, for the second time, the equality of debits and credits in the ledger. j. Verify, for the third time, the equality of debits and credits in the ledger.

D, C, B, G, H, E, I, A, F, J

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-02 List, discuss, and complete, in order, the steps in the accounting cycle. Topic: Accounting cycle

65.

Accounting information systems have five generic parts, one of which is internal control. Please give two examples of applicable internal controls for each of the remaining parts of the AIS. 1) Inputs a. Example 1: _________________________________________________ b. Example 2: _________________________________________________ 2) Processes a. Example 1: _________________________________________________ b. Example 2: _________________________________________________ 3) Outputs a. Example 1: _________________________________________________ b. Example 2: _________________________________________________ 4) Storage a. Example 1: _________________________________________________ b. Example 2: _________________________________________________

1) physical security, sequential numbering 2) using general ledger software, preparing a trial balance 3) financial statement audits, supervisory review 4) daily data backup, access to files by password only

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-03 Identify common internal controls associated with the accounting cycle. Topic: Internal control 2-101 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

66.

The American Accounting Association's definition of accounting includes the items listed on the right. Which item is most clearly related to the examples on the left? Some elements of the definition may be used more than once; others may not be used at all. Each item on the left has only one best answer.

1. B 2. B 3. A 4. D 5. C 6. D 7. A 8. A 9. C 10. C

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-01 Differentiate accounting and bookkeeping. Topic: Definition of accounting

67.

BLP Company is a consulting firm with offices in Atlanta and San Diego; it provides consulting services in three main areas: finance, marketing and operations. Selected account titles from BLP's accounting information system appear below:

Accounts receivable: 102.02.02 Accumulated depreciation—buildings: 202.02.02 Advertising expense: 704.02.02 Advertising payable: 304.02.02 Buildings: 201.02.02 Cash: 101.02.02 Depreciation expense: 705.02.02 Sales: 601.02.02 Wages expense: 703.02.02 Wages payable: 306.02.02

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Blooms: Create Difficulty: 3 Hard Learning Objective: 02-04 Describe common coding systems and how they are used in the AIS. Topic: Coding systems

68.

Consider the accounting-related tasks below:

Divide the tasks into two groups of equal size.

Human judgment: A, C, D, F Information technology: B, E, G, H

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-05 Explain how human judgment and information technology affect the accounting cycle. Topic: Human judgment and information technology

Short Answer Questions

69.

Eric and Gloria were recently hired as entry-level accountants for RSP Corporation. They had the following conversation about their duties and responsibilities. Eric: I'm really excited to have this job; I've wanted to work in this industry for a couple years now. Gloria: I completed an internship with RSP last year, and I can tell you it's a terrific place to work. Eric: I wonder what kinds of things we'll be doing in our first few months. Gloria: Well, I can tell you some of the things I did during my internship. I helped input data for the corporate tax return in TaxEasy; I also developed initial estimates of bad debts based on an analysis of credit sales. And, I downloaded cost and budget information from the AIS so I could calculate cost variances. Eric: That's quite a diverse group of tasks for an intern! I was hoping to be able to work with RSP's internal audit department at some point; I hear they are the ones in charge of investigating potential fraud in the company. Gloria: Really? How do they know where fraud might exist? Eric: Well, the company has a dedicated phone line employees can call when they suspect fraud may be occurring; the internal auditors listen to those calls, then determine which cases they should investigate. Also, internal auditors analyze spending patterns throughout the company; if they see a sharp increase in spending, they investigate it further. Required: Analyze Eric and Gloria's conversation for tasks that require human judgment and/or information technology. List five examples of such tasks in the space provided below. For each task, indicate whether it involves human judgment, information technology or both.

Input data for the corporate tax return: human judgment, information technology Developed initial estimates of bad debts: human judgment Downloaded cost and budget information: information technology Investigating potential fraud: human judgment, information technology Analyze spending patterns: human judgment, information technology

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-05 Explain how human judgment and information technology affect the accounting cycle. Topic: Human judgment and information technology

70.

The procedures manual for THM Corporation included the following statements: a. Accounting department employees are encouraged to obtain a professional certification. b. Adjusting entries involving estimates must have those estimates approved by the CFO before they are recorded in the AIS. c. All employees accrue sick time at the rate of one hour per month. d. All purchase orders must be prepared in triplicate, with the original going to the vendor, the blue copy staying in purchasing and the yellow copy returning to department that initiated the purchase request. e. All transactions must be recorded in the journal, then posted to the ledger. f. Employees are paid twice a month; journal entries for payroll are recorded two days prior to each pay date. g. New account numbers must follow the principles of hierarchical coding; they must be reviewed and approved before becoming part of the AIS. h. THM is organized in five major departments: accounting, marketing, human resources, information systems and operations. i. THM uses Great Plains Dynamics as its general ledger software. Great Plains will not allow transactions to be recorded unless the equality of debits and credits is maintained. j. THM's accounting information system is audited annually by Dewey, Cheatam and Howe, CPAs. Which five statements from the procedures manual most directly explain internal controls related to the accounting cycle?

B, D, E, F, I

AACSB: Analytical Thinking

AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 02-03 Identify common internal controls associated with the accounting cycle. Topic: Internal control

71.

List the steps in the accounting cycle in their proper order.

1. Obtain information about external transactions from source documents. 2. Analyze transactions. 3. Record the transactions in a journal. 4. Post from the journal to the general ledger accounts. 5. Prepare an unadjusted trial balance. 6. Record adjusting entries and post to the general ledger accounts. 7. Prepare an adjusted trial balance. 8. Prepare financial statements. 9. Close the temporary accounts to retained earnings (at year-end only). 10. Prepare a post-closing trial balance (at year-end only).

72.

Explain, in your own words, two similarities and two differences between "accounting" and "bookkeeping."

Similarities between accounting and bookkeeping include their focus on economic information and the necessity of completing the steps in the accounting cycle. Differences include: accounting is a much broader field than bookkeeping and accounting includes more communication and decision making.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-01 Differentiate accounting and bookkeeping. Topic: Definition of accounting

73.

The text discussed four common coding systems for AIS documents, charts of accounts and other applications. It also discussed a few common internal controls associated with the steps in the accounting cycle. Can the use of block or hierarchical coding in the chart of accounts be considered a form of internal control? Justify your response.

Yes, the use of block or hierarchical coding in the chart of accounts can be considered a form of internal control. Properly coding the chart of accounts helps ensure that the correct accounts get on the correct financial statements. Additionally, a company may choose to restrict access to certain accounts based on the code; for example, accounts pertaining to the marketing department could not be accessed by employees in human resources.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium

Learning Objective: 02-03 Identify common internal controls associated with the accounting cycle. Topic: Internal control

74.

The text discussed common internal controls associated with the steps in the accounting cycle; it also discussed the role of human judgment and information technology in the cycle. Identify and describe: a. One way human judgment can improve internal control in the accounting cycle. b. One way information technology can improve internal control in the accounting cycle. c. One way human judgment can create internal control challenges in the accounting cycle. d. One way information technology can create internal control challenges in the accounting cycle.

a. Supervisors may review the work of inexperienced employees. b. Most general ledger software will not allow journal entries where the debits and credits are unequal. c. In areas where human judgment is involved, such as the estimation of bad debts, people may deliberately exercise that judgment to benefit/harm the company. d. Information technology assets require additional forms of internal control, such as passwords.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 02-05 Explain how human judgment and information technology affect the accounting cycle. Topic: Human judgment and information technology

75.

WDN Corporation recently purchased JZN Corporation; the two companies are now trying to merge their separate charts of accounts into a single chart of accounts. Selected blockcoded accounts from the two separate accounting information systems appear below:

The company needs to use hierarchical coding. They may use the original account numbers from WDN, and add a second block to denote which company pertains to each account. If WDN is designated as 01 and JZN as 02, the new account numbers would look like this: Cash: 101.01 for WDN, 101.02 for JZN Inventory: 105.01 for WDN, 105.02 for JZN Coding the accounts in that way will allow the company to prepare combined financial statements (based on the first block of digits) as well as separate statements for each

firm (based on the second block of digits).

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Apply Difficulty: 3 Hard Learning Objective: 02-04 Describe common coding systems and how they are used in the AIS. Topic: Coding systems

Chapter 03 Internal Controls

Multiple Choice Questions

1. According to COSO, internal control is a:

A. Process. B. Set of rules. C. Responsibility of employees only. D. Requirement only for publicly-traded firms.

2. Internal control is designed to provide:

A. Certainty. B. Freedom from fraud. C. Reasonable assurance. D. Truth.

3. According to the COSO definition, internal control should address objectives in all of the following categories except:

A. Operations. B. Compliance. C. Reporting. D. Fraud.

4. According to the COSO definition, internal control should promote ___ in financial reporting.

A. Truth B. Accuracy C. Both truth and accuracy D. Neither truth nor accuracy

5. Bumble Beasley was making a presentation on internal control to a group of prospective clients. Which of the following statements is the least appropriate for Bumble to make?

A. Responsibility for internal control should be shared throughout the organization. B. All companies must use the COSO definition of internal control as a guide. C. Internal controls are not designed specifically to prevent fraud. D. Part of internal control is ensuring that a company is making the best possible use of its resources.

6. Internal control relates to an organization's achievement of objectives in three major categories. All of the following are examples of at least one category except:

A. Promoting compliance with the Sarbanes-Oxley Act. B. Ensuring that plant assets are listed on the balance sheet at their net book value. C. Developing a clear job description for each position in the company. D. Providing conclusive proof that fraud has occurred.

7. Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?

A. Operations, fulfilling the requirements of the Foreign Corrupt Practices Act B. Operations, listing appropriate assets at their current market value C. Reporting, fulfilling the requirements of the Foreign Corrupt Practices Act D. Reporting, listing appropriate assets at their current market value

8. Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?

A. Judging, reconciling the bank statement at least monthly B. Reporting, following the COSO internal control framework C. Compliance, following the COSO internal control framework D. Compliance, fulfilling the requirements of the Foreign Corrupt Practices Act

9. Internal control relates to an organization's achievement of objectives in three major categories. Which of the following pairs gives an example of two controls that fulfill a single category?

A. Fulfilling the requirements of the Foreign Corrupt Practices Act, developing a clear job description for each position in the company B. Developing a clear job description for each position in the company, calculating profits on the accrual basis C. Fulfilling the requirements of the Foreign Corrupt Practices Act, calculating profits on the accrual basis D. Ensuring that plant assets are listed on the balance sheet at their net book value, listing appropriate assets at their current market value

10. Purposes of internal control include:

A. Safeguarding assets. B. Ensuring financial statement reliability. C. Promoting operational efficiency. D. All of these.

11. Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) keeping cash in a bank, (ii) conducting a new employee orientation.

A. I only. B. II only. C. Both I and II. D. Neither I nor II.

12. Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) requiring supervisory review of how complex transactions are recorded in the journal, (ii) using general ledger software such as Peachtree.

A. I only. B. II only. C. Both I and II. D. Neither I nor II.

13. Omar is a general manager at FRD Corporation. He recently attempted to reorganize FRD from three departments of ten people each to six departments of five people each. Which purpose of internal control is most likely to be impacted by the change?

A. Safeguarding assets B. Ensuring financial statement reliability C. Promoting operational efficiency D. Uncovering fraud

14. Shawn is an accountant at LNT Corporation. He maintains the company's accounting data on his computer's local hard drive, but does not back it up on any regular schedule. LNT Corporation's risk is most related to which purpose of internal control?

A. Safeguarding assets B. Ensuring financial statement reliability C. Encouraging compliance with management directives D. Properly backing up data every day

15. ANF Corporation's company procedures manual is available to all employees on the corporate network, while RSP Corporation distributes a hard copy of its company procedures manual to all new employees. Which of the following statements is most true?

A. Because the procedures manual would be reported as an asset on the balance sheet, RSP is doing a better job safeguarding its assets. B. Because the procedures manual would be reported as an asset on the balance sheet, ANF is doing a better job safeguarding its assets. C. ANF employees are more likely to comply with management directives than RSP employees. D. The method of distributing the procedures manual is unlikely to be related to ensuring financial statement reliability.

16. CPY Corporation replaces one third of its computers every year; SLP Corporation replaces its computers when employees submit a request, but no more frequently than once every four years. Which of the following statements is most true?

A. CPY's replacement policy does a better job safeguarding assets. B. SLP's replacement policy does a better job safeguarding assets. C. Neither replacement schedule helps achieve the internal control purpose of safeguarding assets, but replacing a computer may help promote operating efficiency. D. Neither replacement schedule helps achieve the internal control purpose of safeguarding assets because information is not an asset reported on the balance sheet.

17. A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?

A. Restrictive endorsements and bank reconciliations B. Restrictive endorsements and completing the steps in the accounting cycle C. Bank reconciliations and background checks D. Pre-numbered documents and background checks

18. A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?

A. Adequate documentation and user training B. Adequate documentation and bank reconciliations C. User training and bank reconciliations D. Firewalls and employee bonding

19. In Brown's taxonomy, systems risk is a form of:

A. Financial risk B. Operational risk C. Strategic risk D. Hazard risk

20. Violating the provisions of the Foreign Corrupt Practices Act most directly subjects an organization to what kind of risk from Brown's taxonomy?

A. Financial B. Operational C. Strategic D. Inherent

21. Hewlett-Packard is a publicly traded corporation whose principal activity is making and selling computers. Customers can buy an HP computer directly from HP online if they pay with a bank credit card (such as Visa or Mastercard). HP's risk exposures therefore include all of the following except:

A. Market risk B. Systems risk C. Credit risk D. Human error risk

22. Dale is an employee of Big State University who also does some independent consulting to supplement income. Because consulting engagements are infrequent, Dale has not purchased insurance for the company. If Dale requires consulting clients to pay in cash, which of the following risk exposures is most serious?

A. Directors' and officers' liability risk B. Systems risk C. Credit risk D. Consulting risk

23. Similarities between legal & regulatory risk and directors' and officers' liability risk in Brown's taxonomy include:

A. The cause of the risk. B. The things directly affected by the risk. C. Both the cause of the risk and the things directly affected by the risk. D. Neither the cause of the risk nor the things directly affected by the risk.

24. Differences between legal & regulatory risk and directors' & officers' liability risk in Brown's taxonomy include:

25. Consider the following examples of risk: i. A corporation is unable to issue bonds because its credit rating is too low. ii. A U.S. auto manufacturer tries to market a car in Mexico. The car does not sell because the Spanish translation of its name means "it doesn't go." iii. An employee receives insufficient training in how to use specialized software. iv. Due to employee theft, a corporation spends more money than anticipated buying new tools. Which pair of risks belongs to the same category in Brown's risk taxonomy?

A. I and II B. II and III C. I and III D. I and IV

26. Consider the following examples of risk: i. A corporation is unable to issue bonds because its credit rating is too low. ii. A U.S. auto manufacturer tries to market a car in Mexico. The car does not sell because the Spanish translation of its name means "it doesn't go." iii. An employee receives insufficient training in how to use specialized software. iv. Due to employee theft, a corporation spends more than anticipated buying new tools. The risks listed above contain examples of all the categories in Brown's risk taxonomy except:

A. Financial B. Operational C. Strategic D. Hazard

27. The risk/control matrix illustrated in the chapter contains five columns. Which of the following is not one of them?

A. Risk B. Risk category C. COSO category D. Internal control

28. The risk/control matrix illustrated in the chapter contains five columns. Which of the following items is most likely to appear in the third column?

A. Downloading a virus B. Preventive C. Systems D. Virus protection software

29. An airline pilot could not get landing instructions at an airport because the air traffic controller was asleep. In a risk/control matrix related to that situation, which of the following items is most likely to appear in the second column?

A. Human error B. Preventive C. Require annual physicals D. Work with a partner

30. An airline pilot could not get landing instructions at an airport because the air traffic controller was asleep. In a risk/control matrix related to that situation, the phrase "require annual physicals" is most likely to appear in which column?

A. First B. Third C. Fourth D. Fifth

31. Raj, an employee at TRS Corporation, was preparing a risk/control matrix related to the steps in the accounting cycle. The first row of the matrix contained the following entries: Adequate training. Assets that should be reported at historical cost are reported at market value. Human error. Internal audits. All the columns in the risk/control matrix are represented by those items except:

A. Comments B. Internal control C. Risk D. Risk category

32. Raj, an employee at TRS Corporation, was preparing a risk/control matrix related to the steps in the accounting cycle. The first row of the matrix contained the following entries: Adequate training. Assets that should be reported at historical cost are reported at market value. Human error. Internal audits. Which two items would appear in the same column in the matrix?

A. Adequate training and human error B. Human error and internal audits C. Adequate training and internal audits D. None. For a given risk, each column can have only one entry.

33. Consider the following list of items that might appear in a risk/control matrix: i. At least twice a week ii. Corrective iii. Human error iv. Inability to access class materials due to network outage v. Insufficient time to study vi. Local data backup vii. Maximum budget = $50 viii. Preventive ix. Systems x. Time management software Which of the following items are most likely to be grouped on a single row?

A. I, II, III, IV, V B. I, III, VII, VIII, X C. III, V, VII, VIII, X D. III, VI, VII, VIII, X

34. Consider the following list of items that might appear in a risk/control matrix: i. At least twice a week ii. Corrective iii. Human error iv. Inability to access class materials due to network outage v. Insufficient time to study vi. Local data backup vii. Maximum budget = $50 viii. Preventive ix. Systems x. Time management software Which of the following items are most likely to be grouped on a single row?

A. I, II, III, IV, V B. I, II, IV, VI, IX C. II, III, IV, V, VI D. VI, VII, VIII, IX, X

35. COSO's Internal Control—Integrated Framework comprises a total of ___ categories.

A. Three B. Four C. Five D. Six

36. A speech by the company president about the role of internal control is an example of ___ in COSO's Internal Control—Integrated Framework.

A. Control environment B. Control activity C. Information and communication D. Risk assessment

37. A department manager at TRS Corporation attended a seminar on internal control; afterward, the manager formed a five-person departmental team to create an internal control plan for the department. After a one-day off-site meeting, the team produced a document titled "Departmental Internal Control Plan." It was formatted as a risk/control matrix. One member of the team commented that, although the work was interesting, the team was glad the task was complete and wouldn't have to be redone. Which element of COSO's internal control framework does the department's plan lack?

A. Risk assessment B. Control activities C. Information and communication D. Monitoring

38. A department manager at TRS Corporation attended a seminar on internal control; afterward, the manager formed a five-person departmental team to create an internal control plan for the department. After a one-day off-site meeting, the team produced a document titled "Departmental Internal Control Plan." It was formatted as a risk/control matrix. One member of the team commented that, although the work was interesting, the team was glad the task was complete and wouldn't have to be redone. Which of the following statements is most true?

A. A risk/control matrix is inappropriate, since risk assessment and control activities must be done separately according to the COSO framework. B. A department manager cannot establish a proper control environment. C. The team member's comment indicates a weakness in monitoring. D. Information and communication should always happen in at least two ways.

39. Ray has worked in the mailroom at MNG Corporation for five years, and is widely respected throughout the organization. Jon, the chief financial officer, started working at MNG six months ago after holding a similar position with one of MNG's competitors. Which of the following statements is most true?

A. Both Ray and Jon can help establish a strong control environment, but only Jon can effectively identify risks and suggest control activities. B. Both Ray and Jon can effectively identify risks and suggest control activities, but only Ray can help establish a strong control environment. C. Neither Ray nor Jon should participate in the development of an internal control plan. D. Both Ray and Jon can influence most aspects of an internal control plan for MNG.

40. A risk/control matrix has five columns, the last of which is labeled "comments." Which of the following statements is most true?

A. Because it is part of a risk/control matrix, the "comments" column is a control activity. B. Because it is part of a risk/control matrix, the "comments" column is a tool for risk assessment. C. If the comments are written by a department manager, they are part of establishing a strong control environment. D. Although the "comments" column may not align directly with one of the five elements of the COSO framework, including it in the risk/control matrix is a good idea.

41. PRL Corporation's internal control plan is based on the COSO framework. It includes five items: (i) conducting ongoing evaluations of internal control during the normal course of operations, (ii) hiring accountants who understand the importance of strong internal control, (iii) including a segment in new employee orientation on the importance of strong internal control, (iv) periodic employee surveys that identify new issues that require internal controls, (v) a quarterly newsletter explaining elements of the internal control plan. Based on those five items alone, which element of PRL's internal control plan is weakest?

A. Risk/control matrix B. Control activities C. Information and communication D. Monitoring

42. PRL Corporation's internal control plan is based on the COSO framework. It includes five items: (i) conducting ongoing evaluations of internal control during the normal course of operations, (ii) hiring accountants who understand the importance of strong internal control, (iii) including a segment in new employee orientation on the importance of strong internal control, (iv) periodic employee surveys that identify new issues that require internal controls, (v) a quarterly newsletter explaining elements of the internal control plan. Which of the following most appropriately groups two items from PRL's plan with a component of the COSO framework?

A. I and II, monitoring B. II and III, control environment C. IV and V, information and communication D. I and V, risk assessment

43. A company controller set up a fictitious subsidiary office to which he shipped inventories and then approved the invoice for payment. The inventories were sold and the proceeds deposited to the controller's personal bank account. Which of the following internal controls would be most effective in preventing that situation?

A. Separation of duties B. Bank reconciliations C. Conflict of interest policy D. Limit checks

44. A company's accountant was able to approve payment of invoices and write company checks to a family member, with whom the accountant would split the proceeds. The accountant covered up the theft with journal entries in the AIS. Which duties should be separated to prevent such problems in the future?

A. Authorization and custody B. Custody and recordkeeping C. Authorization and recordkeeping D. Control environment and control activities

45. After being laid off from his job, Dale applied for unemployment benefits. During his initial interview to establish eligibility, the interviewer explained his benefits would last no more than ten weeks; Dale later consulted the official web site and learned that, under the right circumstances, his unemployment benefits could last up to six months. Which of the following internal controls is least likely to address this situation?

A. Adequate supervision B. Adequate documentation C. Employee bonding D. Preformatted data entry screen

46. Pauline was injured on the job and applied for workers' compensation insurance; she was initially authorized for eight weeks of benefits. Although her doctor released her to return to work after six weeks, Pauline did not go back to work until the full eight weeks had elapsed. Internal controls to address this situation would include: (i) insurance and bonding, (ii) internal audits.

A. I only B. II only C. Both I and II D. Neither I nor II

47. Jared is a loan officer at a bank whose responsibilities include taking applications from prospective borrowers. Jared also makes an initial recommendation regarding each loan, although final approval requires the authorization of both a branch manager and a loan specialist at the bank's corporate headquarters. Within the context of a loan transaction, which of the following best pairs a risk with an internal control that will address the risk?

A. Approving a loan for a friend who does not meet the criteria, limit checks B. Including false or misleading information on the loan application, preformatted data entry screen C. Submitting an incomplete loan application, preformatted data entry screen D. Submitting an incomplete loan application, limit checks

48. When employees of the City of Fenris need supplies, they fill out a purchase requisition and send it to the city's purchasing department. The purchasing agents consolidate requisitions for similar supplies and prepare a purchase order to send to a vendor. The vendor ships the supplies directly to the purchasing department and then bills the city. Accounting clerks pay vendor invoices within thirty days. Within the context of that business process, which of the following best pairs a risk with an internal control that will address the risk?

A. Purchasing supplies from an unauthorized vendor, separation of duties B. Paying for supplies that were not received, document matching C. Receiving supplies that were not ordered, limit checks D. Requisitioning supplies that are not needed, pre-numbered purchase requisitions

49. Internal controls can prevent, detect or correct a problem. Which of the following groups includes controls that will fulfill all three with respect to the risk of an employee stealing tools from a company warehouse?

A. Random searches, video surveillance, insurance B. Random searches, physical security, video surveillance C. Lockbox systems, video surveillance, limit checks D. Lockbox systems, limit checks, insurance

50. Internal controls can prevent, detect or correct a problem. Which of the following groups includes controls that will fulfill all three with respect to the risk of an employee embezzling money by forging a manager's signature on a check?

A. Separation of duties, internal audit, employee bonding B. Physical security of cash, pre-numbered documents, restrictive endorsements C. Separation of duties, pre-numbered documents, restrictive endorsements D. Physical security of cash, internal audit, employee bonding

51. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. Column A is most closely related to the ___ part of the COSO framework.

A. first B. second C. fourth D. last

52. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. Column B is most closely related to the ___ part of the COSO framework.

A. second B. third C. fourth D. last

53. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item A is:

A. Brown B. Risk C. COSO D. some other entry

54. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item B is:

A. Operations/reporting/compliance B. Internal environment C. Internal control D. some other entry

55. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item C is:

A. Theft of inventory B. Employee embezzlement C. Either theft of inventory or employee embezzlement D. Neither theft of inventory nor employee embezzlement

56. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item D is:

A. Human error risk B. Liquidity risk C. Systems risk D. Business strategy risk

57. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item E is:

A. Sell only for cash B. Rely on third party vendors C. Allow sales staff to make credit decisions D. Use the direct write-off method

58. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item F is:

A. Preventive B. Safeguard assets C. Corrective D. Control environment

59. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item G is:

A. Financing process B. Error rates less than 5% are allowable C. Either financing process or error rates less than 5% are allowable D. Neither financing process nor error rates less than 5% are allowable

60. Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item H is:

A. Acquisition/payment process B. Conversion process C. Financing process D. Reporting process

Essay Questions

61. Fill in the blanks below to complete the COSO definition of internal control. Internal control is a (a), effected by an entity's (b), management and other personnel, designed to provide (c), regarding the achievement of objectives relating to (d), (e) and (f). a. _______________________________________________________ b. _______________________________________________________ c. _______________________________________________________ d. _______________________________________________________ e. _______________________________________________________ f. _______________________________________________________

62. Sam and Dan are the owners of the International School for Computer Training (ISCT), a forprofit educational institution that provides computer-related education in several short-term programs. As a first step in developing an internal control plan, they have identified two risks: (a) employees steal supplies for personal use and (b) failure to attract a sufficient number of students. Based on those two risks, prepare a risk-control matrix using the format illustrated in the chapter.

63. A Place to Rest is a retreat center located just outside Los Angeles; the center's management is interested in developing an internal control plan using the COSO framework. For each item listed below, indicate the framework element that most clearly applies; you must use each element of the COSO framework exactly one time. a. Conducting focus groups where employees talk about problems they observe at the center b. Designating a three-person committee to review and update the plan annually c. Filling out a risk/control matrix d. Inviting a guest speaker to talk to employees about the importance of internal control e. Sending out a monthly e-mail describing some aspect of the center's internal control plan

64. Consider the list of risks and internal controls in the table below. For each row, indicate whether the internal control addresses the risk. If it does, indicate whether it is primarily preventive, detective or corrective in nature.

65. Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of non-payroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Based on the narrative, identify three risk exposures for the finance department at PLP Corporation. For each risk exposure, suggest two internal controls that would address it. Use the outline below to record your responses.

1) Risk exposure: _____________________________________________ a. Control: ________________________________________________

b. Control: ________________________________________________ 2) Risk exposure: _____________________________________________ a. Control: ________________________________________________ b. Control: ________________________________________________ 3) Risk exposure: _____________________________________________ a. Control: ________________________________________________ b. Control: ________________________________________________

66. Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of non-payroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Based on the narrative, identify five risk exposures for the finance division at PLP Corporation. For each risk exposure, use Brown's taxonomy to identify both the broad category and the specific type of risk within the category.

67. Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of non-payroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Risk exposures for the finance division at PLP include: a) Cash dividends being sent to the wrong shareholders b) Dividend miscalculations c) Embezz

lement of cash d) Missed payments on long-term debt e) Payroll checks issued to employees no longer working for PLP f) Payroll miscalculations g) Poor choices for short-term investments h) Purchasing supplies and inventory from unauthorized vendors

i) Theft of supplies To address those risks, PLP might institute the following internal controls: adequate supervision, segregation of duties, appropriate use of information technology. Divide the risk exposures listed into three groups based on the internal control that would best address the risk; each group must have no fewer than two and no more than four risk exposures. Each risk exposure must be associated with exactly one internal control.

68. Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of non-payroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Risk exposures for the finance division at PLP include: • Cash dividends being sent to the wrong shareholders • Embezzlement of cash • Missed payments on long-term debt • Payroll checks issued to employees no longer working for PLP • Payroll miscalculations Using the format illustrated in the text, design a risk/control matrix for the risk exposures listed above.

69. COSO's Internal Control—Integrated Framework comprises five interrelated elements. List and briefly discuss each of the five elements.

70. Bumble Beasley was recently hired as a marketing manager at ATI Corporation. When approached by the accounting manager regarding the development of an internal control plan for the marketing department, Bumble said: "Internal control? I'm not even really sure I know what that is. And even if I did, I had the impression that it was all the responsibility of you accounting types." In the role of the accounting manager, explain to Bumble in your own words what internal control is. Also explain, in your own words, the basic purposes of internal control.

71. Bonnie is the owner of Doggie Day Care, a pet-sitting service. Pet owners bring their dogs to Bonnie's facility, where they are either given private accommodations or are put in a large pen with other dogs. (Private accommodations are more expensive.) Bonnie and her employees feed the dogs twice a day; those dogs in private accommodations are also given two exercise periods per day. Owners pay half the daily fee at the start of the day, and the other half when they pick up the dog at the end of the day; owners must also certify that their dogs have had all required vaccinations. As Bonnie's company is a day care service, no dogs stay the night in her facility. Bonnie accepts cash, checks and major credit cards in payment. Bonnie is interested in developing a comprehensive internal control plan for Doggie Day Care; she has approached you, as a consultant, for assistance. Use the COSO internal control framework to develop an internal control plan for Bonnie. Ensure that your plan includes sufficient detail that Bonnie can implement it as you intend.

72. Bonnie is the owner of Doggie Day Care, a pet-sitting service. Pet owners bring their dogs to Bonnie's facility, where they are either given private accommodations or are put in a large pen with other dogs. (Private accommodations are more expensive.) Bonnie and her employees feed the dogs twice a day; those dogs in private accommodations are also given two exercise periods per day. Owners pay half the daily fee at the start of the day, and the other half when they pick up the dog at the end of the day; owners must also certify that their dogs have had all required vaccinations. As Bonnie's company is a day care service, no dogs stay the night in her facility. Bonnie accepts cash, checks and major credit cards in payment. List and discuss three to five risk exposures Bonnie's company faces. For each risk you identify, explain where it fits within Brown's taxonomy of risk.

73. Bonnie is the owner of Doggie Day Care, a pet-sitting service. Pet owners bring their dogs to Bonnie's facility, where they are either given private accommodations or are put in a large pen with other dogs. (Private accommodations are more expensive.) Bonnie and her employees feed the dogs twice a day; those dogs in private accommodations are also given two exercise periods per day. Owners pay half the daily fee at the start of the day, and the other half when they pick up the dog at the end of the day; owners must also certify that their dogs have had all required vaccinations. As Bonnie's company is a day care service, no dogs stay the night in her facility. Bonnie accepts cash, checks and major credit cards in payment. Bonnie has approached you, as a consultant, with concerns about the risks her company faces and how she might address them. Explain the concept of a risk/control matrix to Bonnie, then design such a matrix for three risks Bonnie's company must address.

74. Match each detailed element of Brown's risk taxonomy on the left with the most appropriate category on the right.

75. Internal controls have four basic purposes in organizations. Please match each item on the left with the most relevant purpose on the right.

Chapter 03 Internal Controls Answer Key

Multiple Choice Questions

According to COSO, internal control is a:

A. Process. B. Set of rules. C. Responsibility of employees only. D. Requirement only for publicly-traded firms.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Define internal control and explain its importance in the accounting information system. Topic: Internal control definition

Internal control is designed to provide:

A. Certainty. B. Freedom from fraud. C. Reasonable assurance. D. Truth.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 03-01 Define internal control and explain its importance in the accounting information system. Topic: Internal control definition

According to the COSO definition, internal control should address objectives in all of the following categories except:

A. Operations. B. Compliance. C. Reporting. D. Fraud.

According to the COSO definition, internal control should promote ___ in financial reporting.

A. Truth B. Accuracy C. Both truth and accuracy D. Neither truth nor accuracy

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-01 Define internal control and explain its importance in the accounting information system. Topic: Internal control definition

Bumble Beasley was making a presentation on internal control to a group of prospective clients. Which of the following statements is the least appropriate for Bumble to make?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-02 Explain the basic purposes of internal control and its relationship to risk. Topic: Internal control purposes

Internal control relates to an organization's achievement of objectives in three major categories. All of the following are examples of at least one category except:

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following best pairs one of the categories with a specific example?

Internal control relates to an organization's achievement of objectives in three major categories. Which of the following pairs gives an example of two controls that fulfill a single category?

10.

Purposes of internal control include:

A. Safeguarding assets. B. Ensuring financial statement reliability. C. Promoting operational efficiency. D. All of these.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Explain the basic purposes of internal control and its relationship to risk.

Topic: Internal control purposes

11.

Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) keeping cash in a bank, (ii) conducting a new employee orientation.

A. I only. B. II only. C. Both I and II. D. Neither I nor II.

12.

Internal control has four major purposes in organizations. Ways to achieve at least one of the four include: (i) requiring supervisory review of how complex transactions are recorded in the journal, (ii) using general ledger software such as Peachtree.

A. I only. B. II only. C. Both I and II. D. Neither I nor II.

13.

Omar is a general manager at FRD Corporation. He recently attempted to reorganize FRD from three departments of ten people each to six departments of five people each. Which purpose of internal control is most likely to be impacted by the change?

A. Safeguarding assets B. Ensuring financial statement reliability C. Promoting operational efficiency D. Uncovering fraud

14.

Shawn is an accountant at LNT Corporation. He maintains the company's accounting data on his computer's local hard drive, but does not back it up on any regular schedule. LNT Corporation's risk is most related to which purpose of internal control?

A. Safeguarding assets B. Ensuring financial statement reliability C. Encouraging compliance with management directives D. Properly backing up data every day

15.

ANF Corporation's company procedures manual is available to all employees on the corporate network, while RSP Corporation distributes a hard copy of its company procedures manual to all new employees. Which of the following statements is most true?

16.

CPY Corporation replaces one third of its computers every year; SLP Corporation replaces its computers when employees submit a request, but no more frequently than once every four years. Which of the following statements is most true?

17.

A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?

Topic: Internal control purposes

18.

A well-designed set of internal controls helps a company achieve four main purposes. Which of the following best pairs two controls related to a single purpose?

A. Adequate documentation and user training B. Adequate documentation and bank reconciliations C. User training and bank reconciliations D. Firewalls and employee bonding

19.

In Brown's taxonomy, systems risk is a form of:

A. Financial risk B. Operational risk C. Strategic risk D. Hazard risk

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Describe and give examples of various kinds of risk exposures. Topic: Risk

20.

Violating the provisions of the Foreign Corrupt Practices Act most directly subjects an organization to what kind of risk from Brown's taxonomy?

A. Financial B. Operational C. Strategic D. Inherent

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Describe and give examples of various kinds of risk exposures. Topic: Risk

21.

Hewlett-Packard is a publicly traded corporation whose principal activity is making and selling computers. Customers can buy an HP computer directly from HP online if they pay with a bank credit card (such as Visa or Mastercard). HP's risk exposures therefore include all of the following except:

A. Market risk B. Systems risk C. Credit risk D. Human error risk

22.

Dale is an employee of Big State University who also does some independent consulting to supplement income. Because consulting engagements are infrequent, Dale has not purchased insurance for the company. If Dale requires consulting clients to pay in cash, which of the following risk exposures is most serious?

A. Directors' and officers' liability risk B. Systems risk C. Credit risk D. Consulting risk

23.

Similarities between legal & regulatory risk and directors' and officers' liability risk in Brown's taxonomy include:

24.

Differences between legal & regulatory risk and directors' & officers' liability risk in Brown's taxonomy include:

25.

Consider the following examples of risk: i. A corporation is unable to issue bonds because its credit rating is too low. ii. A U.S. auto manufacturer tries to market a car in Mexico. The car does not sell because the Spanish translation of its name means "it doesn't go." iii. An employee receives insufficient training in how to use specialized software. iv. Due to employee theft, a corporation spends more money than anticipated buying new tools. Which pair of risks belongs to the same category in Brown's risk taxonomy?

A. I and II B. II and III C. I and III D. I and IV both I and IV are forms of financial risk

26.

Consider the following examples of risk: i. A corporation is unable to issue bonds because its credit rating is too low. ii. A U.S. auto manufacturer tries to market a car in Mexico. The car does not sell because the Spanish translation of its name means "it doesn't go." iii. An employee receives insufficient training in how to use specialized software. iv. Due to employee theft, a corporation spends more than anticipated buying new tools. The risks listed above contain examples of all the categories in Brown's risk taxonomy except:

A. Financial B. Operational C. Strategic D. Hazard

27.

The risk/control matrix illustrated in the chapter contains five columns. Which of the following is not one of them?

A. Risk B. Risk category C. COSO category D. Internal control

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

28.

The risk/control matrix illustrated in the chapter contains five columns. Which of the following items is most likely to appear in the third column?

A. Downloading a virus B. Preventive C. Systems D. Virus protection software

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

29.

An airline pilot could not get landing instructions at an airport because the air traffic controller was asleep. In a risk/control matrix related to that situation, which of the following items is most likely to appear in the second column?

A. Human error B. Preventive C. Require annual physicals D. Work with a partner

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand 3-62 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

30.

An airline pilot could not get landing instructions at an airport because the air traffic controller was asleep. In a risk/control matrix related to that situation, the phrase "require annual physicals" is most likely to appear in which column?

A. First B. Third C. Fourth D. Fifth

31.

Raj, an employee at TRS Corporation, was preparing a risk/control matrix related to the steps in the accounting cycle. The first row of the matrix contained the following entries: Adequate training. Assets that should be reported at historical cost are reported at market value. Human error. Internal audits. All the columns in the risk/control matrix are represented by those items except:

A. Comments B. Internal control C. Risk D. Risk category

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

32.

Raj, an employee at TRS Corporation, was preparing a risk/control matrix related to the steps in the accounting cycle. The first row of the matrix contained the following entries: Adequate training. Assets that should be reported at historical cost are reported at market value. Human error. Internal audits. Which two items would appear in the same column in the matrix?

A. Adequate training and human error B. Human error and internal audits C. Adequate training and internal audits D. None. For a given risk, each column can have only one entry.

33.

Consider the following list of items that might appear in a risk/control matrix: i. At least twice a week ii. Corrective iii. Human error iv. Inability to access class materials due to network outage v. Insufficient time to study vi. Local data backup vii. Maximum budget = $50 viii. Preventive ix. Systems x. Time management software Which of the following items are most likely to be grouped on a single row?

A. I, II, III, IV, V B. I, III, VII, VIII, X C. III, V, VII, VIII, X D. III, VI, VII, VIII, X

34.

A. I, II, III, IV, V B. I, II, IV, VI, IX C. II, III, IV, V, VI D. VI, VII, VIII, IX, X

35.

COSO's Internal Control—Integrated Framework comprises a total of ___ categories.

A. Three B. Four C. Five D. Six

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Summarize and explain the importance of COSO's "Internal Control—Integrated Framework." Topic: COSO internal control framework

36.

A speech by the company president about the role of internal control is an example of ___ in COSO's Internal Control—Integrated Framework.

A. Control environment B. Control activity C. Information and communication D. Risk assessment

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-05 Summarize and explain the importance of COSO's "Internal Control—Integrated Framework." Topic: COSO internal control framework

37.

A department manager at TRS Corporation attended a seminar on internal control; afterward, the manager formed a five-person departmental team to create an internal control plan for the department. After a one-day off-site meeting, the team produced a document titled "Departmental Internal Control Plan." It was formatted as a risk/control matrix. One member of the team commented that, although the work was interesting, the team was glad the task was complete and wouldn't have to be redone. Which element of COSO's internal control framework does the department's plan lack?

A. Risk assessment B. Control activities C. Information and communication D. Monitoring

38.

39.

Ray has worked in the mailroom at MNG Corporation for five years, and is widely respected throughout the organization. Jon, the chief financial officer, started working at MNG six months ago after holding a similar position with one of MNG's competitors. Which of the following statements is most true?

40.

A risk/control matrix has five columns, the last of which is labeled "comments." Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

41.

PRL Corporation's internal control plan is based on the COSO framework. It includes five items: (i) conducting ongoing evaluations of internal control during the normal course of operations, (ii) hiring accountants who understand the importance of strong internal control, (iii) including a segment in new employee orientation on the importance of strong internal control, (iv) periodic employee surveys that identify new issues that require internal controls, (v) a quarterly newsletter explaining elements of the internal control plan. Based on those five items alone, which element of PRL's internal control plan is weakest?

A. Risk/control matrix B. Control activities C. Information and communication D. Monitoring I focuses on monitoring. II and III help establish a strong control environment. IV is a type of risk assessment. V is a form of information and communication.

42.

PRL Corporation's internal control plan is based on the COSO framework. It includes five items: (i) conducting ongoing evaluations of internal control during the normal course of operations, (ii) hiring accountants who understand the importance of strong internal control, (iii) including a segment in new employee orientation on the importance of strong internal control, (iv) periodic employee surveys that identify new issues that require internal controls, (v) a quarterly newsletter explaining elements of the internal control plan. Which of the following most appropriately groups two items from PRL's plan with a component of the COSO framework?

A. I and II, monitoring B. II and III, control environment C. IV and V, information and communication D. I and V, risk assessment I focuses on monitoring. II and III help establish a strong control environment. IV is a type of risk assessment. V is a form of information and communication.

43.

A company controller set up a fictitious subsidiary office to which he shipped inventories and then approved the invoice for payment. The inventories were sold and the proceeds deposited to the controller's personal bank account. Which of the following internal controls would be most effective in preventing that situation?

A. Separation of duties B. Bank reconciliations C. Conflict of interest policy D. Limit checks

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-06 Critique existing internal control systems and design effective internal controls. Topic: Internal controls

44.

A company's accountant was able to approve payment of invoices and write company checks to a family member, with whom the accountant would split the proceeds. The accountant covered up the theft with journal entries in the AIS. Which duties should be separated to prevent such problems in the future?

A. Authorization and custody B. Custody and recordkeeping C. Authorization and recordkeeping D. Control environment and control activities

Topic: Internal controls

45.

After being laid off from his job, Dale applied for unemployment benefits. During his initial interview to establish eligibility, the interviewer explained his benefits would last no more than ten weeks; Dale later consulted the official web site and learned that, under the right circumstances, his unemployment benefits could last up to six months. Which of the following internal controls is least likely to address this situation?

A. Adequate supervision B. Adequate documentation C. Employee bonding D. Preformatted data entry screen

46.

Pauline was injured on the job and applied for workers' compensation insurance; she was initially authorized for eight weeks of benefits. Although her doctor released her to return to work after six weeks, Pauline did not go back to work until the full eight weeks had elapsed. Internal controls to address this situation would include: (i) insurance and bonding, (ii) internal audits.

A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Analytical Thinking AICPA: FN Risk Analysis 3-74 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-06 Critique existing internal control systems and design effective internal controls. Topic: Internal controls

47.

Jared is a loan officer at a bank whose responsibilities include taking applications from prospective borrowers. Jared also makes an initial recommendation regarding each loan, although final approval requires the authorization of both a branch manager and a loan specialist at the bank's corporate headquarters. Within the context of a loan transaction, which of the following best pairs a risk with an internal control that will address the risk?

48.

When employees of the City of Fenris need supplies, they fill out a purchase requisition and send it to the city's purchasing department. The purchasing agents consolidate requisitions for similar supplies and prepare a purchase order to send to a vendor. The vendor ships the supplies directly to the purchasing department and then bills the city. Accounting clerks pay vendor invoices within thirty days. Within the context of that business process, which of the following best pairs a risk with an internal control that will address the risk?

49.

Internal controls can prevent, detect or correct a problem. Which of the following groups includes controls that will fulfill all three with respect to the risk of an employee stealing tools from a company warehouse?

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand 3-76 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 03-06 Critique existing internal control systems and design effective internal controls. Topic: Internal controls

50.

Internal controls can prevent, detect or correct a problem. Which of the following groups includes controls that will fulfill all three with respect to the risk of an employee embezzling money by forging a manager's signature on a check?

51.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. Column A is most closely related to the ___ part of the COSO framework.

A. first B. second C. fourth D. last

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

52.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. Column B is most closely related to the ___ part of the COSO framework.

A. second B. third C. fourth D. last

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

53.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item A is:

A. Brown B. Risk C. COSO D. some other entry

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

54.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item B is:

A. Operations/reporting/compliance B. Internal environment C. Internal control D. some other entry

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

55.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item C is:

A. Theft of inventory B. Employee embezzlement C. Either theft of inventory or employee embezzlement D. Neither theft of inventory nor employee embezzlement

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

56.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item D is:

A. Human error risk B. Liquidity risk C. Systems risk D. Business strategy risk

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

57.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item E is:

A. Sell only for cash B. Rely on third party vendors C. Allow sales staff to make credit decisions D. Use the direct write-off method

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

58.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item F is:

A. Preventive B. Safeguard assets C. Corrective D. Control environment

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

59.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item G is:

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

60.

Consider the following partially completed risk/control matrix as you answer the questions:

Assume the risk/control matrix is organized like the one presented in the chapter. The best entry for Item H is:

A. Acquisition/payment process B. Conversion process C. Financing process D. Reporting process

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

Essay Questions

61.

Fill in the blanks below to complete the COSO definition of internal control. Internal control is a (a), effected by an entity's (b), management and other personnel, designed to provide (c), regarding the achievement of objectives relating to (d), (e) and (f). a. _______________________________________________________ b. _______________________________________________________ c. _______________________________________________________ d. _______________________________________________________ e. _______________________________________________________ f. _______________________________________________________

a. process b. board of directors c. reasonable assurance d. operations e. reporting f. compliance

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Define internal control and explain its importance in the accounting information system. Topic: Internal control definition

62.

Sam and Dan are the owners of the International School for Computer Training (ISCT), a for-profit educational institution that provides computer-related education in several short-term programs. As a first step in developing an internal control plan, they have identified two risks: (a) employees steal supplies for personal use and (b) failure to attract a sufficient number of students. Based on those two risks, prepare a risk-control matrix using the format illustrated in the chapter.

Risk: Employees steal supplies for personal use. Risk category: Liquidity risk Internal control: Keep supplies in a locked cabinet. Internal control purpose: preventive Comments: Restrict access to the key. Risk: Failure to attract a sufficient number of students Risk category: Liquidity risk Internal control: Establish an adequate budget for advertising. Internal control purpose: preventive Comments: As part of the budget, determine which ads have been most effective.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

63.

A Place to Rest is a retreat center located just outside Los Angeles; the center's management is interested in developing an internal control plan using the COSO framework. For each item listed below, indicate the framework element that most clearly applies; you must use each element of the COSO framework exactly one time. a. Conducting focus groups where employees talk about problems they observe at the center b. Designating a three-person committee to review and update the plan annually c. Filling out a risk/control matrix d. Inviting a guest speaker to talk to employees about the importance of internal control e. Sending out a monthly e-mail describing some aspect of the center's internal control plan

a. risk assessment b. monitoring c. control activities d. control environment e. information and communication

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-05 Summarize and explain the importance of COSO's "Internal Control—Integrated Framework." Topic: COSO internal control framework

64.

Consider the list of risks and internal controls in the table below. For each row, indicate whether the internal control addresses the risk. If it does, indicate whether it is primarily preventive, detective or corrective in nature.

a. no b. no c. yes, preventive d. no e. yes, corrective

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-06 Critique existing internal control systems and design effective internal controls. Topic: Internal controls

65.

Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of nonpayroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Based on the narrative, identify three risk exposures for the finance department at PLP Corporation. For each risk exposure, suggest two internal controls that would address it. Use the outline below to record your responses. 1) Risk exposure: _____________________________________________ a. Control: ________________________________________________ b. Control: ________________________________________________ 2) Risk exposure: _____________________________________________ a. Control: ________________________________________________ b. Control: ________________________________________________ 3) Risk exposure: _____________________________________________ a. Control: ________________________________________________ b. Control: ________________________________________________

1. Risk exposure: Theft of cash. Controls: Separation of duties & adequate supervision. 2. Risk exposure: Employee errors. Controls: Reorganize the procedures manual & employee training. 3. Risk exposure: Inappropriate/unwise short-term investments. Controls: Adequate supervision & a company policy on investments.

66.

Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of nonpayroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Based on the narrative, identify five risk exposures for the finance division at PLP Corporation. For each risk exposure, use Brown's taxonomy to identify both the broad category and the specific type of risk within the category.

1. Theft of cash. Liquidity. Financial. 2. Employee errors. Human error. Operational. 3. Inappropriate short-term investments. Market risk. Financial. 4. Violations of SOX. Legal and regulatory risk. Strategic risk. 5. Failure to consider financial aspects of competition. Business strategy risk. Strategic.

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Blooms: Analyze Difficulty: 3 Hard Learning Objective: 03-03 Describe and give examples of various kinds of risk exposures. Topic: Risk

67.

Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of nonpayroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Risk exposures for the finance division at PLP include: a) Cash dividends being sent to the wrong shareholders b) Dividend miscalculations c) Embezzlement of cash d) Missed payments on long-term debt e) Payroll checks issued to employees no longer working for PLP f) Payroll miscalculations g) Poor choices for short-term investments h) Purchasing supplies and inventory from unauthorized vendors i) Theft of supplies To address those risks, PLP might institute the following internal controls: adequate supervision, segregation of duties, appropriate use of information technology. Divide the risk exposures listed into three groups based on the internal control that would best address the risk; each group must have no fewer than two and no more than four risk exposures. Each risk exposure must be associated with exactly one internal control.

Adequate supervision: A, G, H Segregation of duties: C, I Appropriate use of information technology: B, D, E, F

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 03-06 Critique existing internal control systems and design effective internal controls. Topic: Internal controls

68.

Carlos is the vice president of finance at PLP Corporation. When he joined the company five years ago, the finance division was organized in two departments: operating transactions and non-operating transactions. Each department had two employees and a manager. The operating transactions department handled all aspects of transactions dealing with inventory, supplies, payroll and other operating expenses; the non-operating transactions department handled all aspects of transactions dealing with short-term investments, long-term debt and shareholders. Any transactions that did not fit one of the two groups were handled by the vice president of finance. The finance division had its own procedures manual, organized into three chapters: operating transactions, non-operating transactions, other transactions. Within the operating transactions department, one employee handled payroll only, while the other employee handled all aspects of nonpayroll transactions. Within the non-operating transactions department, one employee handled transactions related to short-term investments. The other employee handled long-term debt transactions, while the department manager handled all aspects of transactions dealing with shareholders. Risk exposures for the finance division at PLP include: • Cash dividends being sent to the wrong shareholders • Embezzlement of cash • Missed payments on long-term debt • Payroll checks issued to employees no longer working for PLP • Payroll miscalculations Using the format illustrated in the text, design a risk/control matrix for the risk exposures listed above.

Risk: Cash dividends being sent to the wrong shareholders Risk category: human error Internal control: Verify shareholder information prior to issuing checks Internal control purpose: Preventive Comments: Use a negative confirmation

Risk: Embezzlement of cash Risk category: Liquidity Internal control: Separation of duties Internal control purpose: preventive Comments: Authorization/custody/recordkeeping Risk: Missed payments on long-term debt Risk category: Human error Internal control: Automate payments Internal control purpose: Preventive Comments: Use a sinking fund Risk: Payroll checks issued to employees no longer working for PLP Risk category: Liquidity Internal control: Delete employees from the information system once their employment is over. Internal control purpose: Preventive Comments: Human resources should send the information to IT. Risk: Payroll miscalculations Risk category: Human error Internal control: Use information technology for calculations Internal control purpose: Preventive Comments: Consider outsourcing the payroll function

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

69.

COSO's Internal Control—Integrated Framework comprises five interrelated elements. List and briefly discuss each of the five elements.

The five elements of the framework are: control environment, risk assessment, control activities, information & communication, and monitoring. Students' discussion should emphasize the content outlined in the chapter.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Summarize and explain the importance of COSO's "Internal Control—Integrated Framework." Topic: COSO internal control framework

70.

Bumble Beasley was recently hired as a marketing manager at ATI Corporation. When approached by the accounting manager regarding the development of an internal control plan for the marketing department, Bumble said: "Internal control? I'm not even really sure I know what that is. And even if I did, I had the impression that it was all the responsibility of you accounting types." In the role of the accounting manager, explain to Bumble in your own words what internal control is. Also explain, in your own words, the basic purposes of internal control.

Internal control refers to the set of policies and procedures organizations should implement to achieve four purposes: ensuring that financial reporting is reliable, encouraging employees to follow company rules, keeping assets safe and making operations as efficient as possible.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium

Learning Objective: 03-01 Define internal control and explain its importance in the accounting information system. Topic: Internal control definition

71.

Bonnie is the owner of Doggie Day Care, a pet-sitting service. Pet owners bring their dogs to Bonnie's facility, where they are either given private accommodations or are put in a large pen with other dogs. (Private accommodations are more expensive.) Bonnie and her employees feed the dogs twice a day; those dogs in private accommodations are also given two exercise periods per day. Owners pay half the daily fee at the start of the day, and the other half when they pick up the dog at the end of the day; owners must also certify that their dogs have had all required vaccinations. As Bonnie's company is a day care service, no dogs stay the night in her facility. Bonnie accepts cash, checks and major credit cards in payment. Bonnie is interested in developing a comprehensive internal control plan for Doggie Day Care; she has approached you, as a consultant, for assistance. Use the COSO internal control framework to develop an internal control plan for Bonnie. Ensure that your plan includes sufficient detail that Bonnie can implement it as you intend.

Control environment: Bonnie should frequently talk about the importance of internal control with her employees and customers. Risk assessment: Owners may not pick up their dogs. Checks may bounce. Employees/dogs may be injured. Control activities: Ensure customers sign an agreement allowing Bonnie to take abandoned dogs to the pound. Stop accepting checks. Purchase adequate insurance. Information and communication: Review the internal control plan with employees on a quarterly basis. Monitoring: Create a "suggestion box" where employees can identify weaknesses in the plan and ways to improve them.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 03-05 Summarize and explain the importance of COSO's "Internal Control—Integrated Framework." 3-101 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: COSO internal control framework

72.

Bonnie is the owner of Doggie Day Care, a pet-sitting service. Pet owners bring their dogs to Bonnie's facility, where they are either given private accommodations or are put in a large pen with other dogs. (Private accommodations are more expensive.) Bonnie and her employees feed the dogs twice a day; those dogs in private accommodations are also given two exercise periods per day. Owners pay half the daily fee at the start of the day, and the other half when they pick up the dog at the end of the day; owners must also certify that their dogs have had all required vaccinations. As Bonnie's company is a day care service, no dogs stay the night in her facility. Bonnie accepts cash, checks and major credit cards in payment. List and discuss three to five risk exposures Bonnie's company faces. For each risk you identify, explain where it fits within Brown's taxonomy of risk.

1. Owners may not pick up their dogs as scheduled (business strategy risk). 2. Dogs may fight with one another (legal and regulatory risk). 3. Checks from owners may not clear the bank (liquidity risk). 4. Bonnie may not be competitive since she does not keep dogs overnight (business strategy risk). 5. Owners may not be truthful about dogs having required vaccinations (legal and regulatory risk).

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 03-03 Describe and give examples of various kinds of risk exposures. Topic: Risk

73.

Bonnie is the owner of Doggie Day Care, a pet-sitting service. Pet owners bring their dogs to Bonnie's facility, where they are either given private accommodations or are put in a large pen with other dogs. (Private accommodations are more expensive.) Bonnie and her employees feed the dogs twice a day; those dogs in private accommodations are also given two exercise periods per day. Owners pay half the daily fee at the start of the day, and the other half when they pick up the dog at the end of the day; owners must also certify that their dogs have had all required vaccinations. As Bonnie's company is a day care service, no dogs stay the night in her facility. Bonnie accepts cash, checks and major credit cards in payment. Bonnie has approached you, as a consultant, with concerns about the risks her company faces and how she might address them. Explain the concept of a risk/control matrix to Bonnie, then design such a matrix for three risks Bonnie's company must address.

A risk/control matrix is a way to summarize an organization's risks and suggest controls to address them. Risk: Dogs may fight with one another. Risk category: Legal and regulatory Internal control: Keep all dogs separated. Internal control purpose: preventive Comments: Keeping dogs separated may require an increase in prices. Risk: Checks from owners may not clear the bank. Risk category: Liquidity Internal control: Accept only cash and credit cards. Internal control purpose: preventive Comments: Consider making exceptions for long-time customers. Risk: Bonnie may not be competitive since she does not keep dogs overnight. Risk category: Business strategy risk Internal control: Expand her services. Internal control purpose: corrective

Comments: Do a survey of current customers to determine if they want/need the service.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 03-04 Prepare a simple risk/control matrix. Topic: Risk control matrix

74.

Match each detailed element of Brown's risk taxonomy on the left with the most appropriate category on the right.

1. D 2. A 3. B 4. C 5. D 6. A 7. A 8. C

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy 3-104 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 03-03 Describe and give examples of various kinds of risk exposures. Topic: Risk

75.

Internal controls have four basic purposes in organizations. Please match each item on the left with the most relevant purpose on the right.

1. C 2. C 3. D 4. A 5. D 6. A 7. B 8. B

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-02 Explain the basic purposes of internal control and its relationship to risk. Topic: Internal control purposes

Chapter 04 Management Concepts

Multiple Choice Questions

1. COSO's Enterprise Risk Management—Integrated Framework comprises all the following sections except:

A. Brown's risk taxonomy B. Objective setting C. Event identification D. Monitoring

2. In the COSO enterprise risk management framework, an organization's overall tone relates most closely to:

A. Internal environment B. Objective setting C. Event identification D. Monitoring

3. The COSO enterprise risk management framework comprises eight sections, one of which is objective setting. COSO identified five types of objectives most organizations should consider in developing an ERM plan. "Ensuring that the corporation fulfills the requirements of the Sarbanes-Oxley Act" is an example of a ___ objective.

A. Strategic B. Reporting C. Compliance D. Risk management

4. The COSO enterprise risk management framework comprises eight sections, one of which is objective setting. COSO identified five types of objectives most organizations should consider in developing an ERM plan. "Completing SEC filings within thirty days of the fiscal year end" is an example of a ___ objective.

A. Strategic B. Reporting C. Risk management D. Control activity

5. Miguel and Rafaela were developing a risk management plan for their company following the COSO framework. One of the company's goals is to have sufficient cash available for operations; that goal had been difficult to achieve due to seasonal fluctuations in sales. To reduce that risk, Miguel and Rafaela recommended their company invest some cash in shortterm securities that could be liquidated quickly and easily. Which element of the COSO framework is most related to their recommendation?

A. Internal environment B. Monitoring C. Control activities D. Risk response

6. In a conversation about risk management, Miguel and Rafaela produced a ranked list of their company's risk exposures. The ranked list is most closely related to which element of the COSO framework?

A. Information and communication B. Risk assessment C. Risk response D. Monitoring

7. COSO has published integrated frameworks for both internal control and for enterprise risk management. Which of the following statements about the frameworks is most true?

A. The internal control framework is more useful than the enterprise risk management framework. B. The enterprise risk management framework is more useful than the internal control framework. C. Management attitudes are an element of both frameworks. D. Both frameworks are required by the SEC.

8. COSO has published integrated frameworks for both internal control and for enterprise risk management. Which of the following statements about the frameworks is most true?

A. Once the enterprise risk management framework was published, the internal control framework became obsolete. B. In each framework, one or more elements can be omitted without risk. C. "Risk assessment" refers to similar processes in both frameworks. D. A "risk response" in the ERM framework could be considered a "control activity" in the internal control framework.

9. Which of the following best pairs an element of the COSO enterprise risk management framework with an example of that element?

A. Objective setting, determining which elements of the COSO framework to use B. Event identification, identifying needed internal controls C. Risk assessment, annual management retreats focused on the ERM plan D. Risk response, diversifying risk by expanding internationally

10. Which of the following best pairs an element of the COSO enterprise risk management framework with an example of that element?

A. Control activities, developing a budget for the ERM plan B. Information and communication, annual management retreats focused on improving the ERM plan C. Monitoring, annual management retreats focused on improving the ERM plan D. Internal environment, posting SEC filings on the company web site

11. ___ comprises seven interrelated elements.

A. The COSO enterprise risk management framework B. The generalized model of business process management C. Expectancy theory D. All of these

12. Which of the following steps occurs first in the generalized model of business process management discussed in the text?

A. Analyze collected data. B. Collect process-related data. C. Optimize the process. D. Select the process and define its boundaries.

13. Laurie and Milton were developing a business process management plan for their organization. Which of the following actions should they take first, based on the generalized model of BPM discussed in the text?

A. Ask co-workers how the purchasing process can be optimized. B. Choose an activity to study. C. Determine what data their organization has available. D. Get a budget from management for developing the BPM plan.

14. Laurie and Milton were developing a business process management plan for their organization. After deciding to focus on the process of purchasing fixed assets, they should:

A. Determine how the fixed asset purchasing process currently works. B. Estimate the remaining useful life for each fixed asset in the company. C. Look up the definition of "fixed assets" on the FASB web site. D. Make the improvements they believe are necessary.

15. Laurie and Milton are concerned about the risks created by inefficiency in the company's current fixed asset purchasing process. They could address their concern by developing: (i) an enterprise risk management plan, (ii) a business process management plan.

A. I only B. II only C. Both I and II D. Neither I nor II

16. One of the steps in the generalized model of business process management discussed in the text focuses on collecting process-related data. If Laurie and Milton are concerned about the risks created by inefficiency in the company's current fixed asset purchasing process, they could collect data related to: (i) the average length of time between an order for a fixed asset and its delivery, (ii) the costs incurred in the fixed asset purchasing process.

A. I only B. II only C. Both I and II D. Neither I nor II

17. Gelton was leading a team of three co-workers focused on improving their company's process for hiring new employees. They had read the company procedures manual describing the current process, then interviewed newly-hired workers about their experiences. They used the principles of activity-based costing to determine the average cost of hiring a new employee, then created a line graph tracing the average cost over the last twelve months. Which of the following statements is most true?

A. Creating a line graph helps fulfill the fourth step of the generalized BPM model discussed in the text. B. Determining the average cost of hiring a new employee helps fulfill the second step of the generalized BPM model discussed in the text. C. The narrative includes exactly one way of fulfilling the third step of the generalized BPM model discussed in the text. D. The business process is poorly defined.

18. Gelton was leading a team of three co-workers focused on improving their company's process for hiring new employees. They had read the company procedures manual describing the current process, then interviewed newly-hired workers about their experiences. They used the principles of activity-based costing to determine the average cost of hiring a new employee, then created a line graph tracing the average cost over the last twelve months. "Reading the company procedures manual" and "interviewing newly-hired workers" are examples of:

A. Two different steps in the generalized BPM model discussed in the text. B. The second step in the generalized BPM model discussed in the text. C. The sixth step in the generalized BPM model discussed in the text. D. Things that must happen in every BPM project.

19. Gelton was leading a team of three co-workers focused on improving their company's process for hiring new employees. They had read the company procedures manual describing the current process, then interviewed newly-hired workers about their experiences. They used the principles of activity-based costing to determine the average cost of hiring a new employee, then created a line graph tracing the average cost over the last twelve months. Using the generalized model of BPM discussed in the text, Gelton and his team still need to complete steps:

A. Five through seven. B. Four through seven. C. Three through five. D. Two through four.

20. Gelton was leading a team of three co-workers focused on improving their company's process for hiring new employees. They had read the company procedures manual describing the current process, then interviewed newly-hired workers about their experiences. They used the principles of activity-based costing to determine the average cost of hiring a new employee, then created a line graph tracing the average cost over the last twelve months. What should Gelton and his team do next?

A. Read more books about business process management. B. Implement a newer, more efficient hiring process. C. Prepare a presentation to the board of directors. D. Brainstorm ways the process could be improved.

21. The basic principles of business process management discussed in the text include:

A. Enlist top management support. B. Make sure consultants' tasks are well defined. C. Both enlist top management support and make sure consultants' tasks are well defined. D. Neither enlist top management support nor make sure consultants' tasks are well defined.

22. The basic principles of business process management discussed in the text include all of the following except:

A. Always use information technology in BPM projects. B. Hire people who can see the "big picture." C. Communicate early; communicate often. D. Understand how business processes support organizational strategy.

23. Which of the following best paraphrases one of the basic principles of business process management discussed in the text?

A. Determine how business processes interact with the way an organization competes in its markets. B. Gain cooperation from middle management if possible. C. Look for reasons to keep processes the same if at all possible. D. Ensure the company has the right information technology tools for the job.

24. Within the context of business process management, the quote "If you don't know where you're going, any road will take you there" is most related to which of the following?

A. Developing a timeline and outcomes for a BPM project. B. Preparing a presentation on the nature and importance of BPM for top management. C. Using a well-established methodology for choosing information technology tools in a BPM project. D. None of these.

25. One of the basic principles of business process management discussed in the text states: "When using consultants, make sure the task is well defined, with specific deliverables defined by the company." Which of the following actions applies that principle?

A. Requiring a consultant to prepare and submit a budget before starting work on the BPM project. B. Dividing the project into phases with firm deadlines. C. Both requiring a consultant to prepare and submit a budget before starting work on the BPM project and dividing the project into phases with firm deadlines. D. Neither requiring a consultant to prepare and submit a budget before starting work on the BPM project nor dividing the project into phases with firm deadlines.

26. One of the basic principles of business process management discussed in the text states: "Ensure that top management can describe current business processes before trying to modify the processes." Which of the following would be the most appropriate way to fulfill that principle?

A. Ask employees if they believe top management can describe current business processes. B. Ask top management to quote from the company procedures manual. C. Give top management a ten question multiple choice quiz. D. Lead a group discussion with top managers.

27. Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which statements in the list above are related to the same basic principle?

A. I and IV B. II and VI C. III and V D. I, IV and VI

28. Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which one is not illustrated by any of the six statements?

29. Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which statement both illustrates one of the principles and relates to the internal environment component of the COSO enterprise risk management framework?

A. I B. III C. V D. VI

30. Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which of the following both illustrates one of the principles and relates to the event identification component of the COSO enterprise risk management framework?

A. I B. IV C. Both I and IV D. Neither I nor IV

31. According to expectancy theory, motivation is determined by three factors. Which of the following is not one of the three factors?

A. Energy B. Expectancy C. Valence D. Instrumentality

32. Which of the following formulas explains motivation using expectancy theory?

A. Energy X Valence X Instrumentality B. Expectancy + Valence + Instrumentality C. Expectancy X Valence + Instrumentality D. Expectancy X Valence X Instrumentality

33. Because of the relationship between the variables in expectancy theory:

A. All three must have positive values for someone to be motivated. B. All three must have negative values for someone to be motivated. C. No more than two of the variables can be positive for someone to be motivated. D. Up to two variables can be zero with no effect on motivation.

34. Erin has maintained a very high GPA throughout her accounting education, but wonders if that GPA will ensure that she gets a good job. In terms of expectancy theory, Erin is most concerned about:

A. Expectancy B. Instrumentality C. Valence D. Utility

35. Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He believes if he completes all his assigned tasks well before their established deadlines and controls costs in his area, he will be promoted. Which elements of expectancy theory are illustrated in that example?

A. Expectancy and instrumentality B. Instrumentality and valence C. Expectancy and valence D. Expectancy, instrumentality and valence

36. Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He is confident that he can complete all his assigned tasks well before their established deadlines and control costs in his area. Which elements of expectancy theory are illustrated in that example?

A. Expectancy and instrumentality B. Instrumentality and valence C. Expectancy and valence D. Expectancy, instrumentality and valence

37. Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He believes if he completes all his assigned tasks well before their established deadlines and controls costs in his area, he will be promoted. He is confident he can achieve those two goals. Which of the following best pairs an element of expectancy theory with a phrase that illustrates it?

A. Expectancy: completes all his assigned tasks well before their established deadlines. B. Instrumentality: very interested in working his way up to being XMP's chief financial officer. C. Valence: very interested in working his way up to being XMP's chief financial officer. D. Instrumentality: completes all his assigned tasks well before their established deadlines.

38. Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He believes if he completes all his assigned tasks well before their established deadlines and controls costs in his area, he will be promoted. He is confident he can achieve those two goals. Which of the following best pairs an element of expectancy theory with a phrase that illustrates it?

A. Expectancy: confident he can achieve those two goals. B. Instrumentality: very interested in working his way up to being XMP's chief financial officer. C. Valence: confident he can achieve those two goals. D. Instrumentality: completes all his assigned tasks well before their established deadlines.

39. Consider the following statements as you respond to the question: i. Based on my research and reading, I'm sure I want to pursue a career in fraud examination. ii. Good grades and leadership skills generally lead to a good job. iii. I am sure I'll pass the CPA exam on my first attempt. iv. I can definitely complete my accounting degree within four years. v. I've spoken to several friends and family members who work for large corporations. Which pair of statements relates to the same variable in expectancy theory?

A. I and II B. II and III C. III and IV D. I and V

40. Consider the following statements as you respond to the question: i. Based on my research and reading, I'm sure I want to pursue a career in fraud examination. ii. Good grades and leadership skills generally lead to a good job. iii. I am sure I'll pass the CPA exam on my first attempt. iv. I can definitely complete my accounting degree within four years. v. I've spoken to several friends and family members who work for large corporations. Which group of statements combines all three variables in expectancy theory?

A. III, II, I B. III, IV, V C. II, III, IV D. None of these

41. Leigh is a corporate accounting manager with six employees reporting to her. Most of the employees do good work, but one of them consistently lacks motivation. Which of the following tools should Leigh use to address the problem?

A. COSO's enterprise risk management framework B. Generalized model of business process management C. Basic principles of business process management D. Expectancy theory

42. Charlie is a partner in a CPA firm. He wants to make some changes to the company's hiring practices, but is concerned current employees will lack the motivation to do so. Which of the following tools should Charlie use to address those problems?

A. COSO's enterprise risk management framework and expectancy theory B. Expectancy theory and generalized model of business process management C. COSO's enterprise risk management framework and generalized model of business process management D. Expectancy theory and the steps in the accounting cycle

43. Charlie is a partner in a CPA firm. He wants to make some changes to the company's hiring practices, but is concerned current employees will lack the motivation to do so. He should use ___ to address needed changes to hiring practices and ___ to address his concern about current employees.

A. COSO's enterprise risk management framework and expectancy theory B. Expectancy theory and generalized model of business process management C. Expectancy theory and the steps in the accounting cycle D. Generalized model of business process management and expectancy theory

44. Charlie is a partner in a CPA firm. He wants to make some changes to the company's hiring practices, but is concerned current employees will lack the motivation to do so. Provided he uses an appropriate tool, which problem will be easier to address?

A. Making changes to hiring practices. B. Motivating employees. C. The two problems will be equally easy to address. D. More information is needed to determine which problem will be easier to address.

45. The chapter discussed three major ideas from management and their relationship to accounting information systems: COSO's enterprise risk management framework, business process management and expectancy theory. Which of the following statements is most true?

A. The three ideas are unrelated to one another. B. The generalized model of business process management could be used to develop a system for managing risk. C. The generalized model of business process management should be used to analyze employee motivation. D. All organizations should include the risk of non-motivated employees in their COSO risk management plan.

46. Jay is trying to convince the company president that risk management is important. Which of the following statements is most true?

A. Since the company president is involved, expectancy theory is inappropriate for trying to create a good internal environment. B. Jay should follow the basic principles of business process management to increase the president's instrumentality. C. Jay can use expectancy theory to help create a good internal environment. D. None of these statements is true.

47. Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Based on the short case above, which of the following statements is most true?

A. An enterprise risk management plan will be required only if they decide to expand into risk management consulting. B. Nestor and Maureen need to increase their own valence. C. Both an enterprise risk management plan will be required only if they decide to expand into risk management consulting and Nestor and Maureen need to increase their own valence are true. D. Neither an enterprise risk management plan will be required only if they decide to expand into risk management consulting nor Nestor and Maureen need to increase their own valence is true.

48. Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Business valuation is the process of estimating the economic value of an owner's interest in a business, often for the purpose of buying/selling that ownership interest. Based on the short case above, which of the following statements is most true?

A. Expanding the business into business valuation may require creating or updating the firm's risk management plan. B. Expectancy theory can be useful both in deciding whether to expand the business and in working with future business valuation clients. C. Both expanding the business into business valuation may require creating or updating the firm's risk management plan and expectancy theory can be useful both in deciding whether to expand the business and in working with future business valuation clients are true. D. Neither expanding the business into business valuation may require creating or updating the firm's risk management plan nor expectancy theory can be useful both in deciding whether to expand the business and in working with future business valuation clients is true.

49. Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Part of fraud examination is analyzing an accounting information system and other sources to determine if fraud has occurred. If Nestor and Maureen expand their practice into fraud examination, which of the following statements is most true?

A. The COSO enterprise risk management framework may be useful to their new clients. B. Expectancy theory may be a useful tool in conducting a fraud examination. C. Both the COSO enterprise risk management framework may be useful to their new clients and expectancy theory may be a useful tool in conducting a fraud examination are true. D. Neither the COSO enterprise risk management framework may be useful to their new clients nor expectancy theory may be a useful tool in conducting a fraud examination is true.

50. Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Based on the short case above, which of the following statements is most true?

A. After the expansion, Nestor and Maureen may be able to use expectancy theory to sell new services to their old clients. B. Regardless of the area into which the firm expands, the basic principles of business process management may be useful to new clients. C. Both after the expansion, Nestor and Maureen may be able to use expectancy theory to sell new services to their old clients and regardless of the area into which the firm expands, the basic principles of business process management may be useful to new clients are true. D. Neither after the expansion, Nestor and Maureen may be able to use expectancy theory to sell new services to their old clients nor regardless of the area into which the firm expands, the basic principles of business process management may be useful to new clients is true.

51. "Control activities" are one element of the COSO ERM framework. To develop control activities, organizations may need to apply: (i) the FASB Conceptual Framework, (ii) expectancy theory, (iii) the generalized model of business process management.

A. (i) and (ii) only B. (ii) and (iii) only C. (i) and (iii) only D. (i), (ii) and (iii)

52. Consider the following table as you respond to the questions:

Which of the following developed the framework DFN is using?

A. COSO B. AICPA C. FASB D. Vroom

53. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item A in the table?

A. Risk response B. Control environment C. Expectancy theory D. Generic responses

54. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item B in the table?

A. Inherent and residual B. High C. Reduce, accept, avoid, share D. Expectancy, valence, instrumentality

55. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item C in the table?

A. DFN wants to reduce the cost of processing purchase orders. B. DFN's cost of processing purchase orders is too high. C. Purchasing department employees lack instrumentality. D. Processing purchase orders is part of the acquisition/payment process.

56. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item D in the table?

A. Risk response B. Internal environment C. Information and communication D. Monitoring

57. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item E in the table?

A. Risk response B. Internal environment C. Information and communication D. Monitoring

58. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item F in the table?

A. Risk response B. Internal environment C. Information and communication D. Monitoring

59. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item G in the table?

A. The risk is high. B. Long-time purchasing department employees may not be motivated to make any changes. C. DFN wants to reduce the cost of processing purchase orders. D. To reduce risk, DFN will offer financial incentives for long-time employees to retire.

60. Consider the following table as you respond to the questions:

Which of the following is the best choice for Item H in the table?

A. To reduce the risk, DFN will offer financial incentives for long-time employees to retire. B. To share the risk, any cost savings will defray the cost of an annual purchasing department employee retreat. C. Both to reduce the risk, DFN will offer financial incentives for long-time employees to retire and to share the risk, any cost savings will defray the cost of an annual purchasing department employee retreat. D. Neither to reduce the risk, DFN will offer financial incentives for long-time employees to retire nor to share the risk, any cost savings will defray the cost of an annual purchasing department employee retreat.

Ranking Questions

61. The steps in the generalized model of business process management discussed in the text are listed below. In the space provided, number them in the correct order.

____ Analyze the collected data ____ Optimize the process ____ Collect process-related data ____ Select the process and define its boundaries ____ Implement and monitor process improvements ____ Observe, document and map the process steps and flow ____ Identify and prioritize potential process improvements

Essay Questions

62. Joe talked to two friends who had recently worked on different business process management projects; one project was successful, but the other was not. Several actions taken in each project are listed below. Based on the generalized model of BPM discussed in the text, determine which actions were associated with the successful project; then, put them in the correct order. a. According to published benchmarking studies, most companies spend between $2.00 and $5.00 to process a transaction of this type. b. Here's a diagram I drew that illustrates how the process works now. c. I found this generic description of the process in an accounting textbook. d. I'm glad that project is done—now we don't have to think about it again. e. Just pick something off the list and let's try it. f. Let's figure out a better way to purchase assets. g. Let's focus first on the first item in the ranked list; if that doesn't work, we can try something else. h. Look at this list of one hundred ways to improve the process that was published in a practitioner journal two years ago. i. The cost of issuing one check is roughly $3.00. j. There are five ways to improve this process; here's a ranked list of them. k. We need to make the process of paying dividends more efficient. l. We should collect ongoing data about transaction processing costs to see if we've achieved our goal.

63. Casa Ruiz is a Mexican restaurant in southern California. Its inventory purchasing process involved several steps. On a weekly basis, the head chef estimated the total supplies needed in the kitchen; the head waiter estimated the total supplies needed for the dining room. The head waiter summarized all the information and prepared a list of needed supplies for Mr. Ruiz, the owner. Mr. Ruiz kept an alphabetized list of potential suppliers; each week, he would contact one supplier from the list to place the restaurant's order. The order was placed over the phone; the salesperson quoted the total price for the order to Mr. Ruiz. When the goods arrived, Mr. Ruiz would check the total order price against the supplier's catalog. If the prices matched, Mr. Ruiz received the inventory and paid the delivery person in cash. If the prices did not match, Mr. Ruiz sent the entire order back and called the next supplier on the list. You have been hired to develop a better inventory purchasing process for Casa Ruiz following the generalized model of business process management discussed in the text. Fill in each blank below with one action you would take to achieve that goal; the first two steps have been completed as an example. Do not list the steps in the model; rather, explain what you would do for each step. 1) This project will analyze the inventory purchasing project, beginning with initial needs identification and ending with paying for delivered inventory. 2) You have interviewed Casa Ruiz employees and observed the process from start to finish, yielding the description above. 3) _______________________________________________________________ 4) ________________________________________________________________ 5) ________________________________________________________________ 6) ________________________________________________________________ 7) ________________________________________________________________

64. Dreambox Creations is an Internet services firm that designs web sites, develops content management systems and recommends online marketing strategies; Dreambox has used the COSO enterprise risk management framework to develop its own ERM plan. For each statement below, identify the element of the COSO framework that most clearly applies. You must use each element of the framework exactly one time. 1. Dreambox assigned one of its three corporate officers the responsibility for annually reviewing the plan. 2. Dreambox chose "reducing" and "sharing" as discussed in the COSO framework. 3. Dreambox developed a plan to hire additional marketing professionals whose main job would be to pursue new clients. 4. Dreambox had set a strategic goal of acquiring at least three new clients every year. 5. Dreambox planned several meetings with its staff to explain the importance of ERM, the development of the ERM plan and its implications for the firm. 6. Dreambox's management had committed to developing an ERM plan. 7. If Dreambox lacked the staff with the skills and desire to pursue new clients, they might not be able to achieve their strategic goal. 8. The potential impact of that risk was great. At an inherent level, it was also high.

65. Indicate with "yes" or "no" whether each of the following statements upholds the basic principles of business process management discussed in the text. You do not need to identify the BPM principle involved. 1. Brian told employees that all their concerns would be addressed at the end of the BPM project. 2. Donna considered whether a BPM project required any information technology tools the company did not already have. 3. Jared, an entry-level employee, suggested changes to his company's process for taking inventory as part of a focus group with top management. 4. Julia argued strongly that a proposed BPM project be managed by the firm's own employees, with input as needed from an external consultant. 5. Lucius objected to his company's new approach to training because they had never used it before. 6. Melinda decided to change her company's purchasing process because their current process seemed too cumbersome. 7. Thao planned and presented a suggested timeline to her firm's external BPM consultants.

66. Which element of expectancy theory is illustrated by each of the following statements? 1. After changing his major from finance to accounting, Andy planned a schedule that would allow him to finish his degree in four years. 2. Anh's suggestions for business process improvements often result in changes at her company. 3. Erin wasn't entirely sure that she wanted the extra responsibilities associated with a promotion. 4. Gloria's boss promised her a reward if she completed a training course on business process management. 5. Shortly after his hiring, Zachary knew he eventually wanted to be named "employee of the month."

67. Casa Ruiz is a Mexican restaurant in southern California. In anticipation of expanding its operations considerably, Mr. Ruiz (the owner) has contacted you to develop an enterprise risk management plan using the COSO model. Fill in the blanks below to develop an ERM plan for Casa Ruiz; the first two elements are supplied as examples. 1) Internal environment: Mr. Ruiz conducted a series of employee meetings to explain the importance of enterprise risk management and the COSO model. 2) Objective setting: Mr. Ruiz wants to open a second location within six months. 3) Event identification: _____________________________________________. 4) Risk assessment: _____________________________________________. 5) Risk response: _____________________________________________. 6) Control activity: _____________________________________________. 7) Information and communication: ___________________________________. 8) Monitoring: _____________________________________________.

68. Annie and Ray were having a conversation about business process management; several statements from that conversation are listed below: a. A weekly e-mail to all employees will help everyone stay informed about our progress. b. I know a great consultant who can help us out; that way, we won't have to bother company employees too much. c. I think we should create a suggestion box where employees can give us their ideas and express their concerns about the project. d. I'd suggest putting together a cross-functional team to help with the project, but we have to make sure we avoid people who will only protect their own department. e. Let's make some minor modifications to our existing process; that should be enough to satisfy almost everyone. f. Our company has always been able to compete based on the quality of our product; any new process we design should enable us to keep doing that. g. The very first thing we need to do is get rid of all paper forms; they only create waste and inefficiency. h. The vice president of operations gave me a clear description of what the process should look like, but I'm not sure he understands how things really work around here. i. We should consider the impact this new process will have throughout the organization. j. We should look for a consultant with a lot of experience; the consultant should be able to provide us with all the detail we need about matters like how long the project will take and what milestones we should set along the way. Analyze the statements; indicate which ones support the basic principles of business process management discussed in the text. For each statement, indicate the relevant BPM principle (whether supported or not).

69. Expectancy theory suggests that three variables contribute to motivation. Consider the questions listed below. For each one, identify the variable that most clearly applies. a. Can I be assured of a pay raise once I pass the CPA exam? b. Do I really want this promotion? c. How badly do I want the approval of my peers and supervisor? d. How good will I feel if I achieve this goal? e. If I attend a one-week seminar on fraud examination, will I be able to pass the certification exam? f. If I get promoted to accounting manager, will I have more flexibility with my working hours? g. If I read enough books, will I be able to make our inventory purchasing process more efficient? h. If I study at least three hours per night, will I be able to learn this new accounting software? i. What is my motivation for learning this new accounting software? j. Will my chances of getting a better job increase if I get another college degree?

70. Nancy talked to two friends who had recently worked on developing enterprise risk management plans; one project was successful, but the other was not. Determine which statements in the list below were associated with the successful project; then, identify the element of the COSO enterprise risk management framework that most clearly applies. a. Backup power supplies and adequate insurance are good ideas. b. I'd say the risk is moderate to high at an inherent level, but we can probably reduce it if we implement some new procedures. c. I'm glad the president let us bring in a speaker about ERM before the project got started. d. If we have a power outage, our cooling systems could fail, leading to damaged inventory. e. Let's put together a memo that explains the work we've done to everyone in the company. f. Our costs are out of control, so let's cut them by 10%. g. Our goal is to lose no more than 1% of our inventory due to spoilage. h. Should we simply accept the risk? Or should we try another way of reacting to it? i. The operations manager and inventory control clerks can let us know how the process is working. j. We need to make the company more profitable. k. Why would anyone outside inventory control need to know what we've done?

Short Answer Questions

71. List and discuss three basic principles of business process management.

72. Pearl had been asked by her boss to develop a new way to process expense reimbursements in her company. In your own words, list and discuss the steps Pearl should take to accomplish her task.

73. Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Use the COSO enterprise risk management framework to develop a risk management plan for the expansion. Then, use the elements of expectancy theory to suggest ways Nestor and Maureen can motivate their employees to put effort into the expansion.

74. Explain how Brown's risk taxonomy, discussed in the chapter on internal control, relates to COSO's enterprise risk management framework. You do not need to list the elements of Brown's taxonomy.

75. Tim graduated from college three years ago, and recently has been promoted to a management position at a local charitable organization. The organization's internal controls are weak, and Tim wants to improve them; but, his employees lack motivation for doing so. Tim has sent an e-mail to Jackie, his professional mentor, asking for ideas about improving the employees' motivation. Compose an e-mail to Tim explaining how he could use expectancy theory to motivate his employees to improve the organization's internal controls. Make sure the e-mail has sufficient detail for Tim to implement the ideas you suggest.

Chapter 04 Management Concepts Answer Key

Multiple Choice Questions

COSO's Enterprise Risk Management—Integrated Framework comprises all the following sections except:

A. Brown's risk taxonomy B. Objective setting C. Event identification D. Monitoring

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

In the COSO enterprise risk management framework, an organization's overall tone relates most closely to:

A. Internal environment B. Objective setting C. Event identification D. Monitoring

AACSB: Analytical Thinking

AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

The COSO enterprise risk management framework comprises eight sections, one of which is objective setting. COSO identified five types of objectives most organizations should consider in developing an ERM plan. "Ensuring that the corporation fulfills the requirements of the Sarbanes-Oxley Act" is an example of a ___ objective.

A. Strategic B. Reporting C. Compliance D. Risk management

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

The COSO enterprise risk management framework comprises eight sections, one of which is objective setting. COSO identified five types of objectives most organizations should consider in developing an ERM plan. "Completing SEC filings within thirty days of the fiscal year end" is an example of a ___ objective.

A. Strategic B. Reporting C. Risk management D. Control activity

Miguel and Rafaela were developing a risk management plan for their company following the COSO framework. One of the company's goals is to have sufficient cash available for operations; that goal had been difficult to achieve due to seasonal fluctuations in sales. To reduce that risk, Miguel and Rafaela recommended their company invest some cash in short-term securities that could be liquidated quickly and easily. Which element of the COSO framework is most related to their recommendation?

A. Internal environment B. Monitoring C. Control activities D. Risk response

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation 4-49 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

In a conversation about risk management, Miguel and Rafaela produced a ranked list of their company's risk exposures. The ranked list is most closely related to which element of the COSO framework?

A. Information and communication B. Risk assessment C. Risk response D. Monitoring

COSO has published integrated frameworks for both internal control and for enterprise risk management. Which of the following statements about the frameworks is most true?

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium

Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

Which of the following best pairs an element of the COSO enterprise risk management framework with an example of that element?

10.

Which of the following best pairs an element of the COSO enterprise risk management framework with an example of that element?

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 4-52 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

11.

___ comprises seven interrelated elements.

A. The COSO enterprise risk management framework B. The generalized model of business process management C. Expectancy theory D. All of these

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

12.

Which of the following steps occurs first in the generalized model of business process management discussed in the text?

A. Analyze collected data. B. Collect process-related data. C. Optimize the process. D. Select the process and define its boundaries.

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

13.

Laurie and Milton were developing a business process management plan for their organization. Which of the following actions should they take first, based on the generalized model of BPM discussed in the text?

14.

Laurie and Milton were developing a business process management plan for their organization. After deciding to focus on the process of purchasing fixed assets, they should:

15.

Laurie and Milton are concerned about the risks created by inefficiency in the company's current fixed asset purchasing process. They could address their concern by developing: (i) an enterprise risk management plan, (ii) a business process management plan.

A. I only B. II only C. Both I and II D. Neither I nor II

16.

One of the steps in the generalized model of business process management discussed in the text focuses on collecting process-related data. If Laurie and Milton are concerned about the risks created by inefficiency in the company's current fixed asset purchasing process, they could collect data related to: (i) the average length of time between an order for a fixed asset and its delivery, (ii) the costs incurred in the fixed asset purchasing process.

A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 4-55 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

17.

Gelton was leading a team of three co-workers focused on improving their company's process for hiring new employees. They had read the company procedures manual describing the current process, then interviewed newly-hired workers about their experiences. They used the principles of activity-based costing to determine the average cost of hiring a new employee, then created a line graph tracing the average cost over the last twelve months. Which of the following statements is most true?

18.

19.

A. Five through seven. B. Four through seven. C. Three through five. D. Two through four.

20.

21.

The basic principles of business process management discussed in the text include:

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 4-59 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

22.

The basic principles of business process management discussed in the text include all of the following except:

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 List and discuss some basic principles of business process management. Topic: Business process management

23.

Which of the following best paraphrases one of the basic principles of business process management discussed in the text?

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-03 List and discuss some basic principles of business process management. Topic: Business process management 4-60 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

24.

Within the context of business process management, the quote "If you don't know where you're going, any road will take you there" is most related to which of the following?

25.

One of the basic principles of business process management discussed in the text states: "When using consultants, make sure the task is well defined, with specific deliverables defined by the company." Which of the following actions applies that principle?

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand 4-61 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 04-03 List and discuss some basic principles of business process management. Topic: Business process management

26.

One of the basic principles of business process management discussed in the text states: "Ensure that top management can describe current business processes before trying to modify the processes." Which of the following would be the most appropriate way to fulfill that principle?

27.

Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which statements in the list above are related to the same basic principle?

A. I and IV B. II and VI C. III and V D. I, IV and VI The correspondence between the six statements and the principles is: I, Be open to alternatives. II, Managing business processes is fundamentally about people. III, Understand how business processes interact with strategy. IV, Be open to alternatives. V, Communicate early/often. VI does not correspond to any principle.

28.

Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which one is not illustrated by any of the six statements?

A. Understand how business processes interact with organizational strategy. B. Be open to alternatives. C. Make sure tasks for external consultants are well defined. D. Communicate early, communicate often. The correspondence between the six statements and the principles is: I, Be open to alternatives. II, Managing business processes is fundamentally about people. III, Understand how business processes interact with strategy. IV, Be open to alternatives. V, Communicate early/often. VI does not correspond to any principle.

29.

Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which statement both illustrates one of the principles and relates to the internal environment component of the COSO enterprise risk management framework?

A. I B. III C. V D. VI Statement III corresponds with the principle "Understand how business processes interact with strategy." Conducting the seminar also demonstrates the importance of ERM.

30.

Consider the following statements as you respond to the question: i. Ask managers to think of one hundred uses for a brick, other than for building things. ii. Assess the educational background and organizational experience of employees. iii. Conduct a one-day seminar on how business processes can create value in the marketplace. iv. Encourage managers to suggest ideas, even if they are impractical. v. Hold weekly meetings to update interested parties on the BPM project; ensure at least one member of top management attends each meeting. vi. Ignore opinions and insights from people not directly involved with a business process. The text discussed seven basic principles of business process management. Which of the following both illustrates one of the principles and relates to the event identification component of the COSO enterprise risk management framework?

A. I B. IV C. Both I and IV D. Neither I nor IV

31.

According to expectancy theory, motivation is determined by three factors. Which of the following is not one of the three factors?

A. Energy B. Expectancy C. Valence D. Instrumentality

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-04 Explain expectancy theory. Topic: Expectancy theory

32.

Which of the following formulas explains motivation using expectancy theory?

A. Energy X Valence X Instrumentality B. Expectancy + Valence + Instrumentality C. Expectancy X Valence + Instrumentality D. Expectancy X Valence X Instrumentality

33.

Because of the relationship between the variables in expectancy theory:

34.

Erin has maintained a very high GPA throughout her accounting education, but wonders if that GPA will ensure that she gets a good job. In terms of expectancy theory, Erin is most concerned about:

A. Expectancy B. Instrumentality C. Valence D. Utility

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-04 Explain expectancy theory. Topic: Expectancy theory

35.

Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He believes if he completes all his assigned tasks well before their established deadlines and controls costs in his area, he will be promoted. Which elements of expectancy theory are illustrated in that example?

A. Expectancy and instrumentality B. Instrumentality and valence C. Expectancy and valence D. Expectancy, instrumentality and valence Valence corresponds with "very interested in working his way up," and instrumentality corresponds with "if he completes all assigned tasks... he will be promoted." Expectancy is not illustrated, as the narrative neither states nor implies that Brett believes putting in sufficient effort will allow him to complete tasks before the deadline.

36.

Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He is confident that he can complete all his assigned tasks well before their established deadlines and control costs in his area. Which elements of expectancy theory are illustrated in that example?

37.

Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He believes if he completes all his assigned tasks well before their established deadlines and controls costs in his area, he will be promoted. He is confident he can achieve those two goals. Which of the following best pairs an element of expectancy theory with a phrase that illustrates it?

38.

Brett and Erin are accountants working for XMP Corporation; Brett is very interested in working his way up to being XMP's chief financial officer. He believes if he completes all his assigned tasks well before their established deadlines and controls costs in his area, he will be promoted. He is confident he can achieve those two goals. Which of the following best pairs an element of expectancy theory with a phrase that illustrates it?

39.

Consider the following statements as you respond to the question: i. Based on my research and reading, I'm sure I want to pursue a career in fraud examination. ii. Good grades and leadership skills generally lead to a good job. iii. I am sure I'll pass the CPA exam on my first attempt. iv. I can definitely complete my accounting degree within four years. v. I've spoken to several friends and family members who work for large corporations. Which pair of statements relates to the same variable in expectancy theory?

A. I and II B. II and III C. III and IV D. I and V I relates to valence. II relates to instrumentality. III and IV both relate to expectancy. V is unrelated to any of the variables.

40.

Consider the following statements as you respond to the question: i. Based on my research and reading, I'm sure I want to pursue a career in fraud examination. ii. Good grades and leadership skills generally lead to a good job. iii. I am sure I'll pass the CPA exam on my first attempt. iv. I can definitely complete my accounting degree within four years. v. I've spoken to several friends and family members who work for large corporations. Which group of statements combines all three variables in expectancy theory?

A. III, II, I B. III, IV, V C. II, III, IV D. None of these I relates to valence. II relates to instrumentality. III and IV both relate to expectancy. V is unrelated to any of the variables.

41.

Leigh is a corporate accounting manager with six employees reporting to her. Most of the employees do good work, but one of them consistently lacks motivation. Which of the following tools should Leigh use to address the problem?

A. COSO's enterprise risk management framework B. Generalized model of business process management C. Basic principles of business process management D. Expectancy theory

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-05 Apply all three topics within the context of accounting information systems. Topic: Expectancy theory

42.

Charlie is a partner in a CPA firm. He wants to make some changes to the company's hiring practices, but is concerned current employees will lack the motivation to do so. Which of the following tools should Charlie use to address those problems?

43.

Charlie is a partner in a CPA firm. He wants to make some changes to the company's hiring practices, but is concerned current employees will lack the motivation to do so. He should use ___ to address needed changes to hiring practices and ___ to address his concern about current employees.

44.

Charlie is a partner in a CPA firm. He wants to make some changes to the company's hiring practices, but is concerned current employees will lack the motivation to do so. Provided he uses an appropriate tool, which problem will be easier to address?

Topic: Expectancy theory

45.

The chapter discussed three major ideas from management and their relationship to accounting information systems: COSO's enterprise risk management framework, business process management and expectancy theory. Which of the following statements is most true?

46.

Jay is trying to convince the company president that risk management is important. Which of the following statements is most true?

47.

Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Based on the short case above, which of the following statements is most true?

48.

Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Business valuation is the process of estimating the economic value of an owner's interest in a business, often for the purpose of buying/selling that ownership interest. Based on the short case above, which of the following statements is most true?

49.

Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Part of fraud examination is analyzing an accounting information system and other sources to determine if fraud has occurred. If Nestor and Maureen expand their practice into fraud examination, which of the following statements is most true?

50.

51.

"Control activities" are one element of the COSO ERM framework. To develop control activities, organizations may need to apply: (i) the FASB Conceptual Framework, (ii) expectancy theory, (iii) the generalized model of business process management.

A. (i) and (ii) only B. (ii) and (iii) only C. (i) and (iii) only D. (i), (ii) and (iii)

52.

Consider the following table as you respond to the questions:

Which of the following developed the framework DFN is using?

A. COSO B. AICPA C. FASB D. Vroom

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-05 Apply all three topics within the context of accounting information systems. Topic: Enterprise risk management

53.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item A in the table?

A. Risk response B. Control environment C. Expectancy theory D. Generic responses

54.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item B in the table?

A. Inherent and residual B. High C. Reduce, accept, avoid, share D. Expectancy, valence, instrumentality

55.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item C in the table?

56.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item D in the table?

A. Risk response B. Internal environment C. Information and communication D. Monitoring

57.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item E in the table?

A. Risk response B. Internal environment C. Information and communication D. Monitoring

58.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item F in the table?

A. Risk response B. Internal environment C. Information and communication D. Monitoring

59.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item G in the table?

60.

Consider the following table as you respond to the questions:

Which of the following is the best choice for Item H in the table?

Ranking Questions

61.

The steps in the generalized model of business process management discussed in the text are listed below. In the space provided, number them in the correct order.

1 Analyze the collected data 2 Optimize the process 4 Collect process-related data 7 Select the process and define its boundaries 6 Implement and monitor process improvements 3 Observe, document and map the process steps and flow 5 Identify and prioritize potential process improvements

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

Essay Questions

62.

Joe talked to two friends who had recently worked on different business process management projects; one project was successful, but the other was not. Several actions taken in each project are listed below. Based on the generalized model of BPM discussed in the text, determine which actions were associated with the successful project; then, put them in the correct order. a. According to published benchmarking studies, most companies spend between $2.00 and $5.00 to process a transaction of this type. b. Here's a diagram I drew that illustrates how the process works now. c. I found this generic description of the process in an accounting textbook. d. I'm glad that project is done—now we don't have to think about it again. e. Just pick something off the list and let's try it. f. Let's figure out a better way to purchase assets. g. Let's focus first on the first item in the ranked list; if that doesn't work, we can try something else. h. Look at this list of one hundred ways to improve the process that was published in a practitioner journal two years ago. i. The cost of issuing one check is roughly $3.00. j. There are five ways to improve this process; here's a ranked list of them. k. We need to make the process of paying dividends more efficient. l. We should collect ongoing data about transaction processing costs to see if we've achieved our goal.

Ordered steps in the successful project: K, B, I, A, J, G, L

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

63.

Casa Ruiz is a Mexican restaurant in southern California. Its inventory purchasing process involved several steps. On a weekly basis, the head chef estimated the total supplies needed in the kitchen; the head waiter estimated the total supplies needed for the dining room. The head waiter summarized all the information and prepared a list of needed supplies for Mr. Ruiz, the owner. Mr. Ruiz kept an alphabetized list of potential suppliers; each week, he would contact one supplier from the list to place the restaurant's order. The order was placed over the phone; the salesperson quoted the total price for the order to Mr. Ruiz. When the goods arrived, Mr. Ruiz would check the total order price against the supplier's catalog. If the prices matched, Mr. Ruiz received the inventory and paid the delivery person in cash. If the prices did not match, Mr. Ruiz sent the entire order back and called the next supplier on the list. You have been hired to develop a better inventory purchasing process for Casa Ruiz following the generalized model of business process management discussed in the text. Fill in each blank below with one action you would take to achieve that goal; the first two steps have been completed as an example. Do not list the steps in the model; rather, explain what you would do for each step. 1) This project will analyze the inventory purchasing project, beginning with initial needs identification and ending with paying for delivered inventory. 2) You have interviewed Casa Ruiz employees and observed the process from start to finish, yielding the description above. 3) _______________________________________________________________ 4) ________________________________________________________________ 5) ________________________________________________________________ 6) ________________________________________________________________ 7) ________________________________________________________________

3) Determine the total cost of returned orders. 4) Prepare a graph or other representation of the total cost of returned orders. 5) Potential process improvements include (in priority order from highest to lowest): Place orders in writing. Let a receiving clerk receive the order. Pay suppliers via check rather than with cash.

6) Follow at least the first two suggestions from (5). 7) Track the amount of money saved as a result of the implemented improvements.

64.

Dreambox Creations is an Internet services firm that designs web sites, develops content management systems and recommends online marketing strategies; Dreambox has used the COSO enterprise risk management framework to develop its own ERM plan. For each statement below, identify the element of the COSO framework that most clearly applies. You must use each element of the framework exactly one time. 1. Dreambox assigned one of its three corporate officers the responsibility for annually reviewing the plan. 2. Dreambox chose "reducing" and "sharing" as discussed in the COSO framework. 3. Dreambox developed a plan to hire additional marketing professionals whose main job would be to pursue new clients. 4. Dreambox had set a strategic goal of acquiring at least three new clients every year. 5. Dreambox planned several meetings with its staff to explain the importance of ERM, the development of the ERM plan and its implications for the firm. 6. Dreambox's management had committed to developing an ERM plan. 7. If Dreambox lacked the staff with the skills and desire to pursue new clients, they might not be able to achieve their strategic goal. 8. The potential impact of that risk was great. At an inherent level, it was also high.

1. Monitoring 2. Risk response 3. Control activities 4. Objective setting 5. Information and communication 6. Internal environment 7. Event identification 8. Risk assessment

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium

Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

65.

Indicate with "yes" or "no" whether each of the following statements upholds the basic principles of business process management discussed in the text. You do not need to identify the BPM principle involved. 1. Brian told employees that all their concerns would be addressed at the end of the BPM project. 2. Donna considered whether a BPM project required any information technology tools the company did not already have. 3. Jared, an entry-level employee, suggested changes to his company's process for taking inventory as part of a focus group with top management. 4. Julia argued strongly that a proposed BPM project be managed by the firm's own employees, with input as needed from an external consultant. 5. Lucius objected to his company's new approach to training because they had never used it before. 6. Melinda decided to change her company's purchasing process because their current process seemed too cumbersome. 7. Thao planned and presented a suggested timeline to her firm's external BPM consultants.

The following statements uphold the principles: 2, 3, 4, 7 The following statements contradict the principles: 1, 5, 6

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-03 List and discuss some basic principles of business process management. Topic: Business process management

66.

Which element of expectancy theory is illustrated by each of the following statements? 1. After changing his major from finance to accounting, Andy planned a schedule that would allow him to finish his degree in four years. 2. Anh's suggestions for business process improvements often result in changes at her company. 3. Erin wasn't entirely sure that she wanted the extra responsibilities associated with a promotion. 4. Gloria's boss promised her a reward if she completed a training course on business process management. 5. Shortly after his hiring, Zachary knew he eventually wanted to be named "employee of the month."

1. Expectancy 2. Instrumentality 3. Valence 4. Instrumentality 5. Valence

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-04 Explain expectancy theory. Topic: Expectancy theory

67.

Casa Ruiz is a Mexican restaurant in southern California. In anticipation of expanding its operations considerably, Mr. Ruiz (the owner) has contacted you to develop an enterprise risk management plan using the COSO model. Fill in the blanks below to develop an ERM plan for Casa Ruiz; the first two elements are supplied as examples. 1) Internal environment: Mr. Ruiz conducted a series of employee meetings to explain the importance of enterprise risk management and the COSO model. 2) Objective setting: Mr. Ruiz wants to open a second location within six months. 3) Event identification: _____________________________________________. 4) Risk assessment: _____________________________________________. 5) Risk response: _____________________________________________. 6) Control activity: _____________________________________________. 7) Information and communication: ___________________________________. 8) Monitoring: _____________________________________________.

3) The company may lack sufficient funding for the expansion. 4) Inherent risk is high; residual risk is moderate. 5) Reduce the risk. 6) Negotiate a line of credit or seek other external funding. 7) Set up company meetings to discuss the ERM plan. 8) Mr. Ruiz and/or an external consultant should periodically review the ERM plan for effectiveness.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Topic: Enterprise risk management

68.

Annie and Ray were having a conversation about business process management; several statements from that conversation are listed below: a. A weekly e-mail to all employees will help everyone stay informed about our progress. b. I know a great consultant who can help us out; that way, we won't have to bother company employees too much. c. I think we should create a suggestion box where employees can give us their ideas and express their concerns about the project. d. I'd suggest putting together a cross-functional team to help with the project, but we have to make sure we avoid people who will only protect their own department. e. Let's make some minor modifications to our existing process; that should be enough to satisfy almost everyone. f. Our company has always been able to compete based on the quality of our product; any new process we design should enable us to keep doing that. g. The very first thing we need to do is get rid of all paper forms; they only create waste and inefficiency. h. The vice president of operations gave me a clear description of what the process should look like, but I'm not sure he understands how things really work around here. i. We should consider the impact this new process will have throughout the organization. j. We should look for a consultant with a lot of experience; the consultant should be able to provide us with all the detail we need about matters like how long the project will take and what milestones we should set along the way. Analyze the statements; indicate which ones support the basic principles of business process management discussed in the text. For each statement, indicate the relevant BPM principle (whether supported or not).

a) Supports "communicate early, communicate often." b) Does not support "don't rely on external consultants." c) Supports "communicate early, communicate often." d) Supports "managing business processes is fundamentally about people." e) Does not support "be open to alternatives."

f) Supports "understand how business processes support strategy." g) Does not support "managing business processes is fundamentally about people." h) Does not support "ensure that top management can describe current processes." i) Supports "managing business processes is fundamentally about people." j) Does not support "don't rely on external consultants."

69.

Expectancy theory suggests that three variables contribute to motivation. Consider the questions listed below. For each one, identify the variable that most clearly applies. a. Can I be assured of a pay raise once I pass the CPA exam? b. Do I really want this promotion? c. How badly do I want the approval of my peers and supervisor? d. How good will I feel if I achieve this goal? e. If I attend a one-week seminar on fraud examination, will I be able to pass the certification exam? f. If I get promoted to accounting manager, will I have more flexibility with my working hours? g. If I read enough books, will I be able to make our inventory purchasing process more efficient? h. If I study at least three hours per night, will I be able to learn this new accounting software? i. What is my motivation for learning this new accounting software? j. Will my chances of getting a better job increase if I get another college degree?

a. Instrumentality b. Valence c. Valence d. Instrumentality e. Expectancy f. Instrumentality g. Expectancy h. Expectancy i. Instrumentality j. Expectancy

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Analyze

Difficulty: 3 Hard Learning Objective: 04-04 Explain expectancy theory. Topic: Expectancy theory

70.

Nancy talked to two friends who had recently worked on developing enterprise risk management plans; one project was successful, but the other was not. Determine which statements in the list below were associated with the successful project; then, identify the element of the COSO enterprise risk management framework that most clearly applies. a. Backup power supplies and adequate insurance are good ideas. b. I'd say the risk is moderate to high at an inherent level, but we can probably reduce it if we implement some new procedures. c. I'm glad the president let us bring in a speaker about ERM before the project got started. d. If we have a power outage, our cooling systems could fail, leading to damaged inventory. e. Let's put together a memo that explains the work we've done to everyone in the company. f. Our costs are out of control, so let's cut them by 10%. g. Our goal is to lose no more than 1% of our inventory due to spoilage. h. Should we simply accept the risk? Or should we try another way of reacting to it? i. The operations manager and inventory control clerks can let us know how the process is working. j. We need to make the company more profitable. k. Why would anyone outside inventory control need to know what we've done?

Items associated with the successful project: C: internal environment G: objective setting D: event identification B: risk assessment H: risk response A: control activities E: information and communication I: monitoring

Short Answer Questions

71.

List and discuss three basic principles of business process management.

Any of the seven principles listed in the text will respond to this question. Ensure that students list the principles, not the steps.

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Remember Difficulty: 1 Easy Learning Objective: 04-03 List and discuss some basic principles of business process management. Topic: Business process management

72.

Pearl had been asked by her boss to develop a new way to process expense reimbursements in her company. In your own words, list and discuss the steps Pearl should take to accomplish her task.

Students should paraphrase the seven steps in the generalized model of BPM.

AACSB: Analytical Thinking

AICPA: BB Resource Management Blooms: Understand Difficulty: 2 Medium Learning Objective: 04-02 Define business process management, including a generalized model of BPM. Topic: Business process management

73.

Nestor and Maureen are partners in a small consulting firm located in the Republic of Bufflufia; the firm has six employees. For the last five years, the firm has focused on tax planning and tax return preparation. But, Nestor and Maureen are now interested in expanding the firm's scope of services. They are considering risk management consulting, fraud examination and business valuation as potential areas to expand the firm. They are sure at least three of their six employees would put effort into at least one of those three areas, but expanding the firm's services would require additional training for everyone. Use the COSO enterprise risk management framework to develop a risk management plan for the expansion. Then, use the elements of expectancy theory to suggest ways Nestor and Maureen can motivate their employees to put effort into the expansion.

COSO Internal environment: Nestor and Maureen conduct focus groups with employees to talk about the purpose and nature of ERM. Objective setting: The company's goal is to expand their scope of services. Event identification: They may not currently have the required expertise to expand into new areas. Risk assessment: The inherent risk is high; residual, moderate. Risk response: Reduce Control activities: Hire new employees and/or train existing employees. Information & communication: Once the plan is complete, circulate it to employees via email. Monitoring: Nestor and Maureen should review the functioning of the ERM plan at least quarterly. Expectancy theory Expectancy: Initially, use short-term training programs (one day or less) to help employees believe that effort will lead to achievement. Instrumentality: Spell out the rewards that will be achieved for employees who successfully complete training. Valence: A priori, ask employees what rewards they would value.

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-01 Summarize and explain the importance of COSO's Enterprise Risk Management—Integrated Framework. Learning Objective: 04-04 Explain expectancy theory. Topic: Enterprise risk management Topic: Expectancy theory

74.

Explain how Brown's risk taxonomy, discussed in the chapter on internal control, relates to COSO's enterprise risk management framework. You do not need to list the elements of Brown's taxonomy.

Brown's risk taxonomy identifies various generic forms of risk. The COSO ERM framework may use the categories as part of "event identification," although they would need more specific examples of each category.

75.

Tim graduated from college three years ago, and recently has been promoted to a management position at a local charitable organization. The organization's internal controls are weak, and Tim wants to improve them; but, his employees lack motivation for doing so. Tim has sent an e-mail to Jackie, his professional mentor, asking for ideas about improving the employees' motivation. Compose an e-mail to Tim explaining how he could use expectancy theory to motivate his employees to improve the organization's internal controls. Make sure the e-mail has sufficient detail for Tim to implement the ideas you suggest.

Points to include in the email include: (a) Determine why the employees lack motivation as a way of focusing on one or more elements of expectancy theory. (b) Once the specific reasons for the lack of motivation are known, develop a plan to address them. For example, if employees believe they cannot learn how to improve internal controls (expectancy), give them some short readings that illustrate similar cases at other companies. If they are unsure that improving internal control will lead to rewards, develop a specific plan for linking the two. Finally, with respect to valence, ask the employees "up front" what rewards they would value.

AACSB: Analytical Thinking AICPA: BB Resource Management Blooms: Analyze Difficulty: 3 Hard Learning Objective: 04-04 Explain expectancy theory. Topic: Expectancy theory

Chapter 05 Information Systems Concepts

Multiple Choice Questions

1. In the systems development life cycle, which step immediately precedes implementation?

A. Build B. Test C. Maintain D. Planning

2. In the systems development life cycle, which step immediately follows requirements analysis?

A. Design B. Build C. Test D. Operate

3. MCL Corporation recently hired a consultant to design and implement a new information system. The consultant was trying to decide whether to discard the old system all at once and put the new system in its place, or to make the transition more gradual. Which step in the systems development life cycle is the consultant dealing with?

A. Test B. Operations & maintenance C. Design D. Implementation

4. MCL Corporation recently hired a consultant to design and implement a new information system. The consultant was trying to decide whether to discard the old system all at once and put the new system in its place, or to make the transition more gradual. After making that choice, which of the following should the consultant do based on the steps in the systems development life cycle?

A. Present MCL with an invoice. B. Teach MCL employees how the system works. C. Arrange for the system to be audited. D. Determine which level of the capability maturity model describes the system.

5. Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. The interviews Robert conducts with his clients are an example of which stage of the systems development life cycle?

A. Initiation/planning B. Requirements analysis C. Design D. Test

6. Consider the following short case as you respond to the question: Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. What should Robert do immediately after he completes the interviews?

A. Determine the client's risk exposures and design appropriate internal controls. B. Recommend the client purchase a specific ERP software package. C. Start creating transaction, master and junction files on the client's network. D. Test the current system.

7. Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. In the preceding case, who would complete the first step in the systems development life cycle?

A. Robert B. The client C. Both Robert and the client D. The SEC

8. Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. Which of the following activities would serve the same purpose as intake interviews if Robert uses the systems development life cycle?

A. Employee surveys B. Database specifications C. Training simulations D. A lecture and presentation

9. Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. At what point would Robert be best equipped to submit a project budget to his client?

A. When he is hired B. Immediately before the intake interview C. After the intake interview D. After the "build" phase of the systems development life cycle

10. Advantages of using the systems development life cycle include: (i) strong control, (ii) opportunity for user input, (iii) rigidity.

A. I and II only B. I and III only C. II and III only D. I, II and III

11. Which of the following statements best represents a disadvantage of using the systems development life cycle?

A. It is the only methodology available for systems design projects. B. Its steps should be completed in a very specific order. C. It minimizes user involvement in the system. D. All of these are disadvantages of the SDLC.

12. Which of the following statements best represents an advantage of using the systems development life cycle?

A. It is less expensive than other systems development methodologies. B. It requires the least amount of time. C. It can help promote operating efficiency. D. All of these are advantages of the SDLC.

13. Fran was unhappy with her firm's transaction processing software. Which of the following tools would be most useful to her in making it better?

A. The capability maturity model B. The accounting cycle C. The systems development life cycle D. COSO's internal control framework

14. Ethan was in charge of developing a web site that could be used to sell products and services to his company's clients. If he decides to use the systems development life cycle to structure his work, which of the following statements is most true?

A. He should be able to complete the task in no more than six months. B. He should work alone. C. It will be difficult for him to estimate the project's cost. D. All of these are true.

15. The systems development life cycle has often been criticized because:

A. It became obsolete when COSO published its internal control framework. B. Its risks cannot be managed with the COSO framework. C. Both it became obsolete when COSO published its internal control framework and its risks cannot be managed with the COSO framework. D. Neither it became obsolete when COSO published its internal control framework nor its risks cannot be managed with the COSO framework.

16. One advantage of the systems development life cycle is its opportunity for user input. It therefore shares some commonalities with which elements of the COSO enterprise risk management framework?

A. Internal environment and risk response B. Event identification and information and communication C. Event identification and risk response D. Internal environment and information and communication

17. Which of the following statements would you expect to read in a company memo advocating the use of the systems development life cycle to select general ledger software?

A. There are ten steps in the accounting cycle. B. Using the SDLC can help ensure reliable financial reporting. C. Most accounting information systems have five generic parts. D. General ledger software assists more with bookkeeping than it does with accounting.

18. Which of the following statements would you expect to read in a company memo arguing against the use of the systems development life cycle as a form of internal control?

A. The risks associated with the SDLC are unknown. B. The SDLC does not help achieve all four objectives of internal control. C. The SDLC is not recognized by COSO. D. The SDLC has no relationship to internal control.

19. Raul was leading a team charged with developing a new system for budgeting. The formation of the team indicates that which step of the SDLC has been completed?

A. Initiation/planning B. Requirements analysis C. Design D. Build

20. Raul was leading a team charged with developing a new system for budgeting. Immediately after the team is formed, they should proceed with:

A. Requirements analysis B. Design C. Build D. Test

21. Raul was leading a team charged with developing a new system for budgeting. If he decides to use the systems development life cycle:

A. The project will fail, since the SDLC cannot be applied to the task. B. Forming the team is a result of the first step in the SDLC. C. The team must completely abandon any elements of the present budgeting system. D. The project will definitely be completed on time and within budget.

22. Raul was leading a team charged with developing a new system for budgeting. If he decides to use the systems development life cycle, which of the following questions would he most likely ask during its second step?

A. Do we really need a new budgeting system? B. How many people should be on the team? C. What goals should the new budgeting system achieve? D. Should we use Excel or some other information technology tool?

23. Raul was leading a team charged with developing a new system for budgeting. Which of the following questions is best paired with the most appropriate phase of the systems development life cycle?

A. Initiation/planning: Should we use Excel or some other information technology tool? B. Requirements analysis: Should we use Excel or some other information technology tool? C. Requirements analysis: What goals should the new budgeting system achieve? D. Initiation/planning: How many people should be on the team?

24. Raul was leading a team charged with developing a new system for budgeting. Which of the following questions is best paired with the most appropriate phase of the systems development life cycle?

A. Initiation/planning: Do we really need a new budgeting system? B. Requirements analysis: Do we really need a new budgeting system? C. Design: How many people should be on the team? D. Operations and maintenance: How many people should be on the team?

25. Raul was leading a team charged with developing a new system for budgeting. At what point will the system be ready for the fifth step in the systems development life cycle?

A. Never, since the SDLC cannot be used in this situation B. Immediately after the team is formed C. After the team has created Excel templates for the budgeting process D. One month before the system is implemented

26. Raul was leading a team charged with developing a new system for budgeting. He created Excel templates for the new budgeting process and presented them to the team during its first meeting. Which of the following statements is most true?

A. Raul cannot use the systems development life cycle in this situation. B. If Raul wants to use the systems development life cycle, he should not have created Excel templates so soon. C. The systems development life cycle precludes the use of Excel, since all software must be created "from scratch." D. Both if Raul wants to use the systems development life cycle, he should not have created Excel templates so soon and the systems development life cycle precludes the use of Excel, since all software must be created "from scratch are true.

27. All of the following are levels of the capability maturity model except:

A. Analytical B. Repeatable C. Defined D. Managed

28. At what level of the capability maturity model are managers first involved?

A. Chaotic B. Repeatable C. Defined D. Managed

29. Liam had developed a good process for safeguarding his company's information technology assets, but had not shared it with anyone else in the company. To move the process up one level in the capability maturity model, Liam should:

A. Ensure the process actually uses information technology. B. Create a timeline with specific targets. C. Patent his idea. D. Verify his model against COSO's internal control framework.

30. Liam has developed a good process for safeguarding his company's information technology assets. He has talked about his methodology with some of his co-workers and has created a schedule for applying his process to various kinds of information technology assets. Using the capability maturity model, the process is best described as:

A. Chaotic B. Repeatable C. Managed D. Optimized

31. Liam has developed a good process for safeguarding his company's information technology assets. He has talked about his methodology with some of his co-workers and has created a schedule for applying his process to various kinds of information technology assets. Which of the following phrases best indicates the process is repeatable, as the term is defined in the capability maturity model?

A. A good process B. Talked with some of his co-workers C. Created a schedule D. Various kinds of information technology assets

32. Liam has developed a good process for safeguarding his company's information technology assets. He has completed the following actions with respect to the process: (i) talked about his methodology with some of his co-workers, (ii) created a schedule for applying his process to various kinds of information technology assets, (iii) explained how his process relates to similar processes in his company. Which of the following best pairs one of Liam's actions with a level of the capability maturity model?

A. I, chaotic B. I, optimized C. III, defined D. None of these, since the CMM cannot be applied in this situation.

33. Liam has developed a good process for safeguarding his company's information technology assets. He has completed the following actions with respect to the process: (i) talked about his methodology with some of his co-workers, (ii) created a schedule for applying his process to various kinds of information technology assets, (iii) explained how his process relates to similar processes in his company. Based on the capability maturity model, the process would best be described as:

A. Repeatable B. Defined C. Managed D. Optimized

34. Liam has developed a good process for safeguarding his company's information technology assets. He has completed the following actions with respect to the process: (i) talked about his methodology with some of his co-workers, (ii) created a schedule for applying his process to various kinds of information technology assets, (iii) explained how his process relates to similar processes in his company. To move the process up one level in the capability maturity model, Liam should:

A. Publish the details of his process in the company newsletter. B. Publish the details of his process in a practitioner journal article. C. Establish a budget for the process. D. Relate it to the four purposes of internal control.

35. ELH Corporation's process for buying inventory is well defined; the process also has metrics that establish goals for the process. Which level of the capability maturity model best describes ELH's inventory purchase process?

A. Repeatable B. Defined C. Managed D. Optimized

36. RSP Corporation started developing its internal audit process five years ago. When the process started, every internal auditor did things differently. But, the process has progressed until now, many employees at RSP think about ways to improve both the internal audit process and other business processes continually. Which level of the capability maturity model best describes RSP's internal audit process?

A. Repeatable B. Defined C. Managed D. Optimized

37. Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. Which level of the capability maturity model best describes Austin's company?

A. Chaotic B. Defined C. Managed D. Optimized

38. Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. Which level of the capability maturity model best describes Julie's company?

A. Repeatable B. Defined C. Managed D. Optimized

39. Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. Which level of the capability maturity model best describes Rob's company?

A. Chaotic, because Rob completes accounting tasks in whatever way seems best to him. B. Chaotic, because the owners don't know much about accounting. C. Repeatable, because Rob is likely to do the same tasks in similar ways each time. D. Defined, because Rob has a defined methodology for completing tasks.

40. Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. Based on the levels of the capability maturity model, which of the following statements is most true?

A. Austin's process is more advanced than Rob's because Austin used a team to develop the guidelines. B. Julie's process is more advanced than Rob's because PSC is incorporated. C. Austin's process is more advanced than Julie's because it incorporates metrics. D. None of these statements is true.

41. Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. For Rob to move his company's business processes forward one level in the capability maturity model, he should:

A. Ask Lynn and Mark to get some accounting training. B. Repeat each process at least five times. C. List the major processes and establish a timeline with goals for each one. D. All of these.

42. Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. For Julie to move her company's business processes forward one level in the capability maturity model, she should:

A. Make sure all PSC employees can list the principles her team developed. B. Develop a written procedures manual that will help manage the processes. C. Set benchmarks for each business process related to cost and time. D. None of these; PSC's business processes are already at the highest level of the capability maturity model.

43. Macro-level factors to consider when choosing information technology for the accounting information system include: (i) need, (ii) cost, (iii) strategic fit.

A. I and II only B. II and III only C. I and III only D. I, II and III

44. Which of the following questions best relates to a macro-level factor for choosing information technology for the accounting information system?

A. What will the technology cost? B. Should we borrow money to purchase the technology? C. How many employees will have to learn to use the new system? D. All of these relate to macro-level factors.

45. Jack and Lindsay were choosing a new general ledger system for the company they own. They decided to use three factors for the evaluation: adaptability, strategic fit and training. They considered training three times more important than strategic fit; they considered adaptability twice as important as strategic fit. To keep their evaluation simple, they assigned a weight of "1" to strategic fit. If software package A had scores of 5 on adaptability, 8 on strategic fit and 9 on training, its score using the weighted-rating technique will be:

A. 6. B. 22. C. 45. D. Some other number.

46. Anna and Melinda were choosing a new general ledger system for the company they own. They decided to use three factors for the evaluation: adaptability, strategic fit and training. They considered training three times more important than strategic fit; they considered adaptability twice as important as strategic fit. To keep their evaluation simple, they assigned a weight of "1" to strategic fit. If software package B had scores of 3 on adaptability, 6 on strategic fit and 8 on training, its score using the weighted-rating technique will be:

A. 6. B. 12. C. 36. D. Some other number.

47. The chapter discussed four macro-level and four micro-level factors that should be considered when evaluating information technology for use in the accounting information system. It also discussed Sylla and Wen's three-stage process for evaluating information technology investments. Which of the following best pairs a macro-level factor with a level from the Sylla and Wen framework?

A. Strategic fit, intangible benefits evaluation B. Need, IT investment risk analysis C. Vendor reliability, tangible benefits evaluation D. None of these.

48. The chapter discussed four macro-level and four micro-level factors that should be considered when evaluating information technology for use in the accounting information system. It also discussed Sylla and Wen's three-stage process for evaluating information technology investments. Which of the following best pairs a micro-level factor with a level from the Sylla and Wen framework?

A. Strategic fit, intangible benefits evaluation B. Cost, tangible benefits evaluation C. Both strategic fit, intangible benefits evaluation and cost, tangible benefits evaluation D. Neither strategic fit, intangible benefits evaluation nor cost, tangible benefits evaluation

49. Sylla and Wen suggested a three-stage process for evaluating information technology investments. Which step in the process is most closely aligned with the "internal environment" component of the COSO internal control and enterprise risk management frameworks?

A. Step 1 B. Step 2 C. Step 3 D. None of these; there is no relationship between the Sylla and Wen process and the COSO frameworks.

50. Sylla and Wen suggested a three-stage process for evaluating information technology investments. At which stage of the process would someone be most likely to use the weighted-rating technique discussed in the chapter?

A. Step 1 B. Step 2 C. Step 3 D. None of these. The weighted-rating technique is unrelated to the Sylla and Wen framework.

51. Consider the table below as you respond to the questions:

QRM is using the seven-step process known as the ___ to develop the modules.

A. systems development life cycle B. capability maturity model C. expectancy theory of human motivation D. generalized model of business process management

52. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item A in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

53. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item B in the table?

A. Based on feedback from employee interviews, plan the organization and appearance of each module. B. State law mandates annual safety training for all employees. C. Review the relevant law to determine its specifications. D. Design the project budget.

54. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item C in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

55. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item D in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

56. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item E in the table?

57. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item F in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

58. Consider the table below as you respond to the questions:

Which of the following is the best choice for Item G in the table?

59. Consider the table below as you respond to the questions:

Based on the usual order of the seven-step process QRM is using, which of the following should occur first?

A. Item A in the table B. Item F in the table C. Item C in the table D. Item D in the table

60. Consider the table below as you respond to the questions:

Based on the usual order of the seven-step process QRM is using, which of the following should occur last?

A. Item A in the table B. Item F in the table C. Item C in the table D. Item D in the table

Ranking Questions

61. Arrange the steps in the systems development life cycle in their usual order of occurrence.

____ Test ____ Operations and maintenance ____ Implementation ____ Design ____ Build ____ Requirements analysis ____ Initiation/planning

62. Arrange the levels of the capability maturity model in order from least mature to most mature.

____ Optimized ____ Managed ____ Chaotic ____ Repeatable ____ Defined

63. Nancy and Mei were designing a system for tracking continuing professional education units for accountants in their firm. They completed the tasks listed below; rearrange the tasks in the proper order based on the steps in the systems development life cycle.

____ The new system was introduced gradually throughout the accounting department. ____ Employees began using the new system and provided periodic feedback about making it better. ____ Nancy and Mei created tables and forms using relational database software. ____ On paper, Nancy and Mei thought about how they wanted the new system to look. ____ Several employees complained that the old system was difficult to use. ____ Paul, a co-worker of Nancy and Mei, gave permission for his continuing professional education records to be used to determine if the system would work properly. ____ Employees wanted the new system to track hours, dates and topics of continuing professional education.

Check All That Apply Questions

64. Indicate which of the following items are advantages of using the systems development life cycle to design and implement an accounting information system.

____ Always has the same set of seven steps ____ Does not allow an organization to purchase off-the-shelf software ____ Ensures an organization's process is at least "defined" using the capability maturity model ____ Is less expensive than other systems development methodologies ____ Is less rigid than other systems development methodologies ____ Is organized in a very structured way ____ Promotes strong control of systems projects ____ Provides multiple opportunities for user input ____ Provides some flexibility in the implementation stage ____ Takes less time than other systems development methodologies

Essay Questions

65. Sylla and Wen suggested a three-stage process for evaluating information technology investments. At which step in their process would you expect to address each of the following items? a. Ability to do things more efficiently b. Better use of organizational resources c. Encouragement from top management d. Fire suppression systems e. Impact on a company's market share f. Need to change the company in a fundamental way g. Opportunities for fraud h. Opportunity to do things more effectively i. Producing more with less j. Secure storage for the new IT asset

66. Leticia and Omar were evaluating payroll software packages for their company. They considered three factors with the following weights: adaptability, 9; ease of use, 10; cost, 7. They narrowed their choices down to three packages with the following rankings on each factor:

Using the weighted-rating technique discussed in the text, calculate a score for each software package. Rank the packages based on their scores.

67. Which level of the capability maturity model best describes each of the following business processes? a. After consulting the company procedures manual and her supervisor for guidance, Lindsay developed a more detailed description of the invoice payment process. b. After developing a rigorous description of the purchase order process, Joe set a goal of processing each one in no more than one day. c. After figuring out the best way to process purchase orders, Joe developed a schedule indicating what tasks he should complete each day. He did not share the schedule or the process with anyone else. d. Although CPK Corporation had a process for paying vendor invoices, Lindsay thought it didn't work well. So, she used her own system without telling her supervisor or co-workers. e. Employees of the purchasing department all attended a seminar on how to make the purchasing department more efficient and effective.

68. Consider the business processes described below. For each one, indicate which level of the capability maturity model most clearly applies. Circle the phrase that led you to your choice. a. Joe tried various ways to process purchase orders to see which one would work best. b. Marie, an independent consultant, was trying to develop a better way for her client to monitor inventory. She interviewed several employees and looked at the company's historical records for guidance. c. Mark led monthly discussion groups focused on how to improve various business processes throughout the company. d. Mark prepared a list of common documents used in his job as an accounts receivable clerk; the list also indicated how many copies of each document were normally required. Mark kept the list in his desk. e. The CEO of Marie's client explained to her that the new inventory monitoring system could cost no more than $500 per month to use.

69. IRM Corporation had an outdated, ineffective system for monitoring its fixed assets. You have been asked by the CEO to develop a new system; you have decided to use the systems development life cycle to accomplish the task. For each fixed asset, the system should include the following items: identification code, name, date placed in service, cost, estimated life, estimated salvage value, depreciation method, and condition. For each step in the SDLC, indicate one question you would ask/action you would take to develop the new system. Ensure that your responses are specific to the fixed asset system. a. Initiation/planning: _______________________________________________ b. Requirements analysis: ____________________________________________ c. Design: _________________________________________________________ d. Build: ___________________________________________________________ e. Test: ___________________________________________________________ f. Implementation: __________________________________________________ g. Operations/maintenance: __________________________________________

70. The chapter discussed four macro- and four micro-level factors to consider when selecting information technology. Suppose you have been hired as a consultant to recommend new general ledger software for a client; you have decided to conduct interviews and focus groups as part of developing your recommendation. For each factor listed below, indicate one question you would ask in the interviews/focus groups. Ensure that your questions are specific to the general ledger software. a. Need: ________________________________________________________ b. Strategic fit: ___________________________________________________ c. Personnel involvement: __________________________________________ d. Financing: _____________________________________________________ e. Cost: _________________________________________________________ f. Adaptability: ____________________________________________________ g. Training: _______________________________________________________ h. Vendor reliability: ________________________________________________

Short Answer Questions

71. List the four macro- and four micro-level factors managers should consider when they select information technology resources based on the discussion in the text.

72. In your own words, explain the purpose of the capability maturity model. List the levels of the model, and explain each one in your own words.

73. You have been asked to develop a system that will track your company's short-term investments. Outline and discuss, in a general way, the steps you would use to accomplish that goal.

74. As part of your company's effort to design an enterprise risk management plan using the COSO framework, you have been asked to develop an information technology tool that will monitor the plan. Use the steps in the systems development life cycle to explain how you would proceed; ensure that your discussion includes ideas specific to monitoring the ERM plan.

75. Although CPK Corporation had a process for paying vendor invoices, Lindsay thought it didn't work well. So, she used her own system without telling her supervisor or co-workers. Assume the process would be classified as "chaotic" using the capability maturity model. For each subsequent level of the CMM, suggest one action Lindsay should take to improve the process.

Chapter 05 Information Systems Concepts Answer Key

Multiple Choice Questions

In the systems development life cycle, which step immediately precedes implementation?

A. Build B. Test C. Maintain D. Planning

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

In the systems development life cycle, which step immediately follows requirements analysis?

A. Design B. Build C. Test D. Operate

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Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

MCL Corporation recently hired a consultant to design and implement a new information system. The consultant was trying to decide whether to discard the old system all at once and put the new system in its place, or to make the transition more gradual. Which step in the systems development life cycle is the consultant dealing with?

A. Test B. Operations & maintenance C. Design D. Implementation

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

MCL Corporation recently hired a consultant to design and implement a new information system. The consultant was trying to decide whether to discard the old system all at once and put the new system in its place, or to make the transition more gradual. After making that choice, which of the following should the consultant do based on the steps in the systems development life cycle?

A. Present MCL with an invoice. B. Teach MCL employees how the system works. C. Arrange for the system to be audited. D. Determine which level of the capability maturity model describes the system.

Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. The interviews Robert conducts with his clients are an example of which stage of the systems development life cycle?

A. Initiation/planning B. Requirements analysis C. Design D. Test

AACSB: Analytical Thinking

AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

Consider the following short case as you respond to the question: Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. What should Robert do immediately after he completes the interviews?

Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. In the preceding case, who would complete the first step in the systems development life cycle?

A. Robert B. The client C. Both Robert and the client D. The SEC

Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. Which of the following activities would serve the same purpose as intake interviews if Robert uses the systems development life cycle?

A. Employee surveys B. Database specifications C. Training simulations D. A lecture and presentation

Robert is the president and CEO of Computer Solutions; the firm's main activity is installing enterprise resource planning software. When a client calls Robert, he does an "intake interview" where he assesses the client's needs and learns about their company. Robert tries to interview at least a dozen people at each client, including top management and mid- and lower-level employees. At what point would Robert be best equipped to submit a project budget to his client?

A. When he is hired B. Immediately before the intake interview C. After the intake interview D. After the "build" phase of the systems development life cycle

10.

Advantages of using the systems development life cycle include: (i) strong control, (ii) opportunity for user input, (iii) rigidity.

A. I and II only B. I and III only C. II and III only D. I, II and III

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain the advantages and disadvantages of using the SDLC.

Topic: Systems development life cycle

11.

Which of the following statements best represents a disadvantage of using the systems development life cycle?

12.

Which of the following statements best represents an advantage of using the systems development life cycle?

A. It is less expensive than other systems development methodologies. B. It requires the least amount of time. C. It can help promote operating efficiency. D. All of these are advantages of the SDLC.

13.

Fran was unhappy with her firm's transaction processing software. Which of the following tools would be most useful to her in making it better?

A. The capability maturity model B. The accounting cycle C. The systems development life cycle D. COSO's internal control framework

14.

Ethan was in charge of developing a web site that could be used to sell products and services to his company's clients. If he decides to use the systems development life cycle to structure his work, which of the following statements is most true?

A. He should be able to complete the task in no more than six months. B. He should work alone. C. It will be difficult for him to estimate the project's cost. D. All of these are true.

15.

The systems development life cycle has often been criticized because:

16.

One advantage of the systems development life cycle is its opportunity for user input. It therefore shares some commonalities with which elements of the COSO enterprise risk management framework?

A. Internal environment and risk response B. Event identification and information and communication C. Event identification and risk response D. Internal environment and information and communication

17.

Which of the following statements would you expect to read in a company memo advocating the use of the systems development life cycle to select general ledger software?

18.

Which of the following statements would you expect to read in a company memo arguing against the use of the systems development life cycle as a form of internal control?

19.

Raul was leading a team charged with developing a new system for budgeting. The formation of the team indicates that which step of the SDLC has been completed?

A. Initiation/planning B. Requirements analysis C. Design D. Build

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Apply the SDLC in accounting contexts. Topic: Systems development life cycle

20.

Raul was leading a team charged with developing a new system for budgeting. Immediately after the team is formed, they should proceed with:

A. Requirements analysis B. Design C. Build D. Test

21.

Raul was leading a team charged with developing a new system for budgeting. If he decides to use the systems development life cycle:

22.

Raul was leading a team charged with developing a new system for budgeting. If he decides to use the systems development life cycle, which of the following questions would he most likely ask during its second step?

23.

Raul was leading a team charged with developing a new system for budgeting. Which of the following questions is best paired with the most appropriate phase of the systems development life cycle?

24.

Raul was leading a team charged with developing a new system for budgeting. Which of the following questions is best paired with the most appropriate phase of the systems development life cycle?

25.

Raul was leading a team charged with developing a new system for budgeting. At what point will the system be ready for the fifth step in the systems development life cycle?

26.

Raul was leading a team charged with developing a new system for budgeting. He created Excel templates for the new budgeting process and presented them to the team during its first meeting. Which of the following statements is most true?

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Difficulty: 2 Medium Learning Objective: 05-03 Apply the SDLC in accounting contexts. Topic: Systems development life cycle

27.

All of the following are levels of the capability maturity model except:

A. Analytical B. Repeatable C. Defined D. Managed

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 List and discuss the levels of the capability maturity model. Topic: Capability maturity model

28.

At what level of the capability maturity model are managers first involved?

A. Chaotic B. Repeatable C. Defined D. Managed

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 List and discuss the levels of the capability maturity model. Topic: Capability maturity model

29.

Liam had developed a good process for safeguarding his company's information technology assets, but had not shared it with anyone else in the company. To move the process up one level in the capability maturity model, Liam should:

A. Ensure the process actually uses information technology. B. Create a timeline with specific targets. C. Patent his idea. D. Verify his model against COSO's internal control framework.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Classify organizations' processes according to the CMM. Topic: Capability maturity model

30.

Liam has developed a good process for safeguarding his company's information technology assets. He has talked about his methodology with some of his co-workers and has created a schedule for applying his process to various kinds of information technology assets. Using the capability maturity model, the process is best described as:

A. Chaotic B. Repeatable C. Managed D. Optimized

31.

Liam has developed a good process for safeguarding his company's information technology assets. He has talked about his methodology with some of his co-workers and has created a schedule for applying his process to various kinds of information technology assets. Which of the following phrases best indicates the process is repeatable, as the term is defined in the capability maturity model?

A. A good process B. Talked with some of his co-workers C. Created a schedule D. Various kinds of information technology assets

32.

Liam has developed a good process for safeguarding his company's information technology assets. He has completed the following actions with respect to the process: (i) talked about his methodology with some of his co-workers, (ii) created a schedule for applying his process to various kinds of information technology assets, (iii) explained how his process relates to similar processes in his company. Which of the following best pairs one of Liam's actions with a level of the capability maturity model?

A. I, chaotic B. I, optimized C. III, defined D. None of these, since the CMM cannot be applied in this situation.

AACSB: Analytical Thinking

AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Classify organizations' processes according to the CMM. Topic: Capability maturity model

33.

Liam has developed a good process for safeguarding his company's information technology assets. He has completed the following actions with respect to the process: (i) talked about his methodology with some of his co-workers, (ii) created a schedule for applying his process to various kinds of information technology assets, (iii) explained how his process relates to similar processes in his company. Based on the capability maturity model, the process would best be described as:

A. Repeatable B. Defined C. Managed D. Optimized

34.

Liam has developed a good process for safeguarding his company's information technology assets. He has completed the following actions with respect to the process: (i) talked about his methodology with some of his co-workers, (ii) created a schedule for applying his process to various kinds of information technology assets, (iii) explained how his process relates to similar processes in his company. To move the process up one level in the capability maturity model, Liam should:

35.

ELH Corporation's process for buying inventory is well defined; the process also has metrics that establish goals for the process. Which level of the capability maturity model best describes ELH's inventory purchase process?

A. Repeatable B. Defined C. Managed D. Optimized

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 5-65 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 05-05 Classify organizations' processes according to the CMM. Topic: Capability maturity model

36.

RSP Corporation started developing its internal audit process five years ago. When the process started, every internal auditor did things differently. But, the process has progressed until now, many employees at RSP think about ways to improve both the internal audit process and other business processes continually. Which level of the capability maturity model best describes RSP's internal audit process?

A. Repeatable B. Defined C. Managed D. Optimized

37.

Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. Which level of the capability maturity model best describes Austin's company?

A. Chaotic B. Defined C. Managed D. Optimized

38.

A. Repeatable B. Defined C. Managed D. Optimized

39.

40.

Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. Based on the levels of the capability maturity model, which of the following statements is most true?

41.

Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. For Rob to move his company's business processes forward one level in the capability maturity model, he should:

A. Ask Lynn and Mark to get some accounting training. B. Repeat each process at least five times. C. List the major processes and establish a timeline with goals for each one. D. All of these.

42.

Please consider these independent cases as you respond to the question: • Austin is the managing partner of a small CPA firm. In an effort to standardize certain internal business processes, Austin formed a team that developed a set of guidelines for tasks such as expense reimbursements and information technology purchases. After developing the guidelines, the team devised ways to determine if the processes are performing as expected. • Julie is the chief financial officer of PSC Corporation. She recently worked with a team to develop a broad set of principles that should characterize PSC's business processes. The team has applied those principles to some tasks in the accounting department; their next task is to teach other PSC employees about the principles. • Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don't know much about accounting, so Rob completes accounting tasks in whatever way seems best to him. For Julie to move her company's business processes forward one level in the capability maturity model, she should:

43.

Macro-level factors to consider when choosing information technology for the accounting information system include: (i) need, (ii) cost, (iii) strategic fit.

A. I and II only B. II and III only C. I and III only D. I, II and III

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

44.

Which of the following questions best relates to a macro-level factor for choosing information technology for the accounting information system?

A. What will the technology cost? B. Should we borrow money to purchase the technology? C. How many employees will have to learn to use the new system? D. All of these relate to macro-level factors.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

45.

Jack and Lindsay were choosing a new general ledger system for the company they own. They decided to use three factors for the evaluation: adaptability, strategic fit and training. They considered training three times more important than strategic fit; they considered adaptability twice as important as strategic fit. To keep their evaluation simple, they assigned a weight of "1" to strategic fit. If software package A had scores of 5 on adaptability, 8 on strategic fit and 9 on training, its score using the weighted-rating technique will be:

A. 6. B. 22. C. 45. D. Some other number. (1 * 8) + (2 * 5) + (3 * 9) = 45

46.

Anna and Melinda were choosing a new general ledger system for the company they own. They decided to use three factors for the evaluation: adaptability, strategic fit and training. They considered training three times more important than strategic fit; they considered adaptability twice as important as strategic fit. To keep their evaluation simple, they assigned a weight of "1" to strategic fit. If software package B had scores of 3 on adaptability, 6 on strategic fit and 8 on training, its score using the weighted-rating technique will be:

A. 6. B. 12. C. 36. D. Some other number. (1 * 6) + (2 * 3) + (3 * 8) = 36

47.

The chapter discussed four macro-level and four micro-level factors that should be considered when evaluating information technology for use in the accounting information system. It also discussed Sylla and Wen's three-stage process for evaluating information technology investments. Which of the following best pairs a macro-level factor with a level from the Sylla and Wen framework?

A. Strategic fit, intangible benefits evaluation B. Need, IT investment risk analysis C. Vendor reliability, tangible benefits evaluation D. None of these.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

48.

The chapter discussed four macro-level and four micro-level factors that should be considered when evaluating information technology for use in the accounting information system. It also discussed Sylla and Wen's three-stage process for evaluating information technology investments. Which of the following best pairs a micro-level factor with a level from the Sylla and Wen framework?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

49.

Sylla and Wen suggested a three-stage process for evaluating information technology investments. Which step in the process is most closely aligned with the "internal environment" component of the COSO internal control and enterprise risk management frameworks?

A. Step 1 B. Step 2 C. Step 3 D. None of these; there is no relationship between the Sylla and Wen process and the COSO frameworks.

50.

Sylla and Wen suggested a three-stage process for evaluating information technology investments. At which stage of the process would someone be most likely to use the weighted-rating technique discussed in the chapter?

A. Step 1 B. Step 2 C. Step 3 D. None of these. The weighted-rating technique is unrelated to the Sylla and Wen framework.

51.

Consider the table below as you respond to the questions:

QRM is using the seven-step process known as the ___ to develop the modules.

A. systems development life cycle B. capability maturity model C. expectancy theory of human motivation D. generalized model of business process management

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

52.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item A in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

53.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item B in the table?

54.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item C in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

55.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item D in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance

56.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item E in the table?

57.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item F in the table?

A. Initiation/planning B. Build C. Implementation D. Operations and maintenance A complete analysis of the table will show that initiation/planning is the only missing step in the first column.

58.

Consider the table below as you respond to the questions:

Which of the following is the best choice for Item G in the table?

59.

Consider the table below as you respond to the questions:

Based on the usual order of the seven-step process QRM is using, which of the following should occur first?

A. Item A in the table B. Item F in the table C. Item C in the table D. Item D in the table

60.

Consider the table below as you respond to the questions:

Based on the usual order of the seven-step process QRM is using, which of the following should occur last?

A. Item A in the table B. Item F in the table C. Item C in the table D. Item D in the table

Ranking Questions

61.

Arrange the steps in the systems development life cycle in their usual order of occurrence.

5 Test 2 Operations and maintenance 7 Implementation 1 Design 4 Build 3 Requirements analysis 6 Initiation/planning

62.

Arrange the levels of the capability maturity model in order from least mature to most mature.

3 Optimized 1 Managed 2 Chaotic 5 Repeatable 4 Defined

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 List and discuss the levels of the capability maturity model. Topic: Capability maturity model

63.

Nancy and Mei were designing a system for tracking continuing professional education units for accountants in their firm. They completed the tasks listed below; rearrange the tasks in the proper order based on the steps in the systems development life cycle.

1 The new system was introduced gradually throughout the accounting department. 3 Employees began using the new system and provided periodic feedback about making it better. 7 Nancy and Mei created tables and forms using relational database software. 2 On paper, Nancy and Mei thought about how they wanted the new system to look. 5 Several employees complained that the old system was difficult to use. 6 Paul, a co-worker of Nancy and Mei, gave permission for his continuing professional education records to be used to determine if the system would work properly. 4 Employees wanted the new system to track hours, dates and topics of continuing professional education.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-03 Apply the SDLC in accounting contexts. Topic: Systems development life cycle

Check All That Apply Questions

64.

Indicate which of the following items are advantages of using the systems development life cycle to design and implement an accounting information system.

Always has the same set of seven steps

Does not allow an organization to purchase off-the-shelf software

Ensures an organization's process is at least "defined" using the capability maturity model

Is less expensive than other systems development methodologies

Is less rigid than other systems development methodologies

Is organized in a very structured way

Promotes strong control of systems projects

Provides multiple opportunities for user input

Provides some flexibility in the implementation stage

Takes less time than other systems development methodologies

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain the advantages and disadvantages of using the SDLC. Topic: Systems development life cycle

Essay Questions

65.

Sylla and Wen suggested a three-stage process for evaluating information technology investments. At which step in their process would you expect to address each of the following items? a. Ability to do things more efficiently b. Better use of organizational resources c. Encouragement from top management d. Fire suppression systems e. Impact on a company's market share f. Need to change the company in a fundamental way g. Opportunities for fraud h. Opportunity to do things more effectively i. Producing more with less j. Secure storage for the new IT asset

Step 1 (intangible benefits evaluation): c, e, f Step 2 (IT investment risk analysis): d, g, j Step 3 (tangible benefits evaluation): a, b, h, i

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

66.

Leticia and Omar were evaluating payroll software packages for their company. They considered three factors with the following weights: adaptability, 9; ease of use, 10; cost, 7. They narrowed their choices down to three packages with the following rankings on each factor:

Using the weighted-rating technique discussed in the text, calculate a score for each software package. Rank the packages based on their scores.

Package A: (6 * 9) + (8 * 10) + (8 * 7) = 190 (ranked second) Package B: (8 * 9) + (5 * 10) + (4 * 7) = 150 (ranked third) Package C: (9 * 9) + (7 * 10) + (10 * 7) = 221 (ranked first)

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

67.

Which level of the capability maturity model best describes each of the following business processes? a. After consulting the company procedures manual and her supervisor for guidance, Lindsay developed a more detailed description of the invoice payment process. b. After developing a rigorous description of the purchase order process, Joe set a goal of processing each one in no more than one day. c. After figuring out the best way to process purchase orders, Joe developed a schedule indicating what tasks he should complete each day. He did not share the schedule or the process with anyone else. d. Although CPK Corporation had a process for paying vendor invoices, Lindsay thought it didn't work well. So, she used her own system without telling her supervisor or coworkers. e. Employees of the purchasing department all attended a seminar on how to make the purchasing department more efficient and effective.

a. defined b. managed c. repeatable d. chaotic e. optimized

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-05 Classify organizations' processes according to the CMM. Topic: Capability maturity model

68.

Consider the business processes described below. For each one, indicate which level of the capability maturity model most clearly applies. Circle the phrase that led you to your choice. a. Joe tried various ways to process purchase orders to see which one would work best. b. Marie, an independent consultant, was trying to develop a better way for her client to monitor inventory. She interviewed several employees and looked at the company's historical records for guidance. c. Mark led monthly discussion groups focused on how to improve various business processes throughout the company. d. Mark prepared a list of common documents used in his job as an accounts receivable clerk; the list also indicated how many copies of each document were normally required. Mark kept the list in his desk. e. The CEO of Marie's client explained to her that the new inventory monitoring system could cost no more than $500 per month to use.

a. chaotic, "tried various ways" b. defined, "looked at the company's historical records" c. optimized, "discussion groups focused on how to improve... throughout the company" d. repeatable, "how many copies… were normally required" e. managed, "no more than $500 per month"

69.

IRM Corporation had an outdated, ineffective system for monitoring its fixed assets. You have been asked by the CEO to develop a new system; you have decided to use the systems development life cycle to accomplish the task. For each fixed asset, the system should include the following items: identification code, name, date placed in service, cost, estimated life, estimated salvage value, depreciation method, and condition. For each step in the SDLC, indicate one question you would ask/action you would take to develop the new system. Ensure that your responses are specific to the fixed asset system. a. Initiation/planning: _______________________________________________ b. Requirements analysis: ____________________________________________ c. Design: _________________________________________________________ d. Build: ___________________________________________________________ e. Test: ___________________________________________________________ f. Implementation: __________________________________________________ g. Operations/maintenance: __________________________________________

a. Why is a new system for monitoring fixed assets needed? b. What business goals should the new system achieve? c. How should the indicated variables be organized in the system (e.g., in a database table)? d. Should we built the new monitoring system from scratch, or buy one off the shelf? e. Which employee(s) would be best for testing the system? f. How should the new system be implemented: direct cutover, parallel implementation or some other way? g. How is the system working over time?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-03 Apply the SDLC in accounting contexts. Topic: Systems development life cycle

70.

The chapter discussed four macro- and four micro-level factors to consider when selecting information technology. Suppose you have been hired as a consultant to recommend new general ledger software for a client; you have decided to conduct interviews and focus groups as part of developing your recommendation. For each factor listed below, indicate one question you would ask in the interviews/focus groups. Ensure that your questions are specific to the general ledger software. a. Need: ________________________________________________________ b. Strategic fit: ___________________________________________________ c. Personnel involvement: __________________________________________ d. Financing: _____________________________________________________ e. Cost: _________________________________________________________ f. Adaptability: ____________________________________________________ g. Training: _______________________________________________________ h. Vendor reliability: ________________________________________________

a. Why is new general ledger software needed? b. How will investing in new G/L software improve company competitiveness? c. Who should be involved in selecting the new software? d. Will the new software be financed with debt, equity or in some other way? e. How much will the new software cost? f. Can the new software be customized to our specific company? g. How much training will employees need to use the new software? h. Is the software coming from a reputable company?

Short Answer Questions

71.

List the four macro- and four micro-level factors managers should consider when they select information technology resources based on the discussion in the text.

Macro-level factors: need, strategic fit, personnel involvement, financing Micro-level factors: cost, adaptability, training, vendor reliability

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Explain factors managers should consider when choosing IT for an AIS. Topic: Information technology selection

72.

In your own words, explain the purpose of the capability maturity model. List the levels of the model, and explain each one in your own words.

The capability maturity model helps organizations understand how to improve their business processes. At the first level (chaotic), processes lack coherence and wide applicability. At the second level (repeatable), processes become more cohesive, but may not be shared across the organization. At the third level (defined), process standards are derived from broader organizational standards. At the fourth level (managed), the organization develops metrics to assess how the process is working. At the final level (optimized), continuous process improvement is part of the organizational culture.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard 5-98 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 05-04 List and discuss the levels of the capability maturity model. Topic: Capability maturity model

73.

You have been asked to develop a system that will track your company's short-term investments. Outline and discuss, in a general way, the steps you would use to accomplish that goal.

The systems development life cycle comprises seven steps that can be used to accomplish the goal. The SDLC starts with recognizing a need, then determines what the new system should accomplish. The new system is designed conceptually, then built. After that, it is tested, then implemented across the organization. The final stage involves maintaining and improving the system over time.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-01 List and discuss, in order, the steps in the systems development life cycle. Topic: Systems development life cycle

74.

As part of your company's effort to design an enterprise risk management plan using the COSO framework, you have been asked to develop an information technology tool that will monitor the plan. Use the steps in the systems development life cycle to explain how you would proceed; ensure that your discussion includes ideas specific to monitoring the ERM plan.

Initiation/planning: This step is already done, as you've been asked to develop the tool. Requirements analysis: Through surveys, interviews, focus groups and other means, determine what the ERM monitoring system should accomplish. Design: What will the ERM monitoring system look like? For example, how will it obtain data? How will it process that data and report information? Build: Develop a prototype based on the design specifications. Test: Let a few employees work with the prototype monitoring system, providing feedback and suggestions for improvement. Implementation: After making changes based on testing, deploy the ERM monitoring system throughout the organization. Operations and maintenance: Periodically solicit feedback to ensure the ERM monitoring system continues to function effectively.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-03 Apply the SDLC in accounting contexts. Topic: Systems development life cycle

75.

Although CPK Corporation had a process for paying vendor invoices, Lindsay thought it didn't work well. So, she used her own system without telling her supervisor or coworkers. Assume the process would be classified as "chaotic" using the capability maturity model. For each subsequent level of the CMM, suggest one action Lindsay should take to improve the process.

Repeatable: Lindsay should establish timelines for paying vendor invoices. Defined: Lindsay should consult organizational records (such as a procedures manual) and apply appropriate principles to the payment process. Managed: Lindsay should establish goals for each part of the process, then assess whether it meets those goals. Optimized: Lindsay should develop a "continuous improvement" mindset so that quality is always in her thoughts.

Chapter 06 Flowcharting

Multiple Choice Questions

1. Which kind of flowchart shows the logic associated with instructions given to a computer?

A. Systems B. Program C. Document D. Hardware

2. Which kind of flowchart shows relationships between computers, printers, monitors and similar devices?

A. Systems B. Program C. Document D. Hardware

3. Which of the following is most likely to be seen in a hardware flowchart?

A. Scanner B. Web browser C. Textbook D. None of these

4. Which of the following would best be depicted with a systems flowchart: (i) steps in the accounting cycle, (ii) development of an internal control plan?

A. I only B. II only C. Both I and II D. Neither I nor II

5. In which of the following situations would a systems flowchart be appropriate?

A. Documenting the steps in a financial statement audit B. Evaluating an organization's employee training programs C. Both documenting the steps in a financial statement audit and evaluating an organization's employee training programs D. Neither documenting the steps in a financial statement audit nor evaluating an organization's employee training programs

6. In which of the following situations would a document flowchart be appropriate?

A. Documenting the steps in a financial statement audit B. Tracing the flow of a bank deposit slip C. Both documenting the steps in a financial statement audit and tracing the flow of a bank deposit slip D. Neither documenting the steps in a financial statement audit nor tracing the flow of a bank deposit slip

7. Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? Which of the preceding questions would best be answered by preparing a systems flowchart?

A. I, II and III B. II, III and IV C. II, IV and V D. All of these

8. Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? The chapter discussed four types of flowcharts. Which of the preceding questions would be answered by two different types?

A. I and III B. II and IV C. II and V D. IV and V

9. Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? Which of the preceding questions would best be answered by the type of flowchart indicated below?

A. I and II, document flowchart B. II and IV, systems flowchart C. I and II, systems flowchart D. II and IV, document flowchart

10. Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? How many of the preceding questions would best be answered by preparing a program flowchart?

A. Zero B. One C. Three D. Five

11. Flowcharts should be read:

A. From top to bottom and from left to right B. From bottom to top and from left to right C. From top to bottom and from right to left D. From bottom to top and right to left

12. Documents in a flowchart should have:

A. A clear origin, but not a clear termination B. A clear termination, but not a clear origin C. Both a clear origin and a clear termination D. Neither a clear origin nor a clear termination

13. Flowcharts should have plenty of white space. Which of the following statements is most true?

A. To ensure a flowchart has plenty of white space, it must have no more than three columns per page. B. To ensure a flowchart has plenty of white space, it must have no more than three symbols per column. C. Both to ensure a flowchart has plenty of white space, it must have no more than three columns per page and to ensure a flowchart has plenty of white space, it must have no more than three symbols per column. D. Neither to ensure a flowchart has plenty of white space, it must have no more than three columns per page nor to ensure a flowchart has plenty of white space, it must have no more than three symbols per column.

14. All of the following would be used as column headings in a systems flowchart except:

A. Cash receipts department B. Bank deposit slip C. Payroll clerk D. Customer

15. Documents involved in a business process should have a clear termination. Which of the following best applies that principle?

A. An arrow connecting a document with a filing symbol B. A document moving between columns in a flowchart C. Both an arrow connecting a document with a filing symbol and a document moving between columns in a flowchart D. Neither an arrow connecting a document with a filing symbol nor a document moving between columns in a flowchart

16. After drawing a rough draft of a flowchart by hand, Sue should:

A. Determine which computer program she wants to use to prepare a final copy. B. Ask for feedback on the flowchart from her supervisor. C. Both determine which computer program she wants to use to prepare a final copy and ask for feedback on the flowchart from her supervisor. D. Neither determine which computer program she wants to use to prepare a final copy nor ask for feedback on the flowchart from her supervisor.

17. Which of the following should be placed at the top of each page of a systems flowchart: (i) the number of columns in the flowchart, (ii) the number of pages in the flowchart, (iii) the name of the process depicted?

A. I and II only B. I and III only C. II and III only D. I, II and III

18. Which of the following statements about white space in a flowchart is most true?

A. "Adequate white space" is a matter of judgment. B. A flowchart should not span more than three pages. C. Both "adequate white space" is a matter of judgment and a flowchart should not span more than three pages. D. Neither "adequate white space" is a matter of judgment nor a flowchart should not span more than three pages.

19. Ralph was preparing a systems flowchart that explained how to reconcile a bank statement. Which of the following should he include as column headings: (i) bank statement, (ii) accounting clerk, (iii) bank.

A. I and II only B. II and III only C. I and III only D. I, II and III

20. The title of a systems flowchart included the following information: "Systems flowchart of the inventory purchasing process. Page 1 of 2." Which of the following would you expect to see as column headings in the flowchart: (i) supplier, (ii) Page 1, (iii) purchasing agent.

A. I and II only B. I and III only C. II and III only D. I, II and III

21. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Symbol A depicts:

A. A decision. B. A terminator. C. A document. D. A predefined process.

22. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Symbol C depicts:

A. An off-page connector. B. An on-page connector. C. A manual process. D. A database.

23. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Which of the following labels would you expect to find inside Symbol J?

A. By date B. By name C. Either by date or by name D. Neither by date nor by name

24. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

"Prepare purchase order" could be represented in a systems flowchart with any of the following except:

A. Symbol A B. Symbol F C. Symbol G D. Symbol I

25. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

One of the basic design principles of flowcharts states that documents should have a clear point of termination. Which symbol would apply that principle?

A. Symbol B B. Symbol D C. Symbol F D. Symbol J

26. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Which of the following symbols should always appear in a pair on the same page of a systems flowchart?

A. Symbol B B. Symbol C C. Symbol D D. Symbol H

27. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which of the following symbols belong to the same group?

A. Symbols C and E B. Symbols A and F C. Symbols A and C D. Symbols E and F

28. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which of the following symbols belong to different groups?

A. Symbols C and D B. Symbols C and E C. Symbols A and I D. Symbols G and I

29. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which symbols belong to the "data" group?

A. Symbols C and H B. Symbols A and H C. Symbols A and C D. None of these. "Data" is not one of the groups.

30. Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which symbols belong to the "file" group?

A. Symbols H and J B. Symbols A and H C. Symbols A and J D. None of these. "File" is not one of the groups.

31. A properly prepared systems flowchart can be used to:

A. Evaluate internal controls in the AIS. B. Determine which processes are completed manually in the AIS. C. Both evaluate internal controls in the AIS and determine which processes are completed manually in the AIS. D. Neither evaluate internal controls in the AIS nor determine which processes are completed manually in the AIS.

32. A properly prepared systems flowchart can be used to:

A. Make recommendations on improving business processes. B. Identify some of a company's risk exposures. C. Both make recommendations on improving business processes and identify some of a company's risk exposures. D. Neither make recommendations on improving business processes nor identify some of a company's risk exposures.

33. A properly prepared systems flowchart can be used to:

A. Describe an organization's method of collecting cash from its clients. B. Train new employees in an organization's method of collecting cash from its clients. C. Both describe an organization's method of collecting cash from its clients and train new employees in an organization's method of collecting cash from its clients. D. Neither describe an organization's method of collecting cash from its clients nor train new employees in an organization's method of collecting cash from its clients.

34. Which of the following documents can be used to assess risk and recommend internal controls?

A. Systems flowchart B. Risk/control matrix C. Both systems flowchart and risk/control matrix D. Neither systems flowchart nor risk/control matrix

35. Consider the flowchart below as you respond to the question:

Systems flowcharts can be used in AIS work to evaluate internal controls. Which of the following statements is most true based on the systems flowchart above?

A. Allowing the salesperson to approve customer credit weakens internal control. B. Using an electronic database for customer data weakens internal control. 6-22 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

C. Both allowing the salesperson to approve customer credit weakens internal control and using an electronic database for customer data weakens internal control. D. Neither allowing the salesperson to approve customer credit weakens internal control nor using an electronic database for customer data weakens internal control.

36. Consider the flowchart below as you respond to the question:

Systems flowcharts can be used in AIS work to recommend process improvements. Which of the following statements is most true based on the systems flowchart above?

A. The company may benefit from implementing online order taking. B. The company may benefit from implementing a lockbox system. 6-24 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

C. Both the company may benefit from implementing online order taking and the company may benefit from implementing a lockbox system. D. Neither the company may benefit from implementing online order taking nor the company may benefit from implementing a lockbox system.

37. Consider the flowchart below as you respond to the question:

Which of the following statements is most true based on the systems flowchart above?

A. The credit approval process is completely automated. B. The type and nature of documents used in the system should be clearer. C. Both the credit approval process is completely automated and the type and nature of 6-26 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

documents used in the system should be clearer. D. Neither the credit approval process is completely automated nor the type and nature of documents used in the system should be clearer.

38. Consider the flowchart below as you respond to the question:

Flowcharts should be organized in columns based on areas of responsibility. The process depicted would benefit from reorganization into __ departments within the company.

C. Five or six D. More than six

39. Consider the flowchart below as you respond to the question:

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following statements about the systems flowchart above is most true?

A. Symbol A should be inserted after "remit payment." 6-30 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

B. Symbol A should be inserted before "take order." C. Both symbol A should be inserted after "remit payment" and symbol A should be inserted before "take order" are true. D. Neither symbol A should be inserted after "remit payment" nor symbol A should be inserted before "take order" is true.

40. Consider the flowchart below as you respond to the question:

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following statements about the systems flowchart above is most true?

A. Symbol B may be inserted between "approve credit" and "deliver goods." 6-32 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

B. Symbol B may be inserted between "start" and "take order." C. Both symbol B may be inserted between "approve credit" and "deliver goods" and symbol B may be inserted between "start" and "take order" are true. D. Neither symbol B may be inserted between "approve credit" and "deliver goods" nor symbol B may be inserted between "start" and "take order" is true.

41. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which symbol would represent the ticket sales database?

A. Symbol C B. Symbol F C. Symbol H D. Symbol J

42. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which symbol would represent the tickets?

A. Symbol A B. Symbol B C. Symbol F D. Symbol I

43. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following is most likely to be represented with Symbol I?

A. Open seating plan B. Discounted tickets C. Creating advertising for the web site D. None of these

44. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following is most likely to be represented with Symbol B?

A. A patron's decision to purchase tickets B. The theatre management's decision about which plays to produce C. Determining whether a patron is a subscriber D. All of these

45. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount. Which of the following statements would be most true in a systems flowchart of the Celebration Theatre case?

A. One of the flowchart columns would have "patrons" as its heading. B. One of the flowchart columns would have "theatre personnel" as its heading. C. Both one of the flowchart columns would have "patrons" as its heading and one of the flowchart columns would have "theatre personnel" as its heading are true. D. Neither one of the flowchart columns would have "patrons" as its heading nor one of the flowchart columns would have "theatre personnel" as its heading is true.

46. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount. The first step in creating a flowchart is to define the system boundary. Which of the following is most likely to be outside the system boundary?

A. Patrons B. Theatre personnel C. Box office D. Advertising firm

47. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. The process of selling tickets at the box office could be represented with any of the following symbols except:

A. Symbol F B. Symbol G C. Symbol I D. Symbol J

48. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following would best determine whether to use Symbol G or Symbol I to represent the process of selling tickets at the box office?

A. Whether the process is completed manually or with information technology B. Whether the flowchart will be read by someone who understands the process of selling tickets C. Whether the tickets are sold to a subscriber or a non-subscriber D. Any of these could be used to make that determination.

49. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. In a systems flowchart of the Celebration Theatre case, which of the following is most likely to appear immediately after "start?"

A. Symbol A B. Symbol I C. Either Symbol A or Symbol I D. Some other symbol

50. Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through 6-50 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Symbol J. In a systems flowchart of the Celebration Theatre case, Symbol H is most likely to appear in which column?

A. Patron B. Theatre personnel C. Subscriber database D. Patron database

51. Consider the following partially completed flowchart as you respond to the questions:

Which type of flowchart is depicted?

A. document B. systems C. hardware D. program

52. Consider the following partially completed flowchart as you respond to the questions:

Which of the following phrases would appear in the title of the flowchart: (i) systems flowchart, (ii) interview committee flowchart, (iii) prepared by.

A. i and ii only B. i and iii only C. ii and iii only D. i, ii and iii

53. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "A" should be replaced with:

A. human resources department B. applicant C. human resources process D. Any of these

54. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "B" should be replaced with:

A. Qualified B. Position open C. Materials received D. Choose candidates to reject

55. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "C" should be replaced with:

A. applicant name B. position description C. rejection letter D. file application materials

56. Consider the following partially completed flowchart as you respond to the questions:

Consider the symbol labeled "C." Including the symbols before and after it, which of the following principles is illustrated?

A. Every document should have a clear point of origin. B. Every document should have a clear point of termination. C. Both every document should have a clear point of origin and every document should have a clear point of termination. D. Neither every document should have a clear point of origin nor every document should have a clear point of termination.

57. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "D" could be replaced with:

A. a generic or predefined process symbol. B. a predefined process or document symbol. C. a generic process or decision symbol. D. a decision or document symbol.

58. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, the "list of finalists" would best be depicted with a ___ symbol.

A. predefined process B. manual file C. decision D. document

59. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "E" should be replaced with a ___ symbol labeled ___.

A. predefined process; interview finalists B. predefined process; choose finalists to interview C. decision; interview finalists D. decision; choose finalists to interview

60. Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, the most appropriate label for "F" is:

A. to new employee B. end C. outside system boundary D. some other label

Essay Questions

61. Fill in the blanks in each statement below based on the flowchart design considerations discussed in the text. a. Flowcharts should be read from _____ and ______. b. Flowcharts should have plenty of ______. c. Flowcharts should have a ______. d. Flowcharts should be organized in columns that depict ______. e. Documents involved in a business process should have a clear ___ and a clear ___.

62. Fill in the blanks in each statement below based on the flowchart design steps discussed in the chapter. a. Establish the ______. b. Determine ______. c. List ______ performed within each ______. d. Select appropriate ______. e. Prepare a ______. f. ______ the flowchart with others. g. ______ as needed.

63. The chapter discussed four types of flowcharts. Which one would be most appropriately used in each of the following independent situations? a. Demonstrating how to create a procedures manual b. Explaining what happens in a financial statement audit c. Illustrating the steps in the accounting cycle d. Showing the relationship between computers and printers within an office building e. Tracing the path of a check from the time it is written until it is paid by the bank f. Writing computer code that will generate general purpose financial statements

64. Flowcharts can impact the design, implementation and evaluation of an accounting information system. Determine whether each statement below is: (i) always true, (ii) sometimes true or (iii) never true. a. Accounting information systems have five generic elements; a flowchart can be an example of at least one of the elements. b. All aspects of an AIS should always be represented in a single flowchart of no more than three pages. c. Flowcharts are required if a company wants to use the COSO internal control framework. d. Flowcharts are useful to auditors. e. Flowcharts can be used as part of a business process management project for an AIS.

65.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which symbol would be used in a systems flowchart to represent each of the following items? 1) A bank statement 2) Completing the steps in the accounting cycle 3) Creating an enterprise risk management plan 4) Determining if a customer should be granted credit 5) Electronic records of sales transactions 6) Moving a document from the first column of a page to the third column of the same page 7) Reconciling a bank statement in a flowchart to be read by experienced accountants 8) Sending a sales invoice outside the system boundary 9) Storing copies of purchase orders in a box 10) The statement of cash flows

66. The chapter discussed four types of flowcharts; flowcharts can impact the design, implementation and evaluation of an accounting information system. Determine whether each statement below is: (i) always true, (ii) sometimes true or (iii) never true. a. A document flowchart should be used as part of developing an enterprise risk management plan based on the COSO framework. b. A hardware flowchart can be a guide in recommending technology-related internal controls. c. Because the "S" in AIS stands for "system," only systems flowcharts are useful in AIS work. d. Program flowcharts are never relevant in accounting information systems. e. Since most documents in an AIS are electronic, document flowcharts are rarely relevant in designing, implementing and evaluating accounting information systems.

67. Analyze the flowchart below and the statements which follow. Determine which statements are true based on the flowchart.

a. All customers have a credit limit. b. Because the customer is outside the company, the customer is also outside the system boundary. c. Customers can place orders in person or over the phone. d. Flowcharting symbols are used appropriately.

e. Internal control in the process depicted would be strengthened by introducing a filing system. f. Journal entries associated with the process depicted would include debits to cost of goods sold and credits to inventory. g. The company does not use any form of information technology in the process depicted. h. The company has weak separation of duties in the process depicted. i. The company is not exposed to credit risk. j. The flowchart could be appropriately titled "Document flowchart of the sales/collection process."

68. Please refer to the following flowchart as you respond to the next problem:

According to ANSI, flowchart symbols can be divided into four main groups. Analyze the symbols in the flowchart above; sort them into the four groups.

69. Prepare a systems flowchart based on the following case: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance.

70. Explain, in no more than ten sentences, the process depicted in the following flowchart:

Short Answer Questions

71. List the six design principles associated with flowcharting discussed in the text.

72. Consider the process you use to register for courses and pay your fees each term. Referring to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J., give one specific example of Symbols A, B, F, G, H, and I within the context of that process.

73. The chapter suggested a seven-step process for creating a systems flowchart. Consider how you register for courses and pay your fees each term; complete the first four steps (and only the first four steps) of the seven-step process within that context.

74. The chapter discussed four kinds of flowcharts. Differentiate them based on their purpose, use and relationship to accounting information systems.

75. The systems development life cycle comprises seven steps: initiation/planning, requirements analysis, design, build, test, implementation, and operations and maintenance. In which phases of the SDLC would a systems flowchart be useful? Justify your response.

Chapter 06 Flowcharting Answer Key

Multiple Choice Questions

Which kind of flowchart shows the logic associated with instructions given to a computer?

A. Systems B. Program C. Document D. Hardware

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

Which kind of flowchart shows relationships between computers, printers, monitors and similar devices?

A. Systems B. Program C. Document D. Hardware

AACSB: Technology AICPA: FN Leveraging Technology 6-77 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

Which of the following is most likely to be seen in a hardware flowchart?

A. Scanner B. Web browser C. Textbook D. None of these

Which of the following would best be depicted with a systems flowchart: (i) steps in the accounting cycle, (ii) development of an internal control plan?

A. I only B. II only C. Both I and II D. Neither I nor II

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

In which of the following situations would a systems flowchart be appropriate?

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

In which of the following situations would a document flowchart be appropriate?

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation 6-79 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? Which of the preceding questions would best be answered by preparing a systems flowchart?

A. I, II and III B. II, III and IV C. II, IV and V D. All of these I, document flowchart. II, IV and V, systems. III, hardware.

Topic: Flowchart types and conventions

Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? The chapter discussed four types of flowcharts. Which of the preceding questions would be answered by two different types?

A. I and III B. II and IV C. II and V D. IV and V I, document flowchart. II, IV and V, systems. III, hardware.

A. I and II, document flowchart B. II and IV, systems flowchart C. I and II, systems flowchart D. II and IV, document flowchart I, document flowchart. II, IV and V, systems. III, hardware.

10.

Consider the following as you answer the question: Jon is an information systems consultant with a diverse client base. Some of his clients recently posed the questions listed below; Jon is considering which type of flowchart would best be used to answer each question. i. What happens to a federal tax return once it is received by the IRS? ii. How should a company calculate payroll withholding taxes? iii. What kind of computer network is in place at a local IRS office? iv. What process does an organization employ to determine how to invest money in a pension fund? v. What steps must be completed to write and publish an accounting textbook? How many of the preceding questions would best be answered by preparing a program flowchart?

A. Zero B. One C. Three D. Five I, document flowchart. II, IV and V, systems. III, hardware.

11.

Flowcharts should be read:

A. From top to bottom and from left to right B. From bottom to top and from left to right C. From top to bottom and from right to left D. From bottom to top and right to left

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-02 Explain the basic parts of and design considerations common to all types of flowcharts. Topic: Flowchart types and conventions

12.

Documents in a flowchart should have:

A. A clear origin, but not a clear termination B. A clear termination, but not a clear origin C. Both a clear origin and a clear termination D. Neither a clear origin nor a clear termination

13.

Flowcharts should have plenty of white space. Which of the following statements is most true?

14.

All of the following would be used as column headings in a systems flowchart except:

A. Cash receipts department B. Bank deposit slip C. Payroll clerk D. Customer

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Learning Objective: 06-02 Explain the basic parts of and design considerations common to all types of flowcharts. Topic: Flowchart types and conventions

15.

Documents involved in a business process should have a clear termination. Which of the following best applies that principle?

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-02 Explain the basic parts of and design considerations common to all types of flowcharts. Topic: Flowchart types and conventions

16.

After drawing a rough draft of a flowchart by hand, Sue should:

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Difficulty: 2 Medium Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

17.

Which of the following should be placed at the top of each page of a systems flowchart: (i) the number of columns in the flowchart, (ii) the number of pages in the flowchart, (iii) the name of the process depicted?

A. I and II only B. I and III only C. II and III only D. I, II and III

18.

Which of the following statements about white space in a flowchart is most true?

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Learning Objective: 06-02 Explain the basic parts of and design considerations common to all types of flowcharts. Topic: Flowchart types and conventions

19.

Ralph was preparing a systems flowchart that explained how to reconcile a bank statement. Which of the following should he include as column headings: (i) bank statement, (ii) accounting clerk, (iii) bank.

A. I and II only B. II and III only C. I and III only D. I, II and III

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20.

The title of a systems flowchart included the following information: "Systems flowchart of the inventory purchasing process. Page 1 of 2." Which of the following would you expect to see as column headings in the flowchart: (i) supplier, (ii) Page 1, (iii) purchasing agent.

A. I and II only B. I and III only C. II and III only D. I, II and III

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Topic: Flowchart design steps

21.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Symbol A depicts:

A. A decision. B. A terminator. C. A document. D. A predefined process.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-03 Identify and describe common symbols and information technology tools used in flowcharting. Topic: Flowchart symbols

22.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Symbol C depicts:

A. An off-page connector. B. An on-page connector. C. A manual process. D. A database.

23.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Which of the following labels would you expect to find inside Symbol J?

A. By date B. By name C. Either by date or by name D. Neither by date nor by name

24.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

"Prepare purchase order" could be represented in a systems flowchart with any of the following except:

A. Symbol A B. Symbol F C. Symbol G D. Symbol I

25.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

One of the basic design principles of flowcharts states that documents should have a clear point of termination. Which symbol would apply that principle?

A. Symbol B B. Symbol D C. Symbol F D. Symbol J

26.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

Which of the following symbols should always appear in a pair on the same page of a systems flowchart?

A. Symbol B B. Symbol C C. Symbol D D. Symbol H

27.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which of the following symbols belong to the same group?

A. Symbols C and E B. Symbols A and F C. Symbols A and C D. Symbols E and F Data symbols: A and H. Process symbols: B, F, G, I, and J. Special symbols: C, D and E. The fourth group is the line symbol, which is not depicted.

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Learning Objective: 06-03 Identify and describe common symbols and information technology tools used in flowcharting. Topic: Flowchart symbols

28.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which of the following symbols belong to different groups?

A. Symbols C and D B. Symbols C and E C. Symbols A and I D. Symbols G and I Data symbols: A and H. Process symbols: B, F, G, I, and J. Special symbols: C, D and E. The fourth group is the line symbol, which is not depicted.

AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-03 Identify and describe common symbols and information technology tools used in flowcharting. Topic: Flowchart symbols

29.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which symbols belong to the "data" group?

A. Symbols C and H B. Symbols A and H C. Symbols A and C D. None of these. "Data" is not one of the groups. Data symbols: A and H. Process symbols: B, F, G, I, and J. Special symbols: C, D and E. The fourth group is the line symbol, which is not depicted.

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Learning Objective: 06-03 Identify and describe common symbols and information technology tools used in flowcharting. Topic: Flowchart symbols

30.

Consider the following flowchart symbols as necessary as you respond to the remaining questions in this chapter:

According to ANSI, flowchart symbols can be divided into four main groups. Which symbols belong to the "file" group?

A. Symbols H and J B. Symbols A and H C. Symbols A and J D. None of these. "File" is not one of the groups. Data symbols: A and H. Process symbols: B, F, G, I, and J. Special symbols: C, D and E. The fourth group is the line symbol, which is not depicted.

31.

A properly prepared systems flowchart can be used to:

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-04 Discuss ways flowcharts impact the design, implementation, and evaluation of accounting information systems. Topic: Flowcharting and AIS

32.

A properly prepared systems flowchart can be used to:

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Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-04 Discuss ways flowcharts impact the design, implementation, and evaluation of accounting information systems. Topic: Flowcharting and AIS

33.

A properly prepared systems flowchart can be used to:

34.

Which of the following documents can be used to assess risk and recommend internal controls?

A. Systems flowchart B. Risk/control matrix C. Both systems flowchart and risk/control matrix D. Neither systems flowchart nor risk/control matrix

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35.

Consider the flowchart below as you respond to the question:

Systems flowcharts can be used in AIS work to evaluate internal controls. Which of the following statements is most true based on the systems flowchart above?

A. Allowing the salesperson to approve customer credit weakens internal control. B. Using an electronic database for customer data weakens internal control. 6-103 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-04 Discuss ways flowcharts impact the design, implementation, and evaluation of accounting information systems. Topic: Flowcharting and AIS

36.

Consider the flowchart below as you respond to the question:

Systems flowcharts can be used in AIS work to recommend process improvements. Which of the following statements is most true based on the systems flowchart above?

A. The company may benefit from implementing online order taking. B. The company may benefit from implementing a lockbox system. 6-105 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

37.

Consider the flowchart below as you respond to the question:

Which of the following statements is most true based on the systems flowchart above?

A. The credit approval process is completely automated. B. The type and nature of documents used in the system should be clearer. C. Both the credit approval process is completely automated and the type and nature of 6-107 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

documents used in the system should be clearer. D. Neither the credit approval process is completely automated nor the type and nature of documents used in the system should be clearer.

38.

Consider the flowchart below as you respond to the question:

Flowcharts should be organized in columns based on areas of responsibility. The process depicted would benefit from reorganization into __ departments within the company.

C. Five or six D. More than six The question asks about columns within the company; the "customer" column should remain, but is not within the company. The "company columns" should include: salesperson, credit department and delivery department. They may also include "warehouse."

39.

Consider the flowchart below as you respond to the question:

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following statements about the systems flowchart above is most true?

A. Symbol A should be inserted after "remit payment." 6-111 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

40.

Consider the flowchart below as you respond to the question:

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following statements about the systems flowchart above is most true?

A. Symbol B may be inserted between "approve credit" and "deliver goods." 6-113 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

41.

Refer to the following case as you respond to the question: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance. Any paid tickets that are not claimed at least thirty minutes prior to the performance are sold on a "first-come, first-serve" basis at a 50% discount.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which symbol would represent the ticket sales database?

A. Symbol C B. Symbol F C. Symbol H D. Symbol J

42.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which symbol would represent the tickets?

A. Symbol A B. Symbol B C. Symbol F D. Symbol I

43.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following is most likely to be represented with Symbol I?

A. Open seating plan B. Discounted tickets C. Creating advertising for the web site D. None of these

44.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J. Which of the following is most likely to be represented with Symbol B?

A. A patron's decision to purchase tickets B. The theatre management's decision about which plays to produce C. Determining whether a patron is a subscriber D. All of these

45.

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Difficulty: 2 Medium Learning Objective: 06-03 Identify and describe common symbols and information technology tools used in flowcharting. Topic: Flowchart symbols

46.

A. Patrons B. Theatre personnel C. Box office D. Advertising firm

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Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

47.

A. Symbol F B. Symbol G C. Symbol I D. Symbol J

48.

49.

A. Symbol A B. Symbol I C. Either Symbol A or Symbol I D. Some other symbol

50.

Refer to the previously presented set of flowcharting symbols labeled Symbol A through 6-132 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Symbol J. In a systems flowchart of the Celebration Theatre case, Symbol H is most likely to appear in which column?

A. Patron B. Theatre personnel C. Subscriber database D. Patron database

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

51.

Consider the following partially completed flowchart as you respond to the questions:

Which type of flowchart is depicted?

A. document B. systems C. hardware D. program

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

52.

Consider the following partially completed flowchart as you respond to the questions:

Which of the following phrases would appear in the title of the flowchart: (i) systems flowchart, (ii) interview committee flowchart, (iii) prepared by.

A. i and ii only B. i and iii only C. ii and iii only D. i, ii and iii

53.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "A" should be replaced with:

A. human resources department B. applicant C. human resources process D. Any of these

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

54.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "B" should be replaced with:

A. Qualified B. Position open C. Materials received D. Choose candidates to reject

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

55.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "C" should be replaced with:

A. applicant name B. position description C. rejection letter D. file application materials

56.

Consider the following partially completed flowchart as you respond to the questions:

Consider the symbol labeled "C." Including the symbols before and after it, which of the following principles is illustrated?

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-02 Explain the basic parts of and design considerations common to all types of flowcharts. 6-139 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Flowchart types and conventions

57.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "D" could be replaced with:

A. a generic or predefined process symbol. B. a predefined process or document symbol. C. a generic process or decision symbol. D. a decision or document symbol.

58.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, the "list of finalists" would best be depicted with a ___ symbol.

A. predefined process B. manual file C. decision D. document

59.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, "E" should be replaced with a ___ symbol labeled ___.

A. predefined process; interview finalists B. predefined process; choose finalists to interview C. decision; interview finalists D. decision; choose finalists to interview

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-03 Identify and describe common symbols and information technology tools used in flowcharting. Topic: Flowchart symbols

60.

Consider the following partially completed flowchart as you respond to the questions:

In the partial flowchart, the most appropriate label for "F" is:

A. to new employee B. end C. outside system boundary D. some other label

Essay Questions

61.

Fill in the blanks in each statement below based on the flowchart design considerations discussed in the text. a. Flowcharts should be read from _____ and ______. b. Flowcharts should have plenty of ______. c. Flowcharts should have a ______. d. Flowcharts should be organized in columns that depict ______. e. Documents involved in a business process should have a clear ___ and a clear ___.

a. Left; right b. White space c. Title d. Areas of responsibility e. Origin; termination

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-02 Explain the basic parts of and design considerations common to all types of flowcharts. Topic: Flowchart types and conventions

62.

Fill in the blanks in each statement below based on the flowchart design steps discussed in the chapter. a. Establish the ______. b. Determine ______. c. List ______ performed within each ______. d. Select appropriate ______. e. Prepare a ______. f. ______ the flowchart with others. g. ______ as needed.

a. System boundary b. Column headings c. Actions; column d. Symbols e. First draft f. Discuss g. Revise

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

63.

The chapter discussed four types of flowcharts. Which one would be most appropriately used in each of the following independent situations? a. Demonstrating how to create a procedures manual b. Explaining what happens in a financial statement audit c. Illustrating the steps in the accounting cycle d. Showing the relationship between computers and printers within an office building e. Tracing the path of a check from the time it is written until it is paid by the bank f. Writing computer code that will generate general purpose financial statements

a. Systems b. Systems c. Systems d. Hardware e. Document f. Program

64.

Flowcharts can impact the design, implementation and evaluation of an accounting information system. Determine whether each statement below is: (i) always true, (ii) sometimes true or (iii) never true. a. Accounting information systems have five generic elements; a flowchart can be an example of at least one of the elements. b. All aspects of an AIS should always be represented in a single flowchart of no more than three pages. c. Flowcharts are required if a company wants to use the COSO internal control framework. d. Flowcharts are useful to auditors. e. Flowcharts can be used as part of a business process management project for an AIS.

a. Always true b. Never true c. Never true d. Sometimes true e. Sometimes true

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-04 Discuss ways flowcharts impact the design, implementation, and evaluation of accounting information systems. Topic: Flowcharting and AIS

65.

1) A 2) G 3) G 4) B 5) H 6) C 7) I 8) E 9) J 10) A

66.

The chapter discussed four types of flowcharts; flowcharts can impact the design, implementation and evaluation of an accounting information system. Determine whether each statement below is: (i) always true, (ii) sometimes true or (iii) never true. a. A document flowchart should be used as part of developing an enterprise risk management plan based on the COSO framework. b. A hardware flowchart can be a guide in recommending technology-related internal controls. c. Because the "S" in AIS stands for "system," only systems flowcharts are useful in AIS work. d. Program flowcharts are never relevant in accounting information systems. e. Since most documents in an AIS are electronic, document flowcharts are rarely relevant in designing, implementing and evaluating accounting information systems.

a. Sometimes true b. Sometimes true c. Never true d. Never true e. Never true

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-01 List and discuss the purpose and use of systems flowcharts, document flowcharts, program flowcharts, and hardware flowcharts. Topic: Flowchart types and conventions

67.

Analyze the flowchart below and the statements which follow. Determine which statements are true based on the flowchart.

True statements are: D, E, J, H

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

68.

Please refer to the following flowchart as you respond to the next problem:

According to ANSI, flowchart symbols can be divided into four main groups. Analyze the symbols in the flowchart above; sort them into the four groups.

Data symbols: Order. Process symbols: Place order, cash or credit?, evaluate credit,

approved?, deliver goods. Special symbols: Start, end. Line symbols: all lines.

69.

Prepare a systems flowchart based on the following case: The Celebration Theatre is a small, independent theatre that puts on 12 plays per year. 30 days before the start of each calendar quarter, Celebration prepares advertising for the productions in the upcoming quarter. They advertise on their web site, via e-mail to their season subscribers and via direct mail and brochures to others. Patrons can buy tickets for a single play; alternatively, they can subscribe to all three plays each quarter. Quarterly subscriptions offer a 25% discount from the prices of single tickets. Patrons may purchase tickets over the phone, at the box office or via the theatre's web site. All tickets are held at the box office where they can be picked up as early as one week prior to the performance. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. If tickets are purchased in person at the box office, non-subscribers may pay with cash or a major credit card; subscribers can pay with cash, major credit card or check. All tickets purchased over the phone or via the web site must be paid for with a major credit card. Celebration maintains an electronic database to track all ticket sales; paper tickets are printed at least ten days prior to a performance.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

70.

Explain, in no more than ten sentences, the process depicted in the following flowchart:

A customer manually places an order with an employee. The employee determines if the sale will be for cash or on credit. If on credit, the employee evaluates the customer's credit; if approved, the employee delivers the goods. If credit is not approved, the process ends. If the sale is for cash, the employee delivers the goods and the process ends.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

Short Answer Questions

71.

List the six design principles associated with flowcharting discussed in the text.

1. Flowcharts should be read from top to bottom and left to right. 2. Flowcharts should have plenty of white space. 3. Flowcharts should have a title. 4. Flowcharts should be organized in columns that depict areas of responsibility. 5. Documents should have a clear origin and a clear termination. 6. Rough drafts of flowcharts should be discussed by people involved in the process.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

72.

Consider the process you use to register for courses and pay your fees each term. Referring to the previously presented set of flowcharting symbols labeled Symbol A through Symbol J., give one specific example of Symbols A, B, F, G, H, and I within the context of that process.

A—student check B—class full F—see advisor G—write check H—registration database I—register for classes

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Topic: Flowchart symbols

73.

The chapter suggested a seven-step process for creating a systems flowchart. Consider how you register for courses and pay your fees each term; complete the first four steps (and only the first four steps) of the seven-step process within that context.

1. Establish the system boundary. The system boundary includes only the student. 2. Determine column headings. Student. 3. List actions performed. Choose classes. Register for classes. Pay fees. 4. Select appropriate symbols. All three actions could use a generic process symbol. "Pay fees" would also need a document. And, "register for classes" would incorporate a database symbol.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 3 Hard Learning Objective: 06-05 Create and interpret systems flowcharts. Topic: Flowchart design steps

74.

The chapter discussed four kinds of flowcharts. Differentiate them based on their purpose, use and relationship to accounting information systems.

Systems flowcharts are often used in AIS. They give a high-level, comprehensive overview of a system. Document flowcharts are sometimes used in AIS. They trace the flow of documents, such as a tax return, SEC filing or customer check. Hardware flowcharts are sometimes used in AIS. They show relationships between a system's hardware elements, such as servers, printers, monitors and mobile devices. Program flowcharts are rarely used in AIS. They provide instructions to a computer for carrying out a particular task.

75.

The systems development life cycle comprises seven steps: initiation/planning, requirements analysis, design, build, test, implementation, and operations and maintenance. In which phases of the SDLC would a systems flowchart be useful? Justify your response.

A systems flowchart would be useful in many steps of the SDLC. They could be used to lay out the steps involved in any phase, or for the process overall. For example, during "requirements analysis," a systems flowchart might depict how requirements data would be collected, analyzed and stored.

AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 06-04 Discuss ways flowcharts impact the design, implementation, and evaluation of accounting information systems. Topic: Flowcharting and AIS

Chapter 07 Data Flow Diagramming

Multiple Choice Questions

1. A circle in a data flow diagram represents:

A. A data flow B. An external entity C. A database D. A business process

2. A line in a data flow diagram represents:

A. A data flow B. An external entity C. A database D. A business process

3. Which of the following is most likely to be represented with a set of parallel lines in a data flow diagram?

A. Sell product to customers B. Customer file C. Sold products D. Any of these

4. Which of the following is most likely to be represented with a rectangle in a data flow diagram?

A. Customer file B. Bank C. Deposited checks D. Any of these

5. Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. In a data flow diagram of the case, "create initial sketch" is most likely to be represented with a:

A. Rectangle B. Numbered circle C. Unnumbered circle D. Some other symbol

6. Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. In a data flow diagram of the case, "previously completed works" are most likely to be represented with a:

A. Rectangle B. Set of parallel lines C. Numbered circle D. Unnumbered circle

7. Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. Which of the following pairs an element from the case with an appropriate symbol in a data flow diagram of the case?

A. Price quote, parallel lines B. Initial sketch, rectangle C. Select appropriate materials, circle D. Painter, rectangle

8. Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. Data flow diagrams incorporate four symbols. Which of the following pairs of items would be represented with the same symbol in a DFD of the case?

A. Painter, customer B. Initial sketch, price quote C. Customer, initial sketch D. Painter, price quote

9. Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. A data flow diagram of the case includes two circles connected by a line. The three symbols are most likely to be labeled with which of the following?

A. Develop price quote, price quote, create original work B. Create original work, original work, completed works database C. Either develop price quote, price quote, create original work or create original work, original work, completed works database D. Neither develop price quote, price quote, create original work nor create original work, original work, completed works database

10. Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. A data flow diagram of the case contains three items: create initial sketch, initial sketch, finalize sketch. How are those three items likely to be represented in the data flow diagram?

A. A circle and a set of parallel lines connected by a line B. Two circles with a set of parallel lines C. Some other way D. A circle and a rectangle connected by a line

11. Which of the following statements about systems flowcharts and data flow diagrams is most true?

A. Lines are used in both, but they represent different things. B. Circles are used in both, but they represent different things. C. Both lines are used in both, but they represent different things and circles are used in both, but they represent different things are true. D. Neither lines are used in both, but they represent different things nor circles are used in both, but they represent different things is true.

12. Which of the following statements about systems flowcharts and data flow diagrams is most true?

A. Processes are numbered in a flowchart, but not in a data flow diagram. B. Processes are numbered in a data flow diagram, but not in a flowchart. C. Processes are numbered in both flowcharts and data flow diagrams. D. Processes are unnumbered in both flowcharts and data flow diagrams.

13. Pablo had been asked by his supervisor to create a document explaining the process of paying an invoice. Based on research results reported by Bradford et al.:

A. he is more likely to create a flowchart than a data flow diagram. B. he is more likely to create a data flow diagram than a flowchart. C. he is highly likely to use some form of information technology to complete the task. D. he is highly unlikely to use some form of information technology to complete the task.

14. Pablo had been asked by his supervisor to create a document explaining the process of paying an invoice. If he wants to create a diagram that focuses on data, he could create:

A. A systems flowchart B. A data flow diagram C. Either a systems flowchart or a data flow diagram D. Some other representation of the system

15. A circle in a data flow diagram may be labeled similarly to which shape in a systems flowchart?

A. A rectangle B. An inverted triangle C. A circle D. Any of these

16. A line in a data flow diagram may be labeled similarly to which shape in a systems flowchart?

A. A line B. A circle C. A document symbol D. A cylinder

17. A systems flowchart contains two process symbols, one manual process symbol and one predefined process symbol. If that same system were depicted with a leveled set of data flow diagrams, how many circles would the context diagram have?

A. One B. Two C. Three D. Four

18. Which of the following statements about systems flowcharts and data flow diagrams is most true?

A. If a systems flowchart has three columns, the leveled set of data flow diagrams should have at least four levels. B. If one column of a systems flowchart has three process symbols, the leveled set of data flow diagrams should have a maximum of six process symbols. C. Both if a systems flowchart has three columns, the leveled set of data flow diagrams should have at least four levels and if one column of a systems flowchart has three process symbols, the leveled set of data flow diagrams should have a maximum of six process symbols are true. D. Neither if a systems flowchart has three columns, the leveled set of data flow diagrams should have at least four levels nor if one column of a systems flowchart has three process symbols, the leveled set of data flow diagrams should have a maximum of six process symbols is true.

19. Refer to the illustrations below as you answer the question:

If the partial flowchart were converted to a data flow diagram, which of the following would most closely represent it?

A. Diagram A B. Diagram B C. Diagram C D. Diagram D

20. Refer to the illustrations below as you answer the question:

Suppose the partial flowchart was converted to one of the data flow diagrams illustrated. Which of the following statements is most true?

A. The partial flowchart should be converted to Diagram B; the circles would be labeled "create invoice" and "update customer database." B. The partial flowchart should be converted to Diagram C; the circle would be labeled "create invoice." C. The partial flowchart should be converted to Diagram D; the rectangle would represent the customer database. D. None of these statements is true.

21. A data flow diagram can be used:

A. Instead of a systems flowchart in AIS work. B. In addition to a systems flowchart in AIS work. C. Both instead of a systems flowchart in AIS work and in addition to a systems flowchart in AIS work. D. Neither instead of a systems flowchart in AIS work nor in addition to a systems flowchart in AIS work.

22. If an accounting information system is documented with a systems flowchart:

A. It does not need to be documented with a data flow diagram. B. It cannot be documented with a data flow diagram. C. It may also be documented with a data flow diagram. D. A data flow diagram would serve no practical purpose.

23. Accounting information systems have five generic elements. A data flow diagram would be least helpful for which of the five?

A. Processes B. Outputs C. Storage D. Internal control

24. Data flow diagrams can be used for: (i) completing the steps in the accounting cycle, (ii) making business processes more efficient and effective, (iii) completing one or more steps of the systems development life cycle.

A. I and II only B. I and III only C. II and III only D. I, II and III

25. Data flow diagrams can be used in which of the following steps of the systems development life cycle: (i) requirements analysis, (ii) design, (iii) implementation.

A. I and II only B. I and III only C. II and III only D. I, II and III

26. The generalized model of business process management discussed in the text comprises seven steps. Data flow diagrams could be used in a BPM project to: (i) select the process and define its boundaries, (ii) observe, document and map the process steps and flow, (iii) optimize the process.

A. I and II only B. I and III only C. II and III only D. I, II and III

27. Please refer to the data flow diagram below in answering the question:

The preceding data flow diagram is:

A. A context diagram of the accounting cycle. B. A Level Zero diagram of the accounting cycle. C. A Level Zero diagram of the transaction analysis process. D. A Level One diagram of the transaction analysis process.

28. Please refer to the data flow diagram below in answering the question:

Which of the following statements about the data flow diagram is most true?

A. "External stakeholders" will be decomposed in subsequent levels. B. "Ledger" must be maintained electronically. C. Process 3.0 will be decomposed in subsequent levels. D. All of these statements are true.

29. Please refer to the data flow diagram below in answering the question:

In the next level of data flow diagrams, Process 3.1 is most likely to be labeled:

A. Record adjusting entries. B. Prepare financial statements. C. Close nominal accounts. D. Complete first step of year-end work.

30. Please refer to the data flow diagram below in answering the question:

In the next level of data flow diagrams:

A. Process 1.0 could be decomposed into two steps. B. Process 3.0 can only be decomposed if both the other processes are. C. Additional data stores are likely to appear. D. The data flows "financial statements" and "account balances" can be combined.

31. Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. Which of the following data flow diagram levels provides the highest level view of the CWM information system?

A. Context B. Level Zero C. Level One D. Some other level

32. Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. How many processes will be shown in a context diagram for the CWM case?

A. Zero B. One C. Two D. More than two

33. Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. CWM stores clients' information electronically. The database file would be represented in a data flow diagram with a(n):

A. Circle B. Arrow C. Rectangle D. Set of parallel lines

34. Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. CWM's manual billing process will be represented in a data flow diagram with a(n):

A. Circle B. Arrow C. Rectangle D. Set of parallel lines

35. Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. Assume CWM wants no more than three processes shown on its Level Zero data flow diagram. All of the following are likely to be processes except:

A. Perform intake interview B. Bill client and collect payment C. Establish online account D. Update client database

36. Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. How many data stores will be shown in CWM's Level Zero data flow diagram?

A. Zero, since all the information is stored electronically B. One, labeled "client database" C. Two, labeled "client database" and "invoice database" D. More than two

37. Refer to the Level Zero data flow diagram below and the CWM case in responding to the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it.

Which of the following is most likely to be the name of Process 1.0?

A. Perform intake interview B. Give client service information C. Create online account D. None of these is likely to be the name of Process 1.0.

38. Refer to the Level Zero data flow diagram below and the CWM case in responding to the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it.

Based on the Level Zero data flow diagram, which of the following statements about the context diagram is most true?

A. The client database will not be shown in the context diagram. B. The external entity "client" must have at least three data flows coming out of it. C. The external entity "client" must have at least one data flow going into it. D. All of these statements are true.

39. Refer to the Level Zero data flow diagram below and the CWM case in responding to the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it.

Which of the following statements about the Level Zero data flow diagram is most true?

A. Process 1.0 is likely to be labeled "Perform intake interview." B. Process 2.0 is likely to be labeled "Bill client and collect payment." C. Both process 1.0 is likely to be labeled "Perform intake interview" and process 2.0 is likely to be labeled "Bill client and collect payment" are true. D. Neither process 1.0 is likely to be labeled "Perform intake interview" nor process 2.0 is likely to be labeled "Bill client and collect payment" is true.

40. Refer to the Level Zero data flow diagram below and the CWM case in responding to the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it.

Which of the following statements about the Level Zero data flow diagram is most true?

A. Process 2.0 is likely to be labeled "Bill client and collect payment." B. Process 3.0 is likely to be labeled "Establish online account and update data store." C. Both process 2.0 is likely to be labeled "Bill client and collect payment" and process 3.0 is likely to be labeled "Establish online account and update data store" are true. D. Neither process 2.0 is likely to be labeled "Bill client and collect payment" nor process 3.0 is likely to be labeled "Establish online account and update data store" is true.

41. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Which table(s) should be in third normal form?

A. The client table only B. The books table only C. Both the client table and the books table D. Neither the client table nor the books table

42. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Any database tables that are in third normal form should:

A. Eliminate repeating groups. B. Eliminate redundant data. C. Eliminate columns not dependent on the primary key. D. All of these.

43. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. The database is likely to contain all of the following tables except:

A. Clients B. Sales C. Inventory D. Bookstore

44. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Which of the following junction tables is likely to be included in the database?

A. Clients/inventory B. Clients/sales C. Inventory/sales D. All of these.

45. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. If the database includes a "sales" table, its primary key is most likely to be:

A. Transaction date B. Client name C. Transaction number D. Total revenue earned

46. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. If the database includes a sales/inventory junction table, its primary key is most likely to be:

A. The same as the primary key of the sales table. B. The same as the primary key of the inventory table. C. A compound primary key. D. None of these

47. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Suppose the database includes four tables: clients, inventory, sales and sales/inventory. In which table would you expect to see a field titled "total amount billed?"

A. Clients table B. Sales table C. Sales/inventory table D. None of these

48. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Suppose the database includes four tables: clients, inventory, sales and sales/inventory. In which table(s) would you expect to see a field labeled "client ID?"

A. Clients table only B. Sales table only C. Both clients table only and sales table only D. Neither clients table only nor sales table only

49. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Suppose the database includes four tables; in which table would you expect to find a field titled "quantity sold?"

A. Transactions table B. Inventory table C. Sales table D. Sales/inventory table

50. Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Suppose the database includes a sales/inventory table. You would expect to find all of the following fields in that table except:

A. Sales transaction number B. Inventory item number C. Quantity purchased D. Total amount billed

51. Consider the following illustration as you respond to the questions:

The illustration would best be described as:

A. a pair of systems flowcharts B. a leveled set of data flow diagrams C. a comprehensive set of data flow diagrams D. two pages of a systems flowchart

52. Consider the following illustration as you respond to the questions:

"Diagram X" is:

A. A context flowchart B. A context diagram C. A Level Zero diagram D. A database diagram

53. "Diagram Y" is:

A. a decomposition of Diagram X B. balanced with Diagram X C. both a decomposition of Diagram X and balanced with Diagram X D. neither a decomposition of Diagram X nor balanced with Diagram X

54. Consider the following illustration as you respond to the questions:

The most appropriate label for Symbol A is:

A. Submit application materials B. Receive application materials C. Application materials D. Resume and references

55. Consider the following illustration as you respond to the questions:

The most appropriate label for Symbol B is:

A. Send rejection letter B. Rejection letter C. New employee materials D. Some other label

56. Consider the following illustration as you respond to the questions:

The most appropriate label for Symbol C is:

A. qualified applicants data B. interviewee data C. rejection letter D. Symbol C should not be labeled.

57. Consider the following illustration as you respond to the questions:

Which of the following is the most appropriate symbol for "qualified applicants database?"

A. circle B. set of parallel lines C. database cylinder D. rectangle

58. Consider the following illustration as you respond to the questions:

A relational database of the process depicted would include all of the following tables except:

A. applicant B. perform initial screening C. applicant/rejection letter D. interview applicant

59. Consider the following illustration as you respond to the questions:

A relational database of the process depicted would include the "perform initial screening" table. Which of the following statements about that table is most true?

A. It must have "applicant ID" as its primary key. B. It will not be in third normal form if it includes "applicant ID" as a field. C. It may include the same date in more than one record. D. Including the same date in more than one record violates the principles of second normal form.

60. Consider the following illustration as you respond to the questions:

Suppose a decision maker wanted to determine how many applicants submitted their materials within a specified one-week time frame. Which database objects would the decision maker use?

A. a table and a query B. a query and a process C. a data flow and a table D. some other combination

61. Consider the following illustration as you respond to the questions:

Is Diagram X balanced with Diagram Y?

A. No, because X includes only one process while Y includes two. B. No, because Y includes more data flows than X. C. Yes, because the one process in X has been properly decomposed in Y. D. Yes, because the data flows into and out of the external entity are the same.

Check All That Apply Questions

62. For which of the following tasks would a data flow diagram be appropriately used in AIS work?

____ To accompany systems flowcharts as an aid in understanding an AIS ____ To assist in the creation of normalized database tables ____ To break down a process into its component parts ____ To designate the format of data stores (paper or electronic) ____ To help users understand information flows in an AIS ____ To identify needed databases ____ To make journal entries in the AIS ____ To represent an AIS on a single sheet of paper ____ To show which data crosses the system boundary ____ To specify clearly who is responsible for a business process

Essay Questions

63. Fill in the blanks below based on the rules/conventions associated with data flow diagrams presented in the text. a. A data store has a ___ phrase label. b. A process has a ___ phrase label. c. No process can have only ___. If an object has only ___, it must be a data store. d. No process can have only ___. If an object has only ___, then it must be an external entity. e. The ___ to a process should differ from the outputs of a process.

64. Suppose a leveled set of data flow diagrams incorporates the levels indicated below. Specify how processes would be numbered at each level.

65. Specify the data flow diagram symbol that would be used to represent each item in the list below. a. Bank b. Check c. Disburse cash d. Inventory master file e. Purchase/inventory file f. Purchase inventory g. Purchase order h. Vendor i. Vendor file j. Vendor invoice

66. Consider the partial data flow diagrams shown below. Match each one with the item it most likely represents.

1. Access employee records 2. Add comments about vendor 3. Deliver goods and bill client 4. Interview applicant 5. Look up payroll information 6. Post transactions to ledger 7. Reconcile bank statement and record related journal entries 8. Review vendor quality information 9. Take customer order 10. Update employee records

67. Bumble Beasley wanted to create three database tables for the information items shown below: supplies table, purchases table and purchases/supplies table. Apply the principles of normalization to show how he should organize them. Specify primary keys by underlining and foreign keys with bracket "As of" date for beginning inventory Beginning quantity on hand Cost per unit purchased Cost per unit—beginning inventory Item description—office supplies Office supplies item number Purchase date Quantity purchased Transaction number Vendor ID

68. Several items that might appear in a systems flowchart and/or a data flow diagram are listed below. For each item, draw the symbol you would use to represent it in both forms of systems documentation. If no appropriate symbol exists, use an "X." a. Customer check b. Electronic sales transaction file c. End of a process d. Evaluate credit application e. First National Bank f. Grant credit? g. Inventory master file (digital) h. Paper file of payroll documents i. Sales invoice j. Start of a process

69. Determine which of the following statements are: (a) true for systems flowcharts only, (b) true for data flow diagrams only, (c) true for both or (d) true for neither. 1) Can be prepared using information technology tools 2) Clearly specifies responsibility for business processes 3) Commonly thought of as the one best way to represent an AIS 4) Incorporates verb phrases to label processes 5) Labels data flows between processes 6) May span multiple pages 7) Processes can be represented with different types of symbols 8) Represents processes with a single symbol type 9) Should be uncluttered and easy to read 10) Uses a symbol to represent a database

70. Consider the following case as you respond to the next problem: The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Threeplay passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Single-play purchases must be paid for in cash; season passes can be paid for with cash or major credit card. The Festival Theatre deposits all its cash receipts in the bank daily. Create a Level Zero data flow diagram for the process described in the case.

71. Consider the following case as you respond to the next problem: The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Threeplay passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Single-play purchases must be paid for in cash; season passes can be paid for with cash or major credit card. The Festival Theatre deposits all its cash receipts in the bank daily. Generate field names for the patron table, sales table and the sales/play table.

Short Answer Questions

72. List and discuss two ways data flow diagrams are used in accounting information systems work.

73. Data flow diagrams incorporate four symbols. List the symbols; for each one, give two examples of how it might be used in a DFD.

74. The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Threeplay passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Data flow diagrams incorporate four types of symbols. Give one example of each symbol you would expect to find in a Level Zero data flow diagram of the preceding process. (You do not need to create the actual DFD.)

75. Both systems flowcharts and data flow diagrams can be used to document accounting information systems. Explain two similarities of and two differences between the methods.

76. The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Threeplay passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Create specifications (table names and field names) for three tables the theatre would need to track ticket sales; if a junction table is indicated, you must include its specifications as one of the three.

Chapter 07 Data Flow Diagramming Answer Key

Multiple Choice Questions

A circle in a data flow diagram represents:

A. A data flow B. An external entity C. A database D. A business process

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Explain the symbols and design considerations associated with DFDs. Topic: DFD symbols and design considerations

A line in a data flow diagram represents:

A. A data flow B. An external entity C. A database D. A business process

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 07-01 Explain the symbols and design considerations associated with DFDs. Topic: DFD symbols and design considerations

Which of the following is most likely to be represented with a set of parallel lines in a data flow diagram?

A. Sell product to customers B. Customer file C. Sold products D. Any of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-01 Explain the symbols and design considerations associated with DFDs. Topic: DFD symbols and design considerations

Which of the following is most likely to be represented with a rectangle in a data flow diagram?

A. Customer file B. Bank C. Deposited checks D. Any of these

Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. In a data flow diagram of the case, "create initial sketch" is most likely to be represented with a:

A. Rectangle B. Numbered circle C. Unnumbered circle D. Some other symbol

Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. In a data flow diagram of the case, "previously completed works" are most likely to be represented with a:

A. Rectangle B. Set of parallel lines C. Numbered circle D. Unnumbered circle

Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. Which of the following pairs an element from the case with an appropriate symbol in a data flow diagram of the case?

A. Price quote, parallel lines B. Initial sketch, rectangle C. Select appropriate materials, circle D. Painter, rectangle

Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. Data flow diagrams incorporate four symbols. Which of the following pairs of items would be represented with the same symbol in a DFD of the case?

A. Painter, customer B. Initial sketch, price quote C. Customer, initial sketch D. Painter, price quote

Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. A data flow diagram of the case includes two circles connected by a line. The three symbols are most likely to be labeled with which of the following?

10.

Please refer to the following short case as you respond to the question: A painter accepts orders for original works from customers in person or via the Internet. Based on the order, the painter creates an initial sketch, which must be approved by the customer; the customer may make changes to the initial sketch. After customer approval, the painter selects appropriate materials and gives the customer a price quote. If the customer accepts the price quote, the painter creates the original work; if not, the project is abandoned. The painter stores data about customers, previous orders and previously completed works in an electronic database. A data flow diagram of the case contains three items: create initial sketch, initial sketch, finalize sketch. How are those three items likely to be represented in the data flow diagram?

A. A circle and a set of parallel lines connected by a line B. Two circles with a set of parallel lines C. Some other way D. A circle and a rectangle connected by a line two circles connected by a line

11.

Which of the following statements about systems flowcharts and data flow diagrams is most true?

12.

Which of the following statements about systems flowcharts and data flow diagrams is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-02 Compare and contrast flowcharts and DFDs with regard to purpose, content, structure, and use in accounting information systems. Topic: Data flow diagrams and flowcharts 7-69 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

13.

Pablo had been asked by his supervisor to create a document explaining the process of paying an invoice. Based on research results reported by Bradford et al.:

14.

Pablo had been asked by his supervisor to create a document explaining the process of paying an invoice. If he wants to create a diagram that focuses on data, he could create:

A. A systems flowchart B. A data flow diagram C. Either a systems flowchart or a data flow diagram D. Some other representation of the system

15.

A circle in a data flow diagram may be labeled similarly to which shape in a systems flowchart?

A. A rectangle B. An inverted triangle C. A circle D. Any of these

16.

A line in a data flow diagram may be labeled similarly to which shape in a systems flowchart?

A. A line B. A circle C. A document symbol D. A cylinder

17.

A systems flowchart contains two process symbols, one manual process symbol and one predefined process symbol. If that same system were depicted with a leveled set of data flow diagrams, how many circles would the context diagram have?

A. One B. Two C. Three D. Four

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

18.

Which of the following statements about systems flowcharts and data flow diagrams is most true?

19.

Refer to the illustrations below as you answer the question:

If the partial flowchart were converted to a data flow diagram, which of the following would most closely represent it?

A. Diagram A B. Diagram B C. Diagram C D. Diagram D

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-02 Compare and contrast flowcharts and DFDs with regard to purpose, content, structure, and use

in accounting information systems. Topic: Data flow diagrams and flowcharts

20.

Refer to the illustrations below as you answer the question:

Suppose the partial flowchart was converted to one of the data flow diagrams illustrated. Which of the following statements is most true?

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-02 Compare and contrast flowcharts and DFDs with regard to purpose, content, structure, and use in accounting information systems. Topic: Data flow diagrams and flowcharts

21.

A data flow diagram can be used:

22.

If an accounting information system is documented with a systems flowchart:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Data flow diagrams and flowcharts

23.

Accounting information systems have five generic elements. A data flow diagram would be least helpful for which of the five?

A. Processes B. Outputs C. Storage D. Internal control

24.

Data flow diagrams can be used for: (i) completing the steps in the accounting cycle, (ii) making business processes more efficient and effective, (iii) completing one or more steps of the systems development life cycle.

A. I and II only B. I and III only C. II and III only D. I, II and III

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. 7-78 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Leveled sets of DFDs

25.

Data flow diagrams can be used in which of the following steps of the systems development life cycle: (i) requirements analysis, (ii) design, (iii) implementation.

A. I and II only B. I and III only C. II and III only D. I, II and III

26.

The generalized model of business process management discussed in the text comprises seven steps. Data flow diagrams could be used in a BPM project to: (i) select the process and define its boundaries, (ii) observe, document and map the process steps and flow, (iii) optimize the process.

A. I and II only B. I and III only C. II and III only D. I, II and III

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Leveled sets of DFDs 7-79 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

27.

Please refer to the data flow diagram below in answering the question:

The preceding data flow diagram is:

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

28.

Please refer to the data flow diagram below in answering the question:

Which of the following statements about the data flow diagram is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Leveled sets of DFDs

29.

Please refer to the data flow diagram below in answering the question:

In the next level of data flow diagrams, Process 3.1 is most likely to be labeled:

A. Record adjusting entries. B. Prepare financial statements. C. Close nominal accounts. D. Complete first step of year-end work.

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Leveled sets of DFDs

30.

Please refer to the data flow diagram below in answering the question:

In the next level of data flow diagrams:

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Leveled sets of DFDs

31.

Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. Which of the following data flow diagram levels provides the highest level view of the CWM information system?

A. Context B. Level Zero C. Level One D. Some other level

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation 7-87 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

32.

Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. How many processes will be shown in a context diagram for the CWM case?

A. Zero B. One C. Two D. More than two

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

33.

Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. CWM stores clients' information electronically. The database file would be represented in a data flow diagram with a(n):

A. Circle B. Arrow C. Rectangle D. Set of parallel lines

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand 7-89 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

34.

Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. CWM's manual billing process will be represented in a data flow diagram with a(n):

A. Circle B. Arrow C. Rectangle D. Set of parallel lines

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium

Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

35.

Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. Assume CWM wants no more than three processes shown on its Level Zero data flow diagram. All of the following are likely to be processes except:

A. Perform intake interview B. Bill client and collect payment C. Establish online account D. Update client database

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 7-91 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

36.

Please refer to the following case as you answer the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it. How many data stores will be shown in CWM's Level Zero data flow diagram?

A. Zero, since all the information is stored electronically B. One, labeled "client database" C. Two, labeled "client database" and "invoice database" D. More than two

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs.

Topic: Leveled sets of DFDs

37.

Refer to the Level Zero data flow diagram below and the CWM case in responding to the question: Comprehensive Waste Management (CWM) provides trash hauling services for several communities in southern California. When a new client wants to establish service, the client calls the company's main office on the phone. A CWM employee collects the following information from the client: name, street address, city, state, ZIP code, area code, telephone number, e-mail address. The employee gives the new client information regarding regular weekly service dates, special services provided by the company, fees and billing procedures. CWM bills its clients every two months in advance of the service; for example, bills are sent to clients at the beginning of January for the months of January and February. Initially, CWM does all its billing manually; they send out paper bills and collect payment from clients via check. Once service is established, a client can create an online account; the online account provides an option for paperless billing and a separate option for charging a credit card rather than paying with a mailed check. To create an online account, the client creates login credentials (user name and password); they provide their CWM account number (provided on the invoice) and relevant credit card data (type of card, name, billing address, and security code). CWM's database uses the account number to look up the client's original information, then merges the new information with it.

Which of the following is most likely to be the name of Process 1.0?

A. Perform intake interview B. Give client service information C. Create online account D. None of these is likely to be the name of Process 1.0.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

38.

Based on the Level Zero data flow diagram, which of the following statements about the context diagram is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

39.

Which of the following statements about the Level Zero data flow diagram is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

40.

Which of the following statements about the Level Zero data flow diagram is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

41.

Booksellers of Bufluffia is a small, independent bookstore that both publishes and sells very specialized titles. They currently have about 50 clients; they publish and sell 30 different books at present. The company's management has asked you to create database tables to support their operations. Which table(s) should be in third normal form?

A. The client table only B. The books table only C. Both the client table and the books table D. Neither the client table nor the books table

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

42.

A. Eliminate repeating groups. B. Eliminate redundant data. C. Eliminate columns not dependent on the primary key. D. All of these.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember 7-103 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 1 Easy Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

43.

A. Clients B. Sales C. Inventory D. Bookstore

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

44.

A. Clients/inventory B. Clients/sales C. Inventory/sales D. All of these.

45.

A. Transaction date B. Client name C. Transaction number D. Total revenue earned

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand 7-105 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

46.

A. The same as the primary key of the sales table. B. The same as the primary key of the inventory table. C. A compound primary key. D. None of these

47.

A. Clients table B. Sales table C. Sales/inventory table D. None of these

48.

A. Clients table only B. Sales table only C. Both clients table only and sales table only D. Neither clients table only nor sales table only

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

49.

A. Transactions table B. Inventory table C. Sales table D. Sales/inventory table

50.

A. Sales transaction number B. Inventory item number C. Quantity purchased D. Total amount billed

51.

Consider the following illustration as you respond to the questions:

The illustration would best be described as:

A. a pair of systems flowcharts B. a leveled set of data flow diagrams C. a comprehensive set of data flow diagrams D. two pages of a systems flowchart

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

52.

Consider the following illustration as you respond to the questions:

"Diagram X" is:

A. A context flowchart B. A context diagram C. A Level Zero diagram D. A database diagram

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

53.

"Diagram Y" is:

A. a decomposition of Diagram X B. balanced with Diagram X C. both a decomposition of Diagram X and balanced with Diagram X D. neither a decomposition of Diagram X nor balanced with Diagram X

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

54.

Consider the following illustration as you respond to the questions:

The most appropriate label for Symbol A is:

A. Submit application materials B. Receive application materials C. Application materials D. Resume and references

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

55.

Consider the following illustration as you respond to the questions:

The most appropriate label for Symbol B is:

A. Send rejection letter B. Rejection letter C. New employee materials D. Some other label

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

56.

Consider the following illustration as you respond to the questions:

The most appropriate label for Symbol C is:

A. qualified applicants data B. interviewee data C. rejection letter D. Symbol C should not be labeled.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

57.

Consider the following illustration as you respond to the questions:

Which of the following is the most appropriate symbol for "qualified applicants database?"

A. circle B. set of parallel lines C. database cylinder D. rectangle

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

58.

Consider the following illustration as you respond to the questions:

A relational database of the process depicted would include all of the following tables except:

A. applicant B. perform initial screening C. applicant/rejection letter D. interview applicant

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

59.

Consider the following illustration as you respond to the questions:

A relational database of the process depicted would include the "perform initial screening" table. Which of the following statements about that table is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

60.

Consider the following illustration as you respond to the questions:

Suppose a decision maker wanted to determine how many applicants submitted their materials within a specified one-week time frame. Which database objects would the decision maker use?

A. a table and a query B. a query and a process C. a data flow and a table D. some other combination

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

61.

Consider the following illustration as you respond to the questions:

Is Diagram X balanced with Diagram Y?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

Check All That Apply Questions

62.

For which of the following tasks would a data flow diagram be appropriately used in AIS work?

To accompany systems flowcharts as an aid in understanding an AIS

To assist in the creation of normalized database tables

To break down a process into its component parts

To designate the format of data stores (paper or electronic)

To help users understand information flows in an AIS

To identify needed databases

To make journal entries in the AIS

To represent an AIS on a single sheet of paper

To show which data crosses the system boundary

To specify clearly who is responsible for a business process

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Data flow diagrams and flowcharts

Essay Questions

63.

Fill in the blanks below based on the rules/conventions associated with data flow diagrams presented in the text. a. A data store has a ___ phrase label. b. A process has a ___ phrase label. c. No process can have only ___. If an object has only ___, it must be a data store. d. No process can have only ___. If an object has only ___, then it must be an external entity. e. The ___ to a process should differ from the outputs of a process.

a. noun b. verb c. inputs; inputs d. outputs; outputs e. inputs

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-01 Explain the symbols and design considerations associated with DFDs. Topic: DFD symbols and design considerations

64.

Suppose a leveled set of data flow diagrams incorporates the levels indicated below. Specify how processes would be numbered at each level.

Context diagram: 0 Level Zero: 1.0, 2.0 Level One: 1.1, 1.2 Level Two: 1.1.1, 1.1.2

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

65.

Specify the data flow diagram symbol that would be used to represent each item in the list below. a. Bank b. Check c. Disburse cash d. Inventory master file e. Purchase/inventory file f. Purchase inventory g. Purchase order h. Vendor i. Vendor file j. Vendor invoice

a. rectangle b. arrow c. circle d. set of parallel lines e. set of parallel lines f. circle g. arrow h. rectangle i. set of parallel lines j. arrow

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-01 Explain the symbols and design considerations associated with DFDs. Topic: DFD symbols and design considerations

66.

Consider the partial data flow diagrams shown below. Match each one with the item it most likely represents.

1. D 2. C 3. B 4. A 5. D 6. C 7. B 8. D 9. A 10. C

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

67.

Bumble Beasley wanted to create three database tables for the information items shown below: supplies table, purchases table and purchases/supplies table. Apply the principles of normalization to show how he should organize them. Specify primary keys by underlining and foreign keys with bracket "As of" date for beginning inventory Beginning quantity on hand Cost per unit purchased Cost per unit—beginning inventory Item description—office supplies Office supplies item number Purchase date Quantity purchased Transaction number Vendor ID

Supplies table: Office supplies item number, item description—office supplies, beginning quantity on hand, cost per unit—beginning inventory, "as of" date for beginning inventory Purchases table: Transaction number, purchase date, vendor ID Purchases/supplies table: [Transaction number], [Office supplies item number], quantity purchased, cost per unit purchased

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-05 Design normalized database tables from a DFD. 7-126 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Database design

68.

Several items that might appear in a systems flowchart and/or a data flow diagram are listed below. For each item, draw the symbol you would use to represent it in both forms of systems documentation. If no appropriate symbol exists, use an "X." a. Customer check b. Electronic sales transaction file c. End of a process d. Evaluate credit application e. First National Bank f. Grant credit? g. Inventory master file (digital) h. Paper file of payroll documents i. Sales invoice j. Start of a process

In each of the following, the systems flowchart symbol is first, followed by the DFD symbol. a. document, arrow b. cylinder, set of parallel lines c. terminator, X d. rectangle, circle e. X, rectangle f. decision, X g. cylinder, set of parallel lines h. upside down triangle, set of parallel lines i. document, arrow j. terminator, X

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Data flow diagrams and flowcharts

69.

Determine which of the following statements are: (a) true for systems flowcharts only, (b) true for data flow diagrams only, (c) true for both or (d) true for neither. 1) Can be prepared using information technology tools 2) Clearly specifies responsibility for business processes 3) Commonly thought of as the one best way to represent an AIS 4) Incorporates verb phrases to label processes 5) Labels data flows between processes 6) May span multiple pages 7) Processes can be represented with different types of symbols 8) Represents processes with a single symbol type 9) Should be uncluttered and easy to read 10) Uses a symbol to represent a database

1) C 2) A 3) D 4) C 5) B 6) C 7) A 8) B 9) C 10) C

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-02 Compare and contrast flowcharts and DFDs with regard to purpose, content, structure, and use in accounting information systems. Topic: Data flow diagrams and flowcharts

70.

Consider the following case as you respond to the next problem: The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Three-play passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Single-play purchases must be paid for in cash; season passes can be paid for with cash or major credit card. The Festival Theatre deposits all its cash receipts in the bank daily. Create a Level Zero data flow diagram for the process described in the case.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

71.

Consider the following case as you respond to the next problem: The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Three-play passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Single-play purchases must be paid for in cash; season passes can be paid for with cash or major credit card. The Festival Theatre deposits all its cash receipts in the bank daily. Generate field names for the patron table, sales table and the sales/play table.

Patron table: Patron ID, Patron last name, Patron first name, Patron address, Patron city, Patron state, Patron ZIP code, Patron area code, Patron ZIP code, Patron phone number, Patron e-mail Sales table: Transaction ID, Transaction date, [Patron ID], [Employee ID] Sales/play table: [Transaction ID], [Play ID], Number of tickets, Price per ticket

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

Short Answer Questions

72.

List and discuss two ways data flow diagrams are used in accounting information systems work.

Data flow diagrams can be used in several ways in AIS work. Most commonly, they are used to understand, at a conceptual level, a business processes and the data flows it involves. DFDs can also be useful in designing relational databases to store information.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-03 Discuss ways DFDs are used in AIS work. Topic: Leveled sets of DFDs

73.

Data flow diagrams incorporate four symbols. List the symbols; for each one, give two examples of how it might be used in a DFD.

Circle (processes): buy inventory, pay employees Set of parallel lines (data store): employee database, vendor database Arrow (data flows): purchase order data, employee ID information Rectangle (external entity): vendor, bank

74.

The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Three-play passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Data flow diagrams incorporate four types of symbols. Give one example of each symbol you would expect to find in a Level Zero data flow diagram of the preceding process. (You do not need to create the actual DFD.)

Rectangle (external entity): patron Circle (process): Sell tickets Set of parallel lines (data store): patron database Arrow (data flow): order information

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-04 Construct a leveled set of DFDs. Topic: Leveled sets of DFDs

75.

Both systems flowcharts and data flow diagrams can be used to document accounting information systems. Explain two similarities of and two differences between the methods.

Similarities between flowcharts and DFDs include: (a) both use a finite set of symbols to depict relevant data and (b) both are (generally) read from top to bottom and left to right. Differences between the two include: (a) DFDs are prepared in leveled sets, while flowcharts are prepared in a single "level" and (b) Processes are numbered in a DFD, but not in a flowchart.

76.

The Festival Theatre produces twelve plays per year. Patrons can buy tickets for a single play; alternatively, they can purchase a season pass for either three plays or six plays. Three-play passes offer a 10% discount from the prices of single tickets; six-play passes, a 25% discount. Since most patrons live within 30 miles of the theatre, all ticket sales are done at the box office only. The theatre has an "open seating" plan, so patrons do not reserve a specific seat at any performance. Create specifications (table names and field names) for three tables the theatre would need to track ticket sales; if a junction table is indicated, you must include its specifications as one of the three.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 07-05 Design normalized database tables from a DFD. Topic: Database design

Chapter 08 REA Modeling

Multiple Choice Questions

1. View-driven accounting information systems have been criticized because they:

A. Focus on a very small, well-defined group of important business events. B. Often process data in batches. C. Both focus on a very small, well-defined group of important business events and often process data in batches D. Neither focus on a very small, well-defined group of important business events nor often process data in batches

2. Data in a view-driven accounting information system are:

A. Highly aggregated. B. Stored in a single place. C. Both highly aggregated and stored in a single place D. Neither highly aggregated nor stored in a single place

3. In view-driven accounting information systems, internal controls are often:

A. Protective. B. Expensive. C. Both protective and expensive. D. Neither protective nor expensive.

4. In contrast with view-driven AIS, event-driven accounting information systems focus on:

A. Business processes. B. Journal entries. C. Ledger accounts. D. All of these.

5. Data in a view-driven AIS are often stored in multiple places, such as:

A. Journals. B. Ledgers. C. Both journals and ledgers. D. Neither journals nor ledgers.

6. In a view-driven AIS, where you would expect to see stored data about product quality?

A. In the journal B. In the ledger C. Both in the journal and in the ledger D. Neither in the journal nor in the ledger

7. Which of the following pieces of data would you expect to find in an event-driven AIS, but not in a view-driven AIS?

A. Accounts to debit B. Accounts to credit C. Details about customer preferences for product color D. All of these

8. View-driven AIS are designed to support a particular way of looking at the data they contain. Which of the following is not a view commonly supported by a view-driven AIS?

A. Balance sheet B. Income statement C. Statement of shareholders' equity D. Budget variance report

9. A company wants to prepare a schedule of assets that separates current and long-term assets, as well as reports relevant dollar amounts. Which type of AIS could the company use to prepare such a schedule?

A. View-driven B. Event-driven C. Either view-driven or event-driven D. Neither view-driven nor event-driven

10. View-driven accounting information systems often foster the idea of stovepiping in organizations. Which of the following is an example of stovepiping?

A. All department heads meet to discuss company strategy. B. A sales representative quotes a price that is less than cost. C. Both all department heads meet to discuss company strategy and a sales representative quotes a price that is less than cost are examples of stovepiping. D. Neither all department heads meet to discuss company strategy nor a sales representative quotes a price that is less than cost is an example of stovepiping.

11. An accounting information system captures data that are eventually grouped by account, and then used to prepare general purpose financial statements. The system could be described as:

A. A view-driven AIS. B. An event-driven AIS. C. Either a view-driven AIS or an event-driven AIS. D. Neither a view-driven AIS nor an event-driven AIS.

12. Information technology controls, such as a password rotation policy, can be used in:

A. View-driven AIS. B. Event-driven AIS. C. Both view-driven AIS and event-driven AIS. D. Neither view-driven AIS nor event-driven AIS.

13. Which of the following statements about view- and event-driven AIS is most true?

A. The two are differentiated by the presence or absence of information technology. B. The two are differentiated by the use of paper or electronic documents. C. Both the two are differentiated by the presence or absence of information technology and the two are differentiated by the use of paper or electronic documents are true. D. Neither the two are differentiated by the presence or absence of information technology nor the two are differentiated by the use of paper or electronic documents is true.

14. View-driven AIS have been criticized because their data are often outdated. Which of the following journal entries for the purchase of inventory best illustrates that criticism?

A. Debit purchases, credit cash B. Debit inventory, credit cash C. Debit purchases, credit inventory D. Debit inventory, credit purchases

15. A journal entry in a view-driven AIS debits equipment for $10,000, credits cash for $2,000 and credits notes payable for $8,000. Which of the following pieces of data would you expect to see in an event-driven AIS but not in the view-driven AIS?

A. The transaction date B. The expected life of the equipment C. Both the transaction date and the expected life of the equipment D. Neither the transaction date nor the expected life of the equipment

16. The accounting cycle comprises ten steps. In which step would you expect to find a difference between view-driven and event-driven AIS?

A. Analyze transactions. B. Record adjusting entries. C. Both analyze transactions and record adjusting entries. D. Neither analyze transactions nor record adjusting entries.

17. Consider the following REA diagram as you respond to the question:

The box in the first column represents a(n):

A. Resource B. Event C. Internal agent D. External agent

18. Consider the following REA diagram as you respond to the question:

The box in the second column represents a(n):

A. Resource B. Event C. Internal agent D. External agent

19. Consider the following REA diagram as you respond to the question:

The boxes in the third column represent a(n):

A. Resource and internal agent B. Event and internal agent C. Internal agent and external agent D. Resource and external agent

20. Consider the following REA diagram as you respond to the question:

The numbers and symbols in parentheses in the model are called:

A. Cardinalities B. Database construction tools C. Internal controls D. Relationship descriptors

21. Consider the following REA diagram as you respond to the question:

How many agents are represented in the model?

A. One B. Two C. Three D. Four

22. Consider the following REA diagram as you respond to the question:

Which of the following is an internal agent in the model?

A. Vendor B. Purchasing agent C. Both vendor and purchasing agent D. Neither vendor nor purchasing agent

23. Consider the following REA diagram as you respond to the question:

Which of the following is an external agent in the model?

A. Vendor B. Purchasing agent C. Both vendor and purchasing agent D. Neither vendor nor purchasing agent

24. Consider the following REA diagram as you respond to the question:

Which of the following statements about the REA model is least true?

A. A purchase of supplies can occur with no purchasing agent involvement. B. A purchasing agent may be involved in no purchases of supplies. C. Exactly one purchasing agent must be involved in each purchase of supplies. D. Purchasing agents and vendors have no relationship outside the context of a "purchase supplies" transaction.

25. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. In a REA model of the case, how many boxes would you expect to see in the second column?

A. One B. Two C. Three or four D. More than four

26. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. In a REA model of the case, events would include:

A. Sign contract B. Assign employees C. Bill customer D. All of these

27. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. How many agents would be depicted in the rightmost column of a REA model of the case?

A. One B. Two C. Three D. None. Agents do not appear in the rightmost column of a REA model.

28. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. A REA model of the case would include ___ resources.

A. Zero B. One or two C. Three or four D. More than four

29. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. The smallest possible number of internal agents in the third column of a REA model of the case is:

A. One B. Two C. Three D. None. Internal agents do not appear in the third column of a REA model.

30. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. How many external agents would be depicted in the first column of a REA model of the case?

A. Zero B. One C. Two D. Three

31. Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. In a REA model of the case, the cardinalities between the "assign employees" event and the agent "employees" would be:

A. Assign employees (0,*) --- (1,1) Employees B. Assign employees (0,*) --- (1,*) Employees C. Assign employees (1,*) --- (1,*) Employees D. None of these

32. To answer the question, consider the following partial REA model in the context of the case: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time.

If Box A is labeled "assign employees," Box B could be labeled:

A. Management B. Consultants C. Complete engagement D. Any of these

33. To answer the question, consider the following partial REA model in the context of the case: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time.

If Box B is labeled "consultants," Box A could be labeled:

A. Assign employees B. Complete engagement C. Either assign employees or complete engagement D. Neither assign employees nor complete engagement

34. When the maximum cardinalities between two elements of a REA model are one and many:

A. Include the primary key from the "one side" in the table on the "many side." B. Include the primary key from the "many side" in the table on the "one side." C. Create a junction table. D. The REA model has errors.

35. When the maximum cardinalities between two elements of a REA model are many and many:

A. Create a junction table. B. Redesign the REA model to eliminate them. C. The REA model has errors. D. One of the elements must be a resource.

36. Enforcing ___ tells a database to update a junction table whenever separate tables are updated.

A. Internal control B. Referential integrity C. The accounting cycle D. Expectancy theory

37. Which of the following statements about database tables and REA models is most true?

A. Every box in a REA model requires the creation of exactly one table. B. Cardinalities help ensure that database tables are in third normal form. C. Both every box in a REA model requires the creation of exactly one table and cardinalities help ensure that database tables are in third normal form are true. D. Neither every box in a REA model requires the creation of exactly one table nor cardinalities help ensure that database tables are in third normal form is true.

38. Which of the following is likely to require at least one junction table if present in a REA model?

A. Purchasing goods from suppliers B. Sending an order to a supplier C. Both purchasing goods from suppliers and sending an order to a supplier D. Neither purchasing goods from suppliers nor sending an order to a supplier

39. A REA model includes "send order" as an event and "customer" as an agent. Which of the following is most true?

A. The primary key from the "send order" table should be included in the "customer" table. B. The primary key from the "customer" table should be included in the "send order" table. C. Both the primary key from the "send order" table should be included in the "customer" table and the primary key from the "customer" table should be included in the "send order" table D. Neither the primary key from the "send order" table should be included in the "customer" table nor the primary key from the "customer" table should be included in the "send order" table

40. Which of the following is most likely to be a primary key in an "employee" table?

A. Last name B. Employee ID number C. Both last name and employee ID number together D. Either last name or employee ID number separately

41. Based on the principles of normalization, an inventory table would include all of the following fields except:

A. Transaction number B. Item code C. Description D. Beginning quantity on hand

42. Consider the following REA model as you answer the question:

How many database tables will be required by the preceding REA model?

A. Four B. Five C. Six D. Some other number

43. Consider the following REA model as you answer the question:

How many junction tables will be required by the preceding REA model?

A. Two B. Three C. Four D. Some other number

44. Consider the following REA model as you answer the question:

Which of the following would be foreign keys in the "purchase inventory" table?

A. Supplier ID B. Employee ID C. Both supplier ID and employee ID D. Neither supplier ID nor employee ID

45. Consider the following REA model as you answer the question?

Which of the following tables is indicated by the preceding REA model:

A. Supplier/employee table B. Supplier/purchase inventory table C. Employee/purchase inventory table D. Inventory/purchase inventory table

46. Consider the following REA model as you answer the question:

Based on the preceding REA model, which of the following statements is most true?

A. The inventory table will not have a foreign key. B. The primary key from the "purchase inventory" table will appear in the supplier table. C. The primary key from the "purchase inventory" table will appear in the employee table. D. All of these statements are true.

47. Consider the following REA model as you answer the question:

A field labeled "transaction ID" is likely to appear in which of the following tables based on the REA model above?

A. Purchase inventory table B. Inventory/purchase inventory table C. Both purchase inventory table and inventory/purchase inventory table D. Neither purchase inventory table nor inventory/purchase inventory table

48. Consider the following REA model as you answer the question:

A field labeled "inventory ID" is likely to appear in which of the following tables? (i) inventory table, (ii) purchase inventory table, (iii) inventory/purchase inventory table.

A. I and II only B. I and III only C. II and III only D. I, II and III

49. Consider the following REA model as you answer the question:

The "employee" table is likely to include which of the following fields? (i) department, (ii) gender.

A. I only B. II only C. Both I and II D. Neither I nor II

50. Consider the following REA model as you answer the question:

The "employee" table is likely to include all of the following fields except:

A. Department B. Gender C. Last name D. Age

51. Consider the following diagram as you answer the questions:

The most appropriate label for "A" is:

A. applicant B. application materials C. submit application materials D. some other label

52. Consider the following diagram as you answer the questions:

The most appropriate label for "B" is:

A. perform initial screening B. record receipt of application materials C. either perform initial screening or record receipt of application materials D. some other label

53. Consider the following diagram as you answer the questions:

Every "Event B" is completed by exactly one employee, but an individual employee may complete no "Event B" transactions. If employees who do complete "Event B" transactions may do so without limit, which of the following is the most appropriate for "C?"

A. (0,1) B. (1,1) C. (0,*) D. (1,*)

54. Consider the following diagram as you answer the questions:

The most appropriate label for "D" is:

A. applicant B. application materials C. verify application materials D. some other label

55. Consider the following diagram as you answer the questions:

Jon and Sam are current employees. Jon has never hired a new employee, but Sam has hired many. Which of the following is most appropriate for "E?"

A. (0,1) B. (1,1) C. (0,*) D. (1,*)

56. Consider the following diagram as you answer the questions:

Which of the following junction tables would be included in a relational database of the model?

A. employee/interview finalists B. employee/hire applicant C. Both employee/interview finalists and employee/hire applicant D. Neither employee/interview finalists nor employee/hire applicant

57. Consider the following diagram as you answer the questions:

Jon and Sam are current employees. Jon has never hired a new employee, but Sam has hired many. Which of the following statements is most true?

A. A new agent should be added to the model. B. A new event should be added to the model. C. The primary key from the "hire applicant" table should be included in the "employee" table. D. The primary key from the "employee" table should be included in the "hire applicant" table.

58. Consider the following diagram as you answer the questions:

The smallest number of interviews an applicant may have is:

A. zero B. one C. many D. not determinable based on the model.

59. Consider the following diagram as you answer the questions:

Frodo and Gandalf are current employees. Frodo has participated in no instances of Event B, while Gandalf has participated in at least five. Which of the following statements is most true?

A. The primary key from the "employee" table will be the primary key of the "Event B" table. B. The primary key from the "Event B" table will be the primary key of the "employee" table. C. The primary key from the "Event B" table will be a foreign key in the "employee" table. D. The primary key from the "employee" table will be a foreign key in the "Event B" table.

60. Consider the following diagram as you answer the questions:

All of the following will be fields in the "interview finalists" table except:

A. Employee ID B. Applicant ID C. Interview date D. Interview time

Check All That Apply Questions

61. Which of the following statements are true based on the REA model provided?

____ A sales transaction may involve five different inventory items. ____ All employees are in the sales department. ____ At least one foreign key will be present in the "sell inventory" table. ____ Every customer is assigned a specific sales representative. ____ Human error risk is likely to be a concern for this company. ____ Multiple junction tables will be required to implement the REA model in a database. ____ Some inventory items may sit in the warehouse indefinitely. ____ The "sell inventory" table will have a compound primary key. ____ The company appropriately segregates duties. ____ The company may be exposed to credit risk.

Essay Questions

62. Fill in the blanks below based on the weaknesses of view-driven AIS described in the text. a. They focus on a very small, well-defined group of important ___. b. They often process data in ___, frequently at the ___. c. The data in a view-driven AIS are often ___ because of when they are processed. d. The system captures a very limited set of data: ___, ___ and ___. e. Data in a view-driven system are highly ___ and stored in ___. f. In view-driven systems, the ___ process is often protective and expensive.

63. Fill in the blanks below based on the principles of REA modeling. a. ___ events focus on activities involved with providing goods and services to customers. b. ___ events deal with recording and maintaining data. c. ___ events are concerned with human decision making. d. The leftmost column in a REA model presents ___. e. The middle column in a REA model presents ___. f. The rightmost column in a REA model presents ___. g. ___ tell an accounting professional about the relationships between elements of a REA model.

64. Most AIS designers and auditors find it best to start a REA model by identifying events, which come in three broad categories: operating, information and decision/management. Which category best describes each item below? a. Buying supplies b. Deciding how to document an AIS c. Designing internal controls d. Developing a risk management plan e. Issuing capital stock f. Motivating employees g. Posting transactions to the ledger h. Purchasing advertising i. Recording transactions in a journal j. Selling equipment

65. Determine whether each of the following items applies to: (a) view-driven systems only, (b) event-driven systems only, (c) both view- and event-driven systems or (d) neither view- nor event-driven systems. 1) Capable of generating a balance sheet 2) Captures a more comprehensive data set 3) Comprises five basic parts 4) Converts information into decisions 5) Incorporates data that may not be presented in the general purpose financial statements 6) Must use information technology 7) Records transactions using the principles of debit and credit 8) Should be designed with the FASB Conceptual Framework in mind 9) Transforms data into information 10) Typically incorporates journals and ledgers

66. Create cardinalities for each of the following independent situations. Format the cardinalities as they would appear in a REA model. a. A customer may purchase inventory multiple times; every inventory purchase is tied to a single customer. b. A "purchase inventory" transaction may involve multiple inventory items; an individual inventory item may be sold many times or not at all. c. Each inventory purchase is authorized by a single purchasing agent; the number of authorizations for each purchasing agent can be as few as one, but has no upper limit. d. A bank deposit is processed by a single teller; a teller can process an unlimited number of deposits, but must process at least one each day. e. An individual "process bank deposit" transaction may involve multiple checks; an individual check can be deposited only one time.

67. Consider the REA model below:

List all the tables indicated by the model. In each table, specify the primary key.

68. Based on a REA model, an accountant created an inventory table, a purchase inventory table and a purchases/inventory table. Several field names that might appear in those tables are listed below. Organize them into the appropriate tables based on the principles of database normalization. Specify primary keys with underlines and foreign keys with brackets. Some of the field names may be used in more than one table; others may not be used at all. "As of" date for beginning inventory Beginning quantity on hand Cost per unit of beginning inventory Inventory description Inventory item number Number of units purchased Price per unit purchased Purchasing agent ID Total cost of inventory on hand Total cost of inventory purchases Transaction date Transaction number Vendor ID

69. The Association of Certified Fraud Examiners offers one- and two-day seminars to its members throughout the year; members find out about the seminars via the association's web site or a catalog mailed on a quarterly basis. Each seminar must have at least ten registrants, but can have no more than thirty registrants. The ACFE maintains registrant records independently of each seminar since a registrant may be involved in multiple seminars over time. Association staff process seminar registrations, which may come in through the mail, over the phone or via the web site. Payment must be made in advance in one or more installments; the association does not refund registration fees for "no-shows." Each seminar has a single speaker who is paid a fixed fee regardless of the number of attendees; the speaker's fee is paid at the end of the seminar. A speaker may present the same seminar multiple times during the year, but each speaker is focused on a single seminar topic. At the end of each seminar, attendees receive a signed certificate of completion after they respond to a short quiz based on the seminar's content. Create a REA model for the registration and collection process.

70. The Association of Certified Fraud Examiners offers one- and two-day seminars to its members throughout the year; members find out about the seminars via the association's web site or a catalog mailed on a quarterly basis. Each seminar must have at least ten registrants, but can have no more than thirty registrants. Association staff process seminar registrations, which may come in through the mail, over the phone or via the web site. Payment must be made in advance; the association does not refund registration fees for "noshows." Each seminar has a single speaker who is paid a fixed fee regardless of the number of attendees; the speaker's fee is paid at the end of the seminar. A speaker may present the same seminar multiple times during the year, but each speaker is focused on a single seminar topic. At the end of each seminar, attendees receive a signed certificate of completion after they respond to a short quiz based on the seminar's content. Create database specifications (table and field names) for the registration and collection process. Indicate primary keys by underlining and foreign keys with brackets.

Short Answer Questions

71. List five weaknesses associated with view-driven accounting information systems.

72. In your own words, explain the steps used to create a REA model.

73. Prepare a narrative description of the business process illustrated in the REA model below.

74. Analyze the REA model below. Identify and describe (in narrative form) the tables you would create based on the model; do not describe the tables by listing the field names.

75. REA models often are created using the six-step process described in the text; after they are created, they are often used to create database tables. List and discuss three internal controls you would recommend implementing in the six-step process and/or the database creation process.

Chapter 08 REA Modeling Answer Key

Multiple Choice Questions

View-driven accounting information systems have been criticized because they:

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

Data in a view-driven accounting information system are:

A. Highly aggregated. B. Stored in a single place. C. Both highly aggregated and stored in a single place D. Neither highly aggregated nor stored in a single place

AACSB: Analytical Thinking AICPA: FN Reporting 8-57 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

In view-driven accounting information systems, internal controls are often:

A. Protective. B. Expensive. C. Both protective and expensive. D. Neither protective nor expensive.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

In contrast with view-driven AIS, event-driven accounting information systems focus on:

A. Business processes. B. Journal entries. C. Ledger accounts. D. All of these.

Data in a view-driven AIS are often stored in multiple places, such as:

A. Journals. B. Ledgers. C. Both journals and ledgers. D. Neither journals nor ledgers.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

In a view-driven AIS, where you would expect to see stored data about product quality?

A. In the journal B. In the ledger C. Both in the journal and in the ledger D. Neither in the journal nor in the ledger

Which of the following pieces of data would you expect to find in an event-driven AIS, but not in a view-driven AIS?

A. Accounts to debit B. Accounts to credit C. Details about customer preferences for product color D. All of these

View-driven AIS are designed to support a particular way of looking at the data they contain. Which of the following is not a view commonly supported by a view-driven AIS?

A. Balance sheet B. Income statement C. Statement of shareholders' equity D. Budget variance report

A company wants to prepare a schedule of assets that separates current and long-term assets, as well as reports relevant dollar amounts. Which type of AIS could the company use to prepare such a schedule?

A. View-driven B. Event-driven C. Either view-driven or event-driven D. Neither view-driven nor event-driven

10.

View-driven accounting information systems often foster the idea of stovepiping in organizations. Which of the following is an example of stovepiping?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

11.

An accounting information system captures data that are eventually grouped by account, and then used to prepare general purpose financial statements. The system could be described as:

A. A view-driven AIS. B. An event-driven AIS. C. Either a view-driven AIS or an event-driven AIS. D. Neither a view-driven AIS nor an event-driven AIS.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

12.

Information technology controls, such as a password rotation policy, can be used in:

A. View-driven AIS. B. Event-driven AIS. C. Both view-driven AIS and event-driven AIS. D. Neither view-driven AIS nor event-driven AIS.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

13.

Which of the following statements about view- and event-driven AIS is most true?

14.

View-driven AIS have been criticized because their data are often outdated. Which of the following journal entries for the purchase of inventory best illustrates that criticism?

A. Debit purchases, credit cash B. Debit inventory, credit cash C. Debit purchases, credit inventory D. Debit inventory, credit purchases

15.

A journal entry in a view-driven AIS debits equipment for $10,000, credits cash for $2,000 and credits notes payable for $8,000. Which of the following pieces of data would you expect to see in an event-driven AIS but not in the view-driven AIS?

16.

The accounting cycle comprises ten steps. In which step would you expect to find a difference between view-driven and event-driven AIS?

A. Analyze transactions. B. Record adjusting entries. C. Both analyze transactions and record adjusting entries. D. Neither analyze transactions nor record adjusting entries.

17.

Consider the following REA diagram as you respond to the question:

The box in the first column represents a(n):

A. Resource B. Event C. Internal agent D. External agent

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

18.

Consider the following REA diagram as you respond to the question:

The box in the second column represents a(n):

A. Resource B. Event C. Internal agent D. External agent

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

19.

Consider the following REA diagram as you respond to the question:

The boxes in the third column represent a(n):

A. Resource and internal agent B. Event and internal agent C. Internal agent and external agent D. Resource and external agent

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

20.

Consider the following REA diagram as you respond to the question:

The numbers and symbols in parentheses in the model are called:

A. Cardinalities B. Database construction tools C. Internal controls D. Relationship descriptors

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

21.

Consider the following REA diagram as you respond to the question:

How many agents are represented in the model?

A. One B. Two C. Three D. Four

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

22.

Consider the following REA diagram as you respond to the question:

Which of the following is an internal agent in the model?

A. Vendor B. Purchasing agent C. Both vendor and purchasing agent D. Neither vendor nor purchasing agent

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

23.

Consider the following REA diagram as you respond to the question:

Which of the following is an external agent in the model?

A. Vendor B. Purchasing agent C. Both vendor and purchasing agent D. Neither vendor nor purchasing agent

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

24.

Consider the following REA diagram as you respond to the question:

Which of the following statements about the REA model is least true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

25.

Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. In a REA model of the case, how many boxes would you expect to see in the second column?

A. One B. Two C. Three or four D. More than four Sign contract, bill clients, assign consultants

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

26.

A. Sign contract B. Assign employees C. Bill customer D. All of these

27.

Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. How many agents would be depicted in the rightmost column of a REA model of the case?

A. One B. Two C. Three D. None. Agents do not appear in the rightmost column of a REA model. The agents are "employees" and "customer." Although ABC has three types of employees, separating them would lead to four agents, which is not one of the choices.

28.

Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. A REA model of the case would include ___ resources.

A. Zero B. One or two C. Three or four D. More than four The contract is definitely a resource. Cash may also be a resource if the REA model includes collecting payment from the clients.

29.

Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. The smallest possible number of internal agents in the third column of a REA model of the case is:

A. One B. Two C. Three D. None. Internal agents do not appear in the third column of a REA model. The smallest number is "one," which would mean all employees are grouped together in the REA model.

30.

Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. How many external agents would be depicted in the first column of a REA model of the case?

A. Zero B. One C. Two D. Three

31.

Consider the following short case as you respond to the next nine questions: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time. In a REA model of the case, the cardinalities between the "assign employees" event and the agent "employees" would be:

A. Assign employees (0,*) --- (1,1) Employees B. Assign employees (0,*) --- (1,*) Employees C. Assign employees (1,*) --- (1,*) Employees D. None of these

32.

To answer the question, consider the following partial REA model in the context of the case: ABC Consulting's employees include management, consultants and office staff. The company accepts engagements related to internal control design and evaluation, as well as enterprise risk management plans. A customer can purchase the two services independently of one another. The office staff bills clients on a monthly basis with terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by an ABC manager. One member of ABC's management team assigns at least one consultant to work with the customer until the engagement is complete. Consultants can be assigned to multiple engagements simultaneously, but every consultant must always be working on at least one engagement. Each client may have only one contract with ABC at a time.

If Box A is labeled "assign employees," Box B could be labeled:

A. Management B. Consultants C. Complete engagement D. Any of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

33.

If Box B is labeled "consultants," Box A could be labeled:

A. Assign employees B. Complete engagement C. Either assign employees or complete engagement D. Neither assign employees nor complete engagement

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

34.

When the maximum cardinalities between two elements of a REA model are one and many:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

35.

When the maximum cardinalities between two elements of a REA model are many and many:

A. Create a junction table. B. Redesign the REA model to eliminate them. C. The REA model has errors. D. One of the elements must be a resource.

36.

Enforcing ___ tells a database to update a junction table whenever separate tables are updated.

A. Internal control B. Referential integrity C. The accounting cycle D. Expectancy theory

37.

Which of the following statements about database tables and REA models is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

38.

Which of the following is likely to require at least one junction table if present in a REA model?

39.

A REA model includes "send order" as an event and "customer" as an agent. Which of the following is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand 8-84 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

40.

Which of the following is most likely to be a primary key in an "employee" table?

A. Last name B. Employee ID number C. Both last name and employee ID number together D. Either last name or employee ID number separately

41.

Based on the principles of normalization, an inventory table would include all of the following fields except:

A. Transaction number B. Item code C. Description D. Beginning quantity on hand

42.

Consider the following REA model as you answer the question:

How many database tables will be required by the preceding REA model?

A. Four B. Five C. Six D. Some other number The model requires one table for each box PLUS an inventory/purchase inventory junction table.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

43.

Consider the following REA model as you answer the question:

How many junction tables will be required by the preceding REA model?

A. Two B. Three C. Four D. Some other number The model requires one junction table (inventory/purchase inventory).

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

44.

Consider the following REA model as you answer the question:

Which of the following would be foreign keys in the "purchase inventory" table?

A. Supplier ID B. Employee ID C. Both supplier ID and employee ID D. Neither supplier ID nor employee ID

45.

Consider the following REA model as you answer the question?

Which of the following tables is indicated by the preceding REA model:

A. Supplier/employee table B. Supplier/purchase inventory table C. Employee/purchase inventory table D. Inventory/purchase inventory table

46.

Consider the following REA model as you answer the question:

Based on the preceding REA model, which of the following statements is most true?

47.

Consider the following REA model as you answer the question:

A field labeled "transaction ID" is likely to appear in which of the following tables based on the REA model above?

48.

Consider the following REA model as you answer the question:

A field labeled "inventory ID" is likely to appear in which of the following tables? (i) inventory table, (ii) purchase inventory table, (iii) inventory/purchase inventory table.

A. I and II only B. I and III only C. II and III only D. I, II and III

49.

Consider the following REA model as you answer the question:

The "employee" table is likely to include which of the following fields? (i) department, (ii) gender.

A. I only B. II only C. Both I and II D. Neither I nor II

50.

Consider the following REA model as you answer the question:

The "employee" table is likely to include all of the following fields except:

A. Department B. Gender C. Last name D. Age Age is a derivable attribute.

51.

Consider the following diagram as you answer the questions:

The most appropriate label for "A" is:

A. applicant B. application materials C. submit application materials D. some other label

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

52.

Consider the following diagram as you answer the questions:

The most appropriate label for "B" is:

A. perform initial screening B. record receipt of application materials C. either perform initial screening or record receipt of application materials D. some other label

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

53.

Consider the following diagram as you answer the questions:

A. (0,1) B. (1,1) C. (0,*) D. (1,*)

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

54.

Consider the following diagram as you answer the questions:

The most appropriate label for "D" is:

A. applicant B. application materials C. verify application materials D. some other label

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

55.

Consider the following diagram as you answer the questions:

Jon and Sam are current employees. Jon has never hired a new employee, but Sam has hired many. Which of the following is most appropriate for "E?"

A. (0,1) B. (1,1) C. (0,*) D. (1,*)

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

56.

Consider the following diagram as you answer the questions:

Which of the following junction tables would be included in a relational database of the model?

A. employee/interview finalists B. employee/hire applicant C. Both employee/interview finalists and employee/hire applicant D. Neither employee/interview finalists nor employee/hire applicant

57.

Consider the following diagram as you answer the questions:

Jon and Sam are current employees. Jon has never hired a new employee, but Sam has hired many. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

58.

Consider the following diagram as you answer the questions:

The smallest number of interviews an applicant may have is:

A. zero B. one C. many D. not determinable based on the model.

59.

Consider the following diagram as you answer the questions:

Frodo and Gandalf are current employees. Frodo has participated in no instances of Event B, while Gandalf has participated in at least five. Which of the following statements is most true?

60.

Consider the following diagram as you answer the questions:

All of the following will be fields in the "interview finalists" table except:

A. Employee ID B. Applicant ID C. Interview date D. Interview time

Check All That Apply Questions

61.

Which of the following statements are true based on the REA model provided?

A sales transaction may involve five different inventory items.

All employees are in the sales department.

At least one foreign key will be present in the "sell inventory" table.

Every customer is assigned a specific sales representative.

Human error risk is likely to be a concern for this company.

Multiple junction tables will be required to implement the REA model in a database.

Some inventory items may sit in the warehouse indefinitely.

The "sell inventory" table will have a compound primary key.

The company appropriately segregates duties.

The company may be exposed to credit risk.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

Essay Questions

62.

Fill in the blanks below based on the weaknesses of view-driven AIS described in the text. a. They focus on a very small, well-defined group of important ___. b. They often process data in ___, frequently at the ___. c. The data in a view-driven AIS are often ___ because of when they are processed. d. The system captures a very limited set of data: ___, ___ and ___. e. Data in a view-driven system are highly ___ and stored in ___. f. In view-driven systems, the ___ process is often protective and expensive.

a. business events b. batches; end of the month c. outdated d. dates; accounts; amounts e. aggregated; multiple places f. internal control

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-01 Compare and contrast view-driven and event-driven accounting information systems. Topic: Types of accounting information systems

63.

Fill in the blanks below based on the principles of REA modeling. a. ___ events focus on activities involved with providing goods and services to customers. b. ___ events deal with recording and maintaining data. c. ___ events are concerned with human decision making. d. The leftmost column in a REA model presents ___. e. The middle column in a REA model presents ___. f. The rightmost column in a REA model presents ___. g. ___ tell an accounting professional about the relationships between elements of a REA model.

a. operating b. information c. decision/management d. resources e. events f. agents g. cardinalities

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

64.

Most AIS designers and auditors find it best to start a REA model by identifying events, which come in three broad categories: operating, information and decision/management. Which category best describes each item below? a. Buying supplies b. Deciding how to document an AIS c. Designing internal controls d. Developing a risk management plan e. Issuing capital stock f. Motivating employees g. Posting transactions to the ledger h. Purchasing advertising i. Recording transactions in a journal j. Selling equipment

Operating: a, e, h, j Information: g, i Decision/management: b, c, d, f

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

65.

Determine whether each of the following items applies to: (a) view-driven systems only, (b) event-driven systems only, (c) both view- and event-driven systems or (d) neither view- nor event-driven systems. 1) Capable of generating a balance sheet 2) Captures a more comprehensive data set 3) Comprises five basic parts 4) Converts information into decisions 5) Incorporates data that may not be presented in the general purpose financial statements 6) Must use information technology 7) Records transactions using the principles of debit and credit 8) Should be designed with the FASB Conceptual Framework in mind 9) Transforms data into information 10) Typically incorporates journals and ledgers

1) c 2) b 3) c 4) d 5) b 6) d 7) a 8) c 9) c 10) a

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66.

Create cardinalities for each of the following independent situations. Format the cardinalities as they would appear in a REA model. a. A customer may purchase inventory multiple times; every inventory purchase is tied to a single customer. b. A "purchase inventory" transaction may involve multiple inventory items; an individual inventory item may be sold many times or not at all. c. Each inventory purchase is authorized by a single purchasing agent; the number of authorizations for each purchasing agent can be as few as one, but has no upper limit. d. A bank deposit is processed by a single teller; a teller can process an unlimited number of deposits, but must process at least one each day. e. An individual "process bank deposit" transaction may involve multiple checks; an individual check can be deposited only one time.

a. Purchase inventory (1,*) --- (1,1) Customer b. Inventory (1,*) - (0,*) Purchase inventory c. Purchase inventory (1,*) - (1,1) Purchasing agent d. Process deposit (1,*) - (1,1) Bank teller e. Check (0,*) - (1,1) Process deposit

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

67.

Consider the REA model below:

List all the tables indicated by the model. In each table, specify the primary key.

Inventory: Inventory ID Purchase inventory: Transaction ID Inventory/purchase inventory: Inventory ID & Transaction ID Supplier: Supplier ID Employee: Employee ID

68.

Based on a REA model, an accountant created an inventory table, a purchase inventory table and a purchases/inventory table. Several field names that might appear in those tables are listed below. Organize them into the appropriate tables based on the principles of database normalization. Specify primary keys with underlines and foreign keys with brackets. Some of the field names may be used in more than one table; others may not be used at all. "As of" date for beginning inventory Beginning quantity on hand Cost per unit of beginning inventory Inventory description Inventory item number Number of units purchased Price per unit purchased Purchasing agent ID Total cost of inventory on hand Total cost of inventory purchases Transaction date Transaction number Vendor ID

Inventory table: Inventory item number, inventory description, beginning quantity on hand, cost per unit of beginning inventory, "as of" date for beginning inventory Purchase inventory table: Transaction number, transaction date, Purchasing agent ID, Vendor ID Purchases/inventory table: [Transaction number], [Inventory item number], Number of units purchased, Price per unit purchased

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium

Learning Objective: 08-03 Use a REA model to design a relational database for an event-driven AIS. Topic: Database creation from a REA model

69.

The Association of Certified Fraud Examiners offers one- and two-day seminars to its members throughout the year; members find out about the seminars via the association's web site or a catalog mailed on a quarterly basis. Each seminar must have at least ten registrants, but can have no more than thirty registrants. The ACFE maintains registrant records independently of each seminar since a registrant may be involved in multiple seminars over time. Association staff process seminar registrations, which may come in through the mail, over the phone or via the web site. Payment must be made in advance in one or more installments; the association does not refund registration fees for "no-shows." Each seminar has a single speaker who is paid a fixed fee regardless of the number of attendees; the speaker's fee is paid at the end of the seminar. A speaker may present the same seminar multiple times during the year, but each speaker is focused on a single seminar topic. At the end of each seminar, attendees receive a signed certificate of completion after they respond to a short quiz based on the seminar's content. Create a REA model for the registration and collection process.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze

Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

70.

The Association of Certified Fraud Examiners offers one- and two-day seminars to its members throughout the year; members find out about the seminars via the association's web site or a catalog mailed on a quarterly basis. Each seminar must have at least ten registrants, but can have no more than thirty registrants. Association staff process seminar registrations, which may come in through the mail, over the phone or via the web site. Payment must be made in advance; the association does not refund registration fees for "no-shows." Each seminar has a single speaker who is paid a fixed fee regardless of the number of attendees; the speaker's fee is paid at the end of the seminar. A speaker may present the same seminar multiple times during the year, but each speaker is focused on a single seminar topic. At the end of each seminar, attendees receive a signed certificate of completion after they respond to a short quiz based on the seminar's content. Create database specifications (table and field names) for the registration and collection process. Indicate primary keys by underlining and foreign keys with brackets.

Working from the REA model in Q. 69, the tables and field names would be: Cash: Account number, Bank name, Beginning balance, Beginning balance date Process registration: Registration transaction ID, registration date, event date, event title, [Employee ID], [Registrant ID] Collect payment: Collection transaction ID, [Registration transaction ID], collection date, [Employee ID], [Registrant ID], [Account number], amount collected Employee: Employee ID plus other customary fields (last name, first name, etc.) Registrant: Registrant ID plus other customary fields (last name, first name, etc.)

Short Answer Questions

71.

List five weaknesses associated with view-driven accounting information systems.

Students should list the five weaknesses found under "Types of Accounting Information Systems" in the chapter.

72.

In your own words, explain the steps used to create a REA model.

Students should summarize the six steps found under "REA Modeling" in the chapter.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

73.

Prepare a narrative description of the business process illustrated in the REA model below.

This REA model focuses on the process of selling inventory. Each individual sale must involve at least one inventory item, with no upper limit on the number of distinct items sold. Every sale is associated with exactly one customer, and the company may sell inventory to the same customer many times. Every sale involves exactly one employee; an individual employee may complete no sales transactions, as not every employee has that responsibility. For employees who do, however, there is no upper limit on the number of transactions.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 08-02 Use REA modeling to represent an event-driven AIS. Topic: REA modeling

74.

Analyze the REA model below. Identify and describe (in narrative form) the tables you would create based on the model; do not describe the tables by listing the field names.

This REA model requires five tables. The inventory table has identifying data for each inventory item, along with data needed to compute the cost basis of beginning inventory. The "sell inventory" table has data specific to each sales transaction, such as its date, the employee involved and the customer involved. The customer and employee tables track common data about those agents, such as names and addresses. The fifth table, inventory/sell inventory, links the data from the two tables it joins, as well as including important details like the number of each item sold and the price per item.

75.

REA models often are created using the six-step process described in the text; after they are created, they are often used to create database tables. List and discuss three internal controls you would recommend implementing in the six-step process and/or the database creation process.

Internal controls could include adequate supervision, proper training and independent audit. It would be important to limit database creation to employees in the IT department.

Chapter 09 XBRL

Multiple Choice Questions

1. SEC filings that use XBRL are labeled in EDGAR as:

A. Instance documents. B. Interactive data. C. XBRL documents. D. XBRL data.

2. Which of the following terms best explains the idea that anyone can add to XBRL?

A. Extensible B. Specification C. Taxonomy D. Namespace

3. The Internet address that defines XBRL tags is called a(n):

A. Specification B. Taxonomy C. Namespace D. Instance document

4. Examples of XBRL instance documents include:

A. Statement of cash flows B. Balance sheet C. Income statement D. All of these

5. With respect to XBRL, Global Ledger and International Financial Reporting Standards are:

A. Specifications. B. Taxonomies. C. Namespaces. D. Instance documents.

6. In the notation <ifrs-gp:AssetsHeldSale>, ifrs-gp is a ___ which would reside in a ___ on the Internet.

A. Namespace; taxonomy B. Taxonomy; specification C. Namespace; specification D. Taxonomy; namespace

7. ABC Corporation, a US manufacturer, files its 10-K annual report with the SEC using XBRL. Being a US manufacturer tells ABC which ___ to use; the 10-K is a(n) ___.

A. Taxonomy; instance document B. Taxonomy; specification C. Specification; instance document D. Specification; taxonomy

8. The accounting cycle comprises ten steps. In which step is an XBRL taxonomy first likely to be used?

A. Post from the journal to the ledger. B. Record the transactions in a journal. C. Prepare financial statements. D. Close the nominal accounts to retained earnings.

9. Most accounting information systems comprise five generic elements. As a tool for preparing financial statements, XBRL is most closely associated with:

A. Processing B. Input C. Output D. Storage

10. Which of the following statements about XBRL is most true?

A. Because it is extensible, companies can create new specifications that reside in an Internet namespace. B. Because it is organized in taxonomies, it is extensible. C. Because it is extensible, companies can create tags that are used in instance documents, as long as they are defined in a namespace. D. All of these statements are true.

11. The "X" in XBRL stands for extensible. Which of the following can an individual company extend when using XBRL?

A. Instance documents B. Taxonomies C. Specifications D. All of these

12. XBRL provides ___ for a company's financial information.

A. Context B. GAAP C. Both context and GAAP D. Neither context nor GAAP

13. Which of the following terms describes the relationship between XBRL and XML?

A. Extensible B. Specification C. Taxonomy D. Instance document

14. XBRL's structure is flexible, so companies can extend it when the need arises. Which of the following terms is most likely to require an extension of an existing XBRL taxonomy?

A. Asset B. Operating cash flow C. Both Asset and Operating cash flow will likely require an extension of an existing taxonomy. D. Neither Asset nor Operating cash flow will likely require an extension of an existing taxonomy.

15. XBRL is organized in taxonomies. All of the following are XBRL taxonomies except:

A. US Country Taxonomy 2009 B. IFRS-GP C. XML taxonomy D. XBRL-GL

16. XBRL is structured into taxonomies which reside in namespaces. All of the following are namespaces except:

A. http://xbrl.us/country/2008-10-31 B. http://xbrl.us/rr/2008-12-31 C. http://xbrl.us/mda/2008-10-31 D. http://xbrl.org

17. Because XBRL is an "open source" information technology tool, companies can:

A. Add tags as necessary. B. Choose which tagging software they will use. C. Both add tags as necessary and choose which tagging software they will use. D. Neither add tags as necessary nor choose which tagging software they will use.

18. XBRL's global ledger taxonomy can be used for transaction processing, while the US financial reporting taxonomy is focused on output reports. Which of the following XBRL tags would you expect to find as part of the global ledger taxonomy?

A. <documentType>invoice</documentType> B. <totalAssets>10000</totalAssets> C. Both <documentType>invoice</documentType> and <totalAssets>10000</totalAssets> D. Neither <documentType>invoice</documentType> nor <totalAssets>10000</totalAssets>

19. XBRL's global ledger taxonomy can be used for transaction processing, while the US financial reporting taxonomy is focused on output reports. Which of the following XBRL tags would you expect to find as part of the US financial reporting taxonomy?

20. The text discussed five terms related to the structure of XBRL. Which of the following pairs of items includes two examples of the same term?

A. XML, XBRL B. Global Ledger, <documentType>invoice</documentType> C. Global Ledger, XBRL D. None of these

21. The text discussed five terms related to the structure of XBRL. Which of the following pairs of items includes two examples of the same term?

A. Balance sheet, Form 10-K B. Global Ledger, International Financial Reporting C. Both balance sheet, Form 10-K and global Ledger, International Financial Reporting D. Neither balance sheet, Form 10-K nor global Ledger, International Financial Reporting

22. Benefits of XBRL include:

A. Achieving quicker and more efficient decisions. B. Improving investor relations through provision of more transparent and user-friendly information. C. Both achieving quicker and more efficient decisions and improving investor relations through provision of more transparent and user-friendly information. D. Neither achieving quicker and more efficient decisions nor improving investor relations through provision of more transparent and user-friendly information.

23. When organizations use XBRL, they can free themselves from:

A. Proprietary systems. B. The steps in the accounting cycle. C. Both proprietary systems and the steps in the accounting cycle. D. Neither proprietary systems nor the steps in the accounting cycle.

24. From an accountant's perspective, one of the benefits of XBRL is the ability to obtain more rapid and reliable data and information on company financial performance. Such items would include:

A. General purpose financial statements. B. Chart of accounts. C. Both general purpose financial statements and chart of accounts. D. Neither general purpose financial statements nor chart of accounts.

25. From an accountant's perspective, one of the benefits of XBRL is the ability to focus effort on analysis and value-added work. Value-added work includes such items as

A. Posting entries from the journal to the ledger. B. Interpreting financial statement ratios. C. Both posting entries from the journal to the ledger and interpreting financial statement ratios. D. Neither posting entries from the journal to the ledger nor interpreting financial statement ratios.

26. Organizations can benefit from XBRL by obtaining quicker responses from counterparties. Examples of counterparties include:

A. The SEC. B. Lenders. C. Both the SEC and lenders. D. Neither the SEC nor lenders.

27. XBRL allows organizations to simplify the process and reduce the costs involved in regulatory reporting to agencies such as:

A. The IRS. B. The SEC. C. Both the IRS and the SEC. D. Neither the IRS nor the SEC.

28. The accounting cycle comprises ten steps. Companies that use XBRL do not have to:

A. Prepare journal entries. B. Close the nominal accounts. C. Both prepare journal entries and close the nominal accounts. D. Neither prepare journal entries nor close the nominal accounts.

29. XBRL allows organizations to focus effort on analysis, forecasting and decision making. Which of the following includes one example of each of those tasks?

A. Interpreting financial statement ratios, preparing a sales budget, raising or lowering prices B. Preparing a sales budget, forecasting future risks using the COSO framework, adopting new internal controls C. Interpreting financial statement ratios, forecasting future risks using the COSO framework, raising sales prices D. Preparing a sales budget, lowering sales prices, creating a systems flowchart

30. Consider the following flowchart symbols as you respond to the question:

BLG Corporation uses systems flowcharts to teach its new employees about company procedures. If BLG adopts XBRL, those system flowcharts will likely incorporate fewer of ___ and more of ___.

A. Symbol A; Symbol C B. Symbol B; Symbol A C. Symbol C; Symbol A D. None of these; the use of XBRL will not affect symbols used in systems flowcharts.

31. Consider the following flowchart symbols as you respond to the question:

BLG Corporation uses systems flowcharts to teach its new employees about company procedures. If BLG adopts XBRL, those system flowcharts will likely incorporate fewer of ___ because ___.

A. Symbol C; databases are unnecessary when using XBRL B. Symbol A; no manual processes are permitted when using XBRL C. Symbol A; XBRL automates many tasks that may have been completed manually D. None of these; the use of XBRL will not affect symbols used in systems flowcharts.

32. Most organizations use ___ to prepare XBRL instance documents.

A. Tagging software B. Document flowcharts C. Both tagging software and document flowcharts D. Neither tagging software nor document flowcharts

33. Tagging software is used to prepare XBRL:

A. Instance documents B. Taxonomies C. Namespaces D. Internal controls

34. Examples of XBRL tagging software include:

A. Internet Explorer B. PowerPoint C. Both Internet Explorer and PowerPoint D. Neither Internet Explorer nor PowerPoint

35. Tagging software such as Ez-XBRL is often used in conjunction with what other type of software?

A. Spreadsheets. B. General ledger. C. Both Spreadsheets and General ledger. D. Neither Spreadsheets nor General ledger.

36. In connection with spreadsheets, Rivet Software and Ez-XBRL are best used for which of the following tasks?

A. Creating XBRL instance documents. B. Preparing presentations on XBRL. C. Both creating XBRL instance documents and preparing presentations on XBRL. D. Neither creating XBRL instance documents nor preparing presentations on XBRL.

37. OTH Corporation prepares its general-purpose financial statements with Sage 50 Complete Accounting. If OTH wanted to prepare XBRL instance documents, it must also use:

A. Spreadsheet software, such as Excel. B. Relational database software, such as Access. C. Both spreadsheet software, such as Excel and relational database software, such as Access. D. Neither spreadsheet software, such as Excel nor relational database software, such as Access.

38. Most accounting information systems comprise five elements. XBRL tagging software is most closely associated with:

A. Inputs. B. Processing. C. Outputs. D. Storage.

39. Bumble Beasley commented: "I understand the benefits of XBRL, but tagging all our company's journal entries and financial statements is too much work." Which of the following is the best response to Bumble's comment?

A. XBRL cannot be used to tag journal entries. B. The tagging process can be automated. C. Both XBRL cannot be used to tag journal entries and the tagging process can be automated. D. Neither XBRL cannot be used to tag journal entries nor the tagging process can be automated.

40. Which of the following would most effectively be used to select XBRL tagging software?

A. Expectancy theory B. Weighted-rating model C. COSO enterprise risk management framework D. Accounting cycle

41. Internal control risks associated with XBRL include:

A. Compromised data. B. Tagging errors. C. Both compromised data and tagging errors. D. Neither compromised data nor tagging errors.

42. Internal control risks associated with XBRL include all of the following except:

A. Hardware and software failure. B. Lack of appropriate tags. C. Selecting an appropriate taxonomy. D. Compromised data.

43. A disaster recovery plan is a good internal control for which of the following risks associated with XBRL?

A. Tagging errors B. Software failure C. Both tagging errors and software failure D. Neither tagging errors nor software failure

44. As a form of internal control for XBRL, periodic user training best addresses the risk of:

A. Tagging errors. B. Data lost in transmission. C. Both tagging errors and data lost in transmission. D. Neither tagging errors nor data lost in transmission.

45. COSO published two integrated frameworks to assist organizations in managing risk and developing internal controls. Organizations adopting XBRL could use:

A. The risk management framework only. B. The internal control framework only. C. Both the risk management and internal control frameworks. D. Neither the risk management nor the internal control framework.

46. As a form of internal control to address the risk of inappropriate/missing authorizations, internal audit review of selected transactions is best described as:

A. A general control. B. An application control. C. A behavioral control. D. A financial control.

47. Compromised data and tagging errors are most closely associated with which element of the COSO enterprise risk management framework?

A. Objective setting B. Internal environment C. Risk assessment D. Monitoring

48. An internal auditor is given responsibility for reviewing selected XBRL-tagged documents as a form of internal control. If the internal auditor does not fulfill that responsibility, which of the following may help explain and correct the problem?

A. Expectancy theory B. Weighted-rating model C. Generic AIS elements D. AICPA Core Competencies framework

49. Internal controls have four fundamental purposes. Which of the following pairs an internal control for XBRL with an appropriate purpose of internal control?

A. Electronic tagging, promoting operating efficiency B. Centralized approval process for taxonomy additions, safeguarding assets C. Both electronic tagging, promoting operating efficiency and centralized approval process for taxonomy additions, safeguarding assets D. Neither electronic tagging, promoting operating efficiency nor centralized approval process for taxonomy additions, safeguarding assets

50. Internal controls have four fundamental purposes. Which of the following pairs an internal control for XBRL with an appropriate purpose of internal control?

A. Centralized approval process for taxonomy additions, encouraging compliance with management directives B. Daily data backups, safeguarding assets C. Both centralized approval process for taxonomy additions, encouraging compliance with management directives and daily data backups, safeguarding assets D. Neither centralized approval process for taxonomy additions, encouraging compliance with management directives nor daily data backups, safeguarding assets

51. Consider the table below as you answer the questions:

In the table, "A" would most appropriately be replaced with:

A. Name B. Namespace prefix C. Data type D. Some other label

52. Consider the table below as you answer the questions:

In the table, "B" would most appropriately be replaced with:

A. Namespace prefix B. Data type C. Balance type D. Some other label

53. Consider the table below as you answer the questions:

In the table, "C" would most appropriately be replaced with:

A. Data type B. Balance type C. Period type D. Some other label

54. Consider the table below as you answer the questions:

In the table, "D" would most appropriately be replaced with:

A. Balance type B. Name C. Data type D. Some other label

55. Consider the table below as you answer the questions:

In the table, "E" would most appropriately be replaced with:

A. Name B. Namespace prefix C. Data type D. Some other label

56. Consider the table below as you answer the questions:

In the table, "us_gaap" would best be described as:

A. a taxonomy B. a namespace C. an instance document D. an application of the FASB Conceptual Framework

57. Consider the table below as you answer the questions:

The XBRL tags in the table would be included in ___ called ___.

A. a taxonomy; an income statement B. a taxonomy; a namespace C. an instance document; an income statement D. an instance document; a namespace

58. Consider the table below as you answer the questions:

Which of the following is generally capable of interpreting the XBRL tags in the table?

A. Excel B. Internet Explorer C. Both Excel and Internet Explorer D. Neither Excel nor Internet Explorer

59. Consider the table below as you answer the questions:

The data in the table were part of Microsoft's filings with the SEC. Which of the following XBRL taxonomies would Microsoft use to make journal entries in its AIS?

A. Global Ledger B. US GAAP C. SEC D. Some other taxonomy

60. Consider the table below as you answer the questions:

The data in the table were part of Microsoft's filings with the SEC. Which of the following statements is most true?

A. All publicly traded firms must use the Global Ledger Taxonomy for SEC filings. B. All publicly traded firms must use XBRL for SEC filings. C. Firms that are not publicly traded cannot use XBRL. D. Companies that use the International Financial Reporting Standards cannot use XBRL.

Ranking Questions

61. Rivet Software is one option for creating XBRL-tagged documents. Many organizations follow the six steps listed below to do so; number the steps in the order of their occurrence.

____ Set up an entity profile. ____ Mark up the data. ____ Open tagging software and the file to be tagged. ____ Export the data as an XBRL document. ____ Download taxonomies. ____ Validate the document.

Matching Questions

62. The use of XBRL creates some internal control issues for organizations. Match each risk exposure on the left with the most appropriate control on the right. Use each control only one time.

up-to-date procedures 1. Inappropriate authorizations 2. Hardware and software failure

manuals ____ periodic user training ____ centralized approval

3. Compromised data 4. Tagging errors

process ____ disaster recovery plan ____

5. Selection of an inappropriate taxonomy

firewalls ____

Essay Questions

63. Fill in the blanks below based on the benefits of XBRL discussed in the text. a. Consolidates results across ___ with much greater speed and reliability. b. Focus effort on ___, rather than on laborious tasks in gathering, compiling and preparing data. c. Free themselves from ___ systems and software which are difficult and costly to replace. d. Improve investor relations through provision of more ___ information. e. Saves costs by preparing data in one form and automatically generating ___.

64. The chapter discussed five key terms related to XBRL: extensible, specification, taxonomy, namespace and instance document. Specify which term is most appropriately associated with each item below. a. A specific example of properly tagged XBRL information. b. A way to organize knowledge. c. The Internet address that contains the meanings of XBRL tags. d. The quality of XBRL that allows people to add to it as necessary. e. The relationship between XBRL and XML.

65. The text discussed five key terms related to XBRL. Which one best applies to each of the following items? a. Amanda said: "Here is the list of asset accounts we'll need to tag in XBRL; it includes items like cash and accounts receivable." b. Eugene expected to finish tagging the company's financial statements before the end of the day. c. Jeff asked his supervisor which set of XBRL tags the company should use. d. Molly wondered where she could find the meaning and interpretation of XBRL tags. e. Sue commented: "Our company is so unique, I'm sure we'll need to supplement existing tags before we can use XBRL."

66. What feature of XBRL is indicated by the highlighted phrase in each of the following items? (Do not limit yourself to the five key terms discussed in the text.) a. A bank would use a different set of XBRL tags than a manufacturer. b. Certain sets of XBRL tags conform to both a specific version of XBRL and XBRL guidelines for specific sets of tags. c. Companies can tag their general purpose financial statements with XBRL, as well as their SEC filings. d. No-one pays to use XBRL. e. Software capable of interpreting XBRL tags can look on the Internet to find the meaning of those tags. f. Some sets of XBRL tags conform only to a specific version of XBRL; they need further development. g. Syntax and punctuation are important when creating an instance document. h. There are many languages similar to XBRL; all of them belong to the larger XML family. i. There is an entire set of tags devoted to managing internal information, such as a chart of accounts or journal entries. j. XBRL facilitates interpretation of accounting numbers.

67. Rivet Software is one option for creating XBRL-tagged documents. Many organizations follow the six steps listed below to do so; prepare a systems flowchart of the six steps. (Assume all six steps are completed in the same department.) 1. Download taxonomies. 2. Open tagging software and the file to be tagged. 3. Set up an entity profile. 4. Mark up the data. 5. Validate the document. 6. Export the data as an XBRL document.

68. XBRL creates risk exposures for organizations that use it; those risk exposures have to be addressed via various forms of internal control. As discussed previously in the text, internal controls can be classified by purpose (preventive/detective/corrective) and their relationship to the organization's information system (general/application). Consider the list of risks and controls below; for each item, indicate whether the control is primarily preventive/detective/corrective. Also indicate whether the control is a general or application control.

69. XBRL creates certain benefits for both accountants and organizations. Consider the statements below; rewrite each one to reflect a benefit of XBRL. 1) A company with divisions in more than one country will have to cope with differences in hardware, software, language, currency and terminology in preparing its consolidated financial statements. 2) Decision making in accounting information systems that do not use XBRL may be slow and inefficient because information is not as readily available. 3) SEC and IRS filings can be very time consuming without XBRL. 4) The bookkeeping process in view-driven accounting information systems is costly and prone to error because it constantly rearranges previously collected data into new forms. 5) Without the benefit of XBRL, accountants spend a lot of time gathering data and formatting it based on the decisions to be made with it.

70. Using XBRL creates some risk exposures for organizations; an effective tool for managing risk exposures is the risk/control matrix. Using the format discussed in the text, create a risk/control matrix for the risk of XBRL tagging errors.

Short Answer Questions

71. Explain the structure of XBRL, including its relationship to XML.

72. Explain, in your own words, how most organizations create XBRL instance documents. Specifically address the role of information technology in that process.

73. The use of XBRL creates some risk exposures for organizations; those risk exposures should be addressed via various forms of internal control. Use the COSO internal control framework to develop a plan specific to the risks associated with XBRL. Ensure that you discuss all five elements of the COSO framework.

74. Consider the list of terms below. Select those that are fundamental to understanding XBRL; explain the meaning of each fundamental term. Business process management Capability maturity model Extensible Flowcharting Form 10-K Instance document Internal control Namespace Specification Taxonomy

75. The capability maturity model has five levels: chaotic, repeatable, defined, managed, and optimized. Could an organization benefit from using XBRL at each of the five levels? If so, how? If not, why not? Ensure that your response addresses each level individually.

Chapter 09 XBRL Answer Key

Multiple Choice Questions

SEC filings that use XBRL are labeled in EDGAR as:

A. Instance documents. B. Interactive data. C. XBRL documents. D. XBRL data.

AACSB: Technology AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

Which of the following terms best explains the idea that anyone can add to XBRL?

A. Extensible B. Specification C. Taxonomy D. Namespace

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 09-01 Define the following terms as they relate to XBRL: extensible, specification, taxonomy, namespace, and instance document. Topic: Terminology

The Internet address that defines XBRL tags is called a(n):

A. Specification B. Taxonomy C. Namespace D. Instance document

Examples of XBRL instance documents include:

A. Statement of cash flows B. Balance sheet C. Income statement D. All of these

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-01 Define the following terms as they relate to XBRL: extensible, specification, taxonomy, namespace, and instance document. Topic: Terminology 9-40 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

With respect to XBRL, Global Ledger and International Financial Reporting Standards are:

A. Specifications. B. Taxonomies. C. Namespaces. D. Instance documents.

In the notation <ifrs-gp:AssetsHeldSale>, ifrs-gp is a ___ which would reside in a ___ on the Internet.

A. Namespace; taxonomy B. Taxonomy; specification C. Namespace; specification D. Taxonomy; namespace

ABC Corporation, a US manufacturer, files its 10-K annual report with the SEC using XBRL. Being a US manufacturer tells ABC which ___ to use; the 10-K is a(n) ___.

A. Taxonomy; instance document B. Taxonomy; specification C. Specification; instance document D. Specification; taxonomy

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-01 Define the following terms as they relate to XBRL: extensible, specification, taxonomy, namespace, and instance document. Topic: Terminology

The accounting cycle comprises ten steps. In which step is an XBRL taxonomy first likely to be used?

A. Post from the journal to the ledger. B. Record the transactions in a journal. C. Prepare financial statements. D. Close the nominal accounts to retained earnings.

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

Most accounting information systems comprise five generic elements. As a tool for preparing financial statements, XBRL is most closely associated with:

A. Processing B. Input C. Output D. Storage

10.

Which of the following statements about XBRL is most true?

11.

The "X" in XBRL stands for extensible. Which of the following can an individual company extend when using XBRL?

A. Instance documents B. Taxonomies C. Specifications D. All of these

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

12.

XBRL provides ___ for a company's financial information.

A. Context B. GAAP C. Both context and GAAP D. Neither context nor GAAP

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

13.

Which of the following terms describes the relationship between XBRL and XML?

A. Extensible B. Specification C. Taxonomy D. Instance document

14.

XBRL's structure is flexible, so companies can extend it when the need arises. Which of the following terms is most likely to require an extension of an existing XBRL taxonomy?

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

15.

XBRL is organized in taxonomies. All of the following are XBRL taxonomies except:

A. US Country Taxonomy 2009 B. IFRS-GP C. XML taxonomy D. XBRL-GL

16.

XBRL is structured into taxonomies which reside in namespaces. All of the following are namespaces except:

A. http://xbrl.us/country/2008-10-31 B. http://xbrl.us/rr/2008-12-31 C. http://xbrl.us/mda/2008-10-31 D. http://xbrl.org

17.

Because XBRL is an "open source" information technology tool, companies can:

18.

XBRL's global ledger taxonomy can be used for transaction processing, while the US financial reporting taxonomy is focused on output reports. Which of the following XBRL tags would you expect to find as part of the global ledger taxonomy?

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply

Difficulty: 3 Hard Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

19.

20.

The text discussed five terms related to the structure of XBRL. Which of the following pairs of items includes two examples of the same term?

A. XML, XBRL B. Global Ledger, <documentType>invoice</documentType> C. Global Ledger, XBRL D. None of these

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-01 Define the following terms as they relate to XBRL: extensible, specification, taxonomy, namespace, and instance document. Topic: Terminology

21.

The text discussed five terms related to the structure of XBRL. Which of the following pairs of items includes two examples of the same term?

22.

Benefits of XBRL include:

AACSB: Technology AICPA: BB Leveraging Technology 9-49 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

23.

When organizations use XBRL, they can free themselves from:

A. Proprietary systems. B. The steps in the accounting cycle. C. Both proprietary systems and the steps in the accounting cycle. D. Neither proprietary systems nor the steps in the accounting cycle.

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

24.

From an accountant's perspective, one of the benefits of XBRL is the ability to obtain more rapid and reliable data and information on company financial performance. Such items would include:

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium

Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

25.

From an accountant's perspective, one of the benefits of XBRL is the ability to focus effort on analysis and value-added work. Value-added work includes such items as

26.

Organizations can benefit from XBRL by obtaining quicker responses from counterparties. Examples of counterparties include:

A. The SEC. B. Lenders. C. Both the SEC and lenders. D. Neither the SEC nor lenders.

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. 9-51 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Organizational benefits

27.

XBRL allows organizations to simplify the process and reduce the costs involved in regulatory reporting to agencies such as:

A. The IRS. B. The SEC. C. Both the IRS and the SEC. D. Neither the IRS nor the SEC.

28.

The accounting cycle comprises ten steps. Companies that use XBRL do not have to:

A. Prepare journal entries. B. Close the nominal accounts. C. Both prepare journal entries and close the nominal accounts. D. Neither prepare journal entries nor close the nominal accounts.

29.

XBRL allows organizations to focus effort on analysis, forecasting and decision making. Which of the following includes one example of each of those tasks?

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

30.

Consider the following flowchart symbols as you respond to the question:

BLG Corporation uses systems flowcharts to teach its new employees about company procedures. If BLG adopts XBRL, those system flowcharts will likely incorporate fewer of ___ and more of ___.

A. Symbol A; Symbol C B. Symbol B; Symbol A C. Symbol C; Symbol A D. None of these; the use of XBRL will not affect symbols used in systems flowcharts.

AACSB: Technology AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

31.

Consider the following flowchart symbols as you respond to the question:

BLG Corporation uses systems flowcharts to teach its new employees about company procedures. If BLG adopts XBRL, those system flowcharts will likely incorporate fewer of ___ because ___.

AACSB: Technology AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

32.

Most organizations use ___ to prepare XBRL instance documents.

A. Tagging software B. Document flowcharts C. Both tagging software and document flowcharts D. Neither tagging software nor document flowcharts

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation 9-55 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-04 Identify software tools for creating XBRL-tagged documents. Topic: Global taxonomies and tagging tools

33.

Tagging software is used to prepare XBRL:

A. Instance documents B. Taxonomies C. Namespaces D. Internal controls

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-04 Identify software tools for creating XBRL-tagged documents. Topic: Global taxonomies and tagging tools

34.

Examples of XBRL tagging software include:

A. Internet Explorer B. PowerPoint C. Both Internet Explorer and PowerPoint D. Neither Internet Explorer nor PowerPoint

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-04 Identify software tools for creating XBRL-tagged documents. Topic: Global taxonomies and tagging tools

35.

Tagging software such as Ez-XBRL is often used in conjunction with what other type of software?

A. Spreadsheets. B. General ledger. C. Both Spreadsheets and General ledger. D. Neither Spreadsheets nor General ledger.

36.

In connection with spreadsheets, Rivet Software and Ez-XBRL are best used for which of the following tasks?

37.

OTH Corporation prepares its general-purpose financial statements with Sage 50 Complete Accounting. If OTH wanted to prepare XBRL instance documents, it must also use:

38.

Most accounting information systems comprise five elements. XBRL tagging software is most closely associated with:

A. Inputs. B. Processing. C. Outputs. D. Storage.

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-04 Identify software tools for creating XBRL-tagged documents. Topic: Global taxonomies and tagging tools

39.

Bumble Beasley commented: "I understand the benefits of XBRL, but tagging all our company's journal entries and financial statements is too much work." Which of the following is the best response to Bumble's comment?

40.

Which of the following would most effectively be used to select XBRL tagging software?

A. Expectancy theory B. Weighted-rating model C. COSO enterprise risk management framework D. Accounting cycle

41.

Internal control risks associated with XBRL include:

A. Compromised data. B. Tagging errors. C. Both compromised data and tagging errors. D. Neither compromised data nor tagging errors.

AACSB: Technology AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

42.

Internal control risks associated with XBRL include all of the following except:

A. Hardware and software failure. B. Lack of appropriate tags. C. Selecting an appropriate taxonomy. D. Compromised data.

43.

A disaster recovery plan is a good internal control for which of the following risks associated with XBRL?

A. Tagging errors B. Software failure C. Both tagging errors and software failure D. Neither tagging errors nor software failure

44.

As a form of internal control for XBRL, periodic user training best addresses the risk of:

A. Tagging errors. B. Data lost in transmission. C. Both tagging errors and data lost in transmission. D. Neither tagging errors nor data lost in transmission.

AACSB: Reflective Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

45.

COSO published two integrated frameworks to assist organizations in managing risk and developing internal controls. Organizations adopting XBRL could use:

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

46.

As a form of internal control to address the risk of inappropriate/missing authorizations, internal audit review of selected transactions is best described as:

A. A general control. B. An application control. C. A behavioral control. D. A financial control.

47.

Compromised data and tagging errors are most closely associated with which element of the COSO enterprise risk management framework?

A. Objective setting B. Internal environment C. Risk assessment D. Monitoring

48.

An internal auditor is given responsibility for reviewing selected XBRL-tagged documents as a form of internal control. If the internal auditor does not fulfill that responsibility, which of the following may help explain and correct the problem?

A. Expectancy theory B. Weighted-rating model C. Generic AIS elements D. AICPA Core Competencies framework

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

49.

Internal controls have four fundamental purposes. Which of the following pairs an internal control for XBRL with an appropriate purpose of internal control?

50.

Internal controls have four fundamental purposes. Which of the following pairs an internal control for XBRL with an appropriate purpose of internal control?

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard 9-64 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

51.

Consider the table below as you answer the questions:

In the table, "A" would most appropriately be replaced with:

A. Name B. Namespace prefix C. Data type D. Some other label The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

52.

Consider the table below as you answer the questions:

In the table, "B" would most appropriately be replaced with:

A. Namespace prefix B. Data type C. Balance type D. Some other label The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

53.

Consider the table below as you answer the questions:

In the table, "C" would most appropriately be replaced with:

A. Data type B. Balance type C. Period type D. Some other label The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

54.

Consider the table below as you answer the questions:

In the table, "D" would most appropriately be replaced with:

A. Balance type B. Name C. Data type D. Some other label The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

55.

Consider the table below as you answer the questions:

In the table, "E" would most appropriately be replaced with:

A. Name B. Namespace prefix C. Data type D. Some other label The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

56.

Consider the table below as you answer the questions:

In the table, "us_gaap" would best be described as:

A. a taxonomy B. a namespace C. an instance document D. an application of the FASB Conceptual Framework The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

57.

Consider the table below as you answer the questions:

The XBRL tags in the table would be included in ___ called ___.

A. a taxonomy; an income statement B. a taxonomy; a namespace C. an instance document; an income statement D. an instance document; a namespace The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

58.

Consider the table below as you answer the questions:

Which of the following is generally capable of interpreting the XBRL tags in the table?

A. Excel B. Internet Explorer C. Both Excel and Internet Explorer D. Neither Excel nor Internet Explorer The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

59.

Consider the table below as you answer the questions:

The data in the table were part of Microsoft's filings with the SEC. Which of the following XBRL taxonomies would Microsoft use to make journal entries in its AIS?

A. Global Ledger B. US GAAP C. SEC D. Some other taxonomy The table is a replica of the one in the chapter's "AIS in the Business World."

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

60.

Consider the table below as you answer the questions:

The data in the table were part of Microsoft's filings with the SEC. Which of the following statements is most true?

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

Ranking Questions

61.

Rivet Software is one option for creating XBRL-tagged documents. Many organizations follow the six steps listed below to do so; number the steps in the order of their occurrence.

1 Set up an entity profile. 5 Mark up the data. 2 Open tagging software and the file to be tagged. 4 Export the data as an XBRL document. 3 Download taxonomies. 6 Validate the document. The six steps are from the Phillips et al. article mentioned in Problem 7.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 09-04 Identify software tools for creating XBRL-tagged documents. Topic: Global taxonomies and tagging tools

Matching Questions

62.

The use of XBRL creates some internal control issues for organizations. Match each risk exposure on the left with the most appropriate control on the right. Use each control only one time.

up-to-date procedures 1. Inappropriate authorizations 2. Hardware and software failure

manuals 1 periodic user training 4 centralized approval

3. Compromised data 4. Tagging errors

process 5 disaster recovery plan 2

5. Selection of an inappropriate taxonomy

firewalls 3

Consult Table 9.2 in the chapter. Also note that the problem directions state that no control can be used more than once.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

Essay Questions

63.

Fill in the blanks below based on the benefits of XBRL discussed in the text. a. Consolidates results across ___ with much greater speed and reliability. b. Focus effort on ___, rather than on laborious tasks in gathering, compiling and preparing data. c. Free themselves from ___ systems and software which are difficult and costly to replace. d. Improve investor relations through provision of more ___ information. e. Saves costs by preparing data in one form and automatically generating ___.

a. divisions and subsidiaries b. analyzing, forecasting and decision making c. proprietary d. transparent and user-friendly e. many outputs

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

64.

The chapter discussed five key terms related to XBRL: extensible, specification, taxonomy, namespace and instance document. Specify which term is most appropriately associated with each item below. a. A specific example of properly tagged XBRL information. b. A way to organize knowledge. c. The Internet address that contains the meanings of XBRL tags. d. The quality of XBRL that allows people to add to it as necessary. e. The relationship between XBRL and XML.

a. instance document b. taxonomy c. namespace d. extensible e. specification

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 09-01 Define the following terms as they relate to XBRL: extensible, specification, taxonomy, namespace, and instance document. Topic: Terminology

65.

The text discussed five key terms related to XBRL. Which one best applies to each of the following items? a. Amanda said: "Here is the list of asset accounts we'll need to tag in XBRL; it includes items like cash and accounts receivable." b. Eugene expected to finish tagging the company's financial statements before the end of the day. c. Jeff asked his supervisor which set of XBRL tags the company should use. d. Molly wondered where she could find the meaning and interpretation of XBRL tags. e. Sue commented: "Our company is so unique, I'm sure we'll need to supplement existing tags before we can use XBRL."

a. specification (cash and accounts receivable are specifications of asset accounts) b. instance document c. taxonomy d. namespace e. extensible

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-01 Define the following terms as they relate to XBRL: extensible, specification, taxonomy, namespace, and instance document. Topic: Terminology

66.

What feature of XBRL is indicated by the highlighted phrase in each of the following items? (Do not limit yourself to the five key terms discussed in the text.) a. A bank would use a different set of XBRL tags than a manufacturer. b. Certain sets of XBRL tags conform to both a specific version of XBRL and XBRL guidelines for specific sets of tags. c. Companies can tag their general purpose financial statements with XBRL, as well as their SEC filings. d. No-one pays to use XBRL. e. Software capable of interpreting XBRL tags can look on the Internet to find the meaning of those tags. f. Some sets of XBRL tags conform only to a specific version of XBRL; they need further development. g. Syntax and punctuation are important when creating an instance document. h. There are many languages similar to XBRL; all of them belong to the larger XML family. i. There is an entire set of tags devoted to managing internal information, such as a chart of accounts or journal entries. j. XBRL facilitates interpretation of accounting numbers.

a. taxonomy b. approved c. instance document d. open source e. namespace f. acknowledged g. language h. specification i. global ledger taxonomy j. analysis

AICPA: FN Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

67.

Rivet Software is one option for creating XBRL-tagged documents. Many organizations follow the six steps listed below to do so; prepare a systems flowchart of the six steps. (Assume all six steps are completed in the same department.) 1. Download taxonomies. 2. Open tagging software and the file to be tagged. 3. Set up an entity profile. 4. Mark up the data. 5. Validate the document. 6. Export the data as an XBRL document.

68.

XBRL creates risk exposures for organizations that use it; those risk exposures have to be addressed via various forms of internal control. As discussed previously in the text, internal controls can be classified by purpose (preventive/detective/corrective) and their relationship to the organization's information system (general/application). Consider the list of risks and controls below; for each item, indicate whether the control is primarily preventive/detective/corrective. Also indicate whether the control is a general or application control.

Preventive/general Preventive/general Detective/application Corrective/general Corrective/general

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

69.

XBRL creates certain benefits for both accountants and organizations. Consider the statements below; rewrite each one to reflect a benefit of XBRL. 1) A company with divisions in more than one country will have to cope with differences in hardware, software, language, currency and terminology in preparing its consolidated financial statements. 2) Decision making in accounting information systems that do not use XBRL may be slow and inefficient because information is not as readily available. 3) SEC and IRS filings can be very time consuming without XBRL. 4) The bookkeeping process in view-driven accounting information systems is costly and prone to error because it constantly rearranges previously collected data into new forms. 5) Without the benefit of XBRL, accountants spend a lot of time gathering data and formatting it based on the decisions to be made with it.

1. A company with divisions in more than one country can use XBRL to deal with differences in hardware, software, language, currency and terminology in preparing its consolidated financial statements. 2. Decision making in accounting information systems that use XBRL is likely to be faster and more efficient because information is more readily available. 3. SEC and IRS filings can be done more quickly with XBRL. 4. Using XBRL in a view-driven accounting information system cuts down on errors (and therefore cost) because data are collected once, then reorganized into various forms. 5. With XBRL, accountants can spend more time on "value-added activities" such as analysis and decision making.

AACSB: Analytical Thinking AICPA: FN Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

70.

Using XBRL creates some risk exposures for organizations; an effective tool for managing risk exposures is the risk/control matrix. Using the format discussed in the text, create a risk/control matrix for the risk of XBRL tagging errors.

Risk: XBRL tagging errors Risk category: human error Internal control: internal audit of instance documents after tagging Internal control purpose: detective Comments: Other controls are also possible.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

Short Answer Questions

71.

Explain the structure of XBRL, including its relationship to XML.

XBRL is structured as a group of taxonomies (collections of tags grouped around a common theme). In terms of its relationship to XML, XBRL is a specification—an example of a markup language. Taxonomies are located in namespaces on the Internet, where capable software can find and interpret them within the context of instance documents. If an organization needs a tag that doesn't exist in a taxonomy, the organization can create it, thus exemplifying the extensible nature of XBRL.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 1 Easy Learning Objective: 09-02 Explain the history and structure of XBRL. Topic: History and structure

72.

Explain, in your own words, how most organizations create XBRL instance documents. Specifically address the role of information technology in that process.

Most organizations create XBRL instance documents using some form of information technology. XBRL tagging tools most often run as "add-ons" to other, more common types of software, such as spreadsheets. Phillips et al. recommended the following six-step process for creating instance documents: 1. Download taxonomies. 2. Open tagging software and the file to be tagged. 3. Set up an entity profile. 4. Mark up the data. 5. Validate the document. 6. Export the data as an XBRL document.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-04 Identify software tools for creating XBRL-tagged documents. Topic: Global taxonomies and tagging tools 9-85 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

73.

The use of XBRL creates some risk exposures for organizations; those risk exposures should be addressed via various forms of internal control. Use the COSO internal control framework to develop a plan specific to the risks associated with XBRL. Ensure that you discuss all five elements of the COSO framework.

Control environment: The CEO talks about the importance of strong internal control and selects employees to work on the internal control plan. Risk assessment: Employees on the task force may not have sufficient time to devote to the project along with their regular responsibilities. Control activities: Arrange for co-workers and/or temporary employees to carry out the duties of the employees on the task force. Information and communication: Once the plan is developed, members of the task force hold a series of informal discussion groups to talk about the plan. Monitoring: The internal audit department (or some other appropriate group) annually reviews the plan for any weaknesses and needed updates.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Apply Difficulty: 3 Hard Learning Objective: 09-05 Discuss internal control issues for XBRL. Topic: Internal control

74.

Consider the list of terms below. Select those that are fundamental to understanding XBRL; explain the meaning of each fundamental term. Business process management Capability maturity model Extensible Flowcharting Form 10-K Instance document Internal control Namespace Specification Taxonomy

Extensible: the quality of XBRL that allows users to create new tags as needed. Instance document: a properly tagged XBRL document, such as an income statement. Namespace: the URL where software can find the meanings of XBRL tags. Specification: an example of a larger class of objects. The relationship between XBRL and XML. Taxonomy: a collection of XBRL tags, typically organized around a common them.

75.

The capability maturity model has five levels: chaotic, repeatable, defined, managed, and optimized. Could an organization benefit from using XBRL at each of the five levels? If so, how? If not, why not? Ensure that your response addresses each level individually.

An organization could benefit from using XBRL at any level of the CMM—the bigger question is "how much." If an organization's processes are chaotic, the benefit will be limited since individual employees may be using XBRL without the knowledge of others. When processes become repeatable, they become more consistent, so the use of XBRL becomes more beneficial. Moving up the CMM, a process next becomes defined; the use of XBRL is contextualized within broader organizational policies and standards. At the "managed" level, the organization begins measuring how effectively it is using XBRL, perhaps in terms of how long it takes to create an instance document. Finally, when the organization's processes are optimized, XBRL becomes part of the larger conversation about quality management.

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 09-03 Discuss ways XBRL can benefit organizations. Topic: Organizational benefits

Chapter 10 E-business and Enterprise Resource Planning Systems

Multiple Choice Questions

1. Which of the following is most closely related to one of the benefits of e-business discussed in the text?

A. Internal controls B. Company finances C. Selling to a broader range of customers D. All of these are related to benefits of e-business.

2. The central feature of e-business is:

A. Transacting business over a computer network. B. Using XBRL for required SEC filings. C. Implementing general ledger software. D. Ensuring that the company is no lower than Level 3 on the capability maturity model.

3. Costs associated with e-business include:

A. Financial costs associated with setting up networks. B. Need to develop different, better internal control systems. C. Potential for customer distrust. D. All of these.

4. E-business offers many potential benefits for a company's marketing efforts. Those benefits include:

A. Selling to a more diverse group of customers. B. Allowing a business to focus its marketing efforts. C. Both selling to a more diverse group of customers and allowing a business to focus its marketing efforts. D. Neither selling to a more diverse group of customers nor allowing a business to focus its marketing efforts.

5. WebTrust and SysTrust are most closely related to which of the following?

A. Elements of Brown's risk taxonomy B. Flowcharting C. Expectancy theory D. All of these

6. WebTrust and SysTrust can be incorporated into an organization's:

A. Internal control plan B. Enterprise risk management plan C. Both internal control plan and enterprise risk management plan D. Neither internal control plan nor enterprise risk management plan

7. TNS Corporation had been doing business via traditional brick-and-mortar methods for many years, then decided to expand into e-business. Based on the benefits and costs of e-business listed in the text, which of the following numbers is likely to increase?

A. Sales B. Profits C. Prepaid assets D. Retained earnings

8. The CEO and CFO of TNS Corporation wanted to expand into e-business, but the company's board of directors was unwilling to approve their plan. Which of the following theories will best help the CEO and CFO persuade the board of directors to support their idea?

A. Capability maturity model B. Systems development life cycle C. Expectancy theory D. COSO enterprise risk management framework

9. Which of the following statements is true?

A. A bank is unlikely to benefit from e-business. B. In a university, the costs of e-business usually exceed the benefits. C. Both a bank is unlikely to benefit from e-business and in a university, the costs of ebusiness usually exceed the benefits are true. D. Neither a bank is unlikely to benefit from e-business nor in a university, the costs of ebusiness usually exceed the benefits is true.

10. When the Internal Revenue Service encourages individual taxpayers to submit forms electronically, it is engaging in which form of e-business?

A. B2C B. G2C C. C2C D. B2B

11. The US Department of State provides information on its web site for US citizens traveling to other countries and for citizens of other countries traveling to the US. Which of the following statements is most true?

A. The US Department of State is not engaged in e-business because it does not sell the information. B. The US Department of State is not engaged in e-business because it provides information to non-citizens. C. The US Department of State is engaged in G2B e-business. D. The US Department of State is engaged in G2C e-business.

12. Hewlett-Packard builds and sells computers and related accessories. It can engage in which of the following forms of e-business?

A. B2C B. B2B C. Both of these. D. None of these.

13. Which of the following statements about B2B e-business is most true?

A. Companies engaged in B2B can benefit from the COSO internal control and enterprise risk management frameworks. B. Companies engaged in B2B must be at Level Three of the capability maturity model. C. The weighted-rating technique is irrelevant to companies engaged in B2B. D. Expansion into B2B is based on requirements analysis, the first step in the systems development life cycle.

14. A company engaged in B2C e-business needs to create a new computer network. The process of creating the network would benefit most from:

A. The capability maturity model. B. The systems development life cycle. C. The use of expectancy theory. D. Re-ordering the steps in the accounting cycle.

15. Consider the following flowcharting shapes as you answer the question:

SBL Corporation is preparing to expand into B2B e-business. A flowchart of their sales process should definitely include which of the following symbols?

A. Symbol A B. Symbol B C. Symbol C D. Symbol D

16. Consider the following flowcharting shapes as you answer the question:

SBL Corporation is preparing to expand into B2B e-business. In a flowchart of their sales process, "take order via Web site" is most likely to be represented with:

A. Symbol A B. Symbol B C. Symbol C D. Symbol D

17. SBL Corporation is preparing to expand into B2B e-business. It is least likely to need which of the following database tables as part of its network?

A. Customer B. Employee C. Business D. Order

18. SBL Corporation is preparing to expand into B2B e-business. If SBL sells office supplies to its customers, its database for sales transactions should include all of the following tables except:

A. Supplies B. Inventory C. Order D. Order/inventory

19. A modular information technology designed to provide comprehensive information about a company is called:

A. An enterprise resource planning system. B. A spreadsheet. C. A risk management plan. D. The accounting cycle.

20. In which module of an ERP system would you expect to find the most detailed information about purchase orders?

A. Customer relationship management B. Human resource management C. Supply chain management D. Financial management

21. RVW Corporation uses an enterprise resource planning system. An accountant wants to create a report of the last month's sales sorted by client that also includes the name of the salesperson who assisted with each transaction. Which modules of the ERP system will provide the relevant information?

A. Customer relationship management and financial management B. Human resource management and financial management C. Customer relationship management and human resource management D. Such a report cannot be generated from the ERP system.

22. RVW Corporation uses an enterprise resource planning system. An accountant wants to create a report of the last month's purchases sorted by vendor that also includes the name of the purchasing agent who assisted with each transaction. Which modules of the ERP system will provide the relevant information?

A. Supply chain management and human resource management B. Supply chain management and customer relationship management C. Customer relationship management and supply chain management D. Such a report cannot be generated from the ERP system.

23. Modules in an ERP system that contain information about inventory include all the following except:

A. Customer relationship management B. Human resource management C. Supply chain management D. Financial management

24. Which modules in an ERP system are likely to contain information about a company's plant assets?

A. Supply chain management B. Financial management C. Both supply chain management and financial management D. Neither supply chain management nor financial management

25. An ERP system is a sophisticated form of relational database software; within each module, data are stored in tables. In which modules would you expect to find "employee ID" as a field in one or more tables: (i) customer relationship management, (ii) human resource management, (iii) supply chain management?

A. I and II only B. I and III only C. II and III only D. I, II and III

26. As a processing tool in an accounting information system, ERP software is capable of generating outputs in the form of general-purpose financial statements. Which of the following statements is most true?

A. The financial management module alone contains all the information a company needs to produce its financial statements. B. All four common ERP system modules provide information to the general purpose financial statements. C. A company needs to create a fifth module called "financial statement creation" if it wants to use an ERP system to create its financial statements. D. None of these statements is true.

27. Common causes of ERP implementation failure include:

A. Poor leadership from top management. B. Unrealistic expectations. C. Both poor leadership from top management and unrealistic expectations. D. Neither poor leadership from top management nor unrealistic expectations.

28. An organization is at the "chaotic" level of the capability maturity model. If it attempts to implement an ERP system, which of the following is most likely to cause the implementation to fail?

A. A bad match between ERP software and organizational processes. B. Significant technical difficulties. C. Both a bad match between ERP software and organizational processes and significant technical difficulties. D. Neither a bad match between ERP software and organizational processes nor significant technical difficulties.

29. TNG Corporation implemented an ERP system using the steps in the systems development life cycle. Which of the following statements is most true?

A. The systems development life cycle is an inappropriate tool for implementing an ERP system. B. TNG is unlikely to suffer from poor project management. C. Top management leadership is unnecessary when a company uses the systems development life cycle. D. TNG can omit requirements analysis as a step in the systems development life cycle.

30. Expectancy theory is most likely to be helpful in addressing which of the following common causes of ERP implementation failure?

A. Poor leadership from top management B. Automating existing redundant processes C. Inaccurate data in the system D. Significant technical difficulties

31. Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. If Sue and Sally accept Robert's proposal, which of the following common causes of ERP implementation failure is likely to be the most serious?

A. Poor leadership from top management B. Significant technical difficulties C. Inadequate education and training D. None of these. Since the company is so small, the ERP project is likely to succeed.

32. Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. Based on the information in the case, all parties need to be concerned with which of the following common causes of ERP implementation failure?

A. Inaccurate data in the system B. Unrealistic expectations C. Both inaccurate data in the system and unrealistic expectations D. Neither inaccurate data in the system nor unrealistic expectations

33. Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. Which of the following best pairs a fact from the case with an appropriate cause of ERP system failures?

A. Sue and Sally are partners in a small local bakery; poor leadership from top management B. They use a simple Excel spreadsheet; inadequate training and education C. The ERP system will make it easier for them to borrow money; unrealistic expectations D. All of these

34. Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. Which of the following best pairs a fact from the case with an appropriate cause of ERP system failures?

A. The company is a small local bakery; a bad match between ERP software and organizational processes B. Sue and Sally are partners; poor leadership from top management. C. Both the company is a small local bakery; a bad match between ERP software and organizational processes and Sue and Sally are partners; poor leadership from top management D. Neither the company is a small local bakery; a bad match between ERP software and organizational processes nor Sue and Sally are partners; poor leadership from top management

35. Which of the following are conditions commonly associated with a successful ERP implementation?

A. Obtaining organizational commitment B. Communicating strategic goals clearly C. Both obtaining organizational commitment and communicating strategic goals clearly D. Neither obtaining organizational commitment nor communicating strategic goals clearly

36. SPL Corporation is an information technology consulting firm with offices in six states. In implementing an ERP system for its own use, management should be careful to:

A. Resolve multisite issues. B. Select a compatible ERP system. C. Both resolve multisite issues and select a compatible ERP system D. Neither resolve multisite issues nor select a compatible ERP system

37. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of the conditions is most clearly related to the "internal environment" component of the COSO frameworks on internal control and enterprise risk management?

A. Obtain organizational commitment. B. Ensure data accuracy. C. Select a compatible ERP system. D. All of these.

38. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Expectancy theory can be useful in achieving all of the following conditions except:

A. Obtaining organizational commitment. B. Viewing ERP as an enterprise-wide venture. C. Resolving multisite issues. D. Ensuring data accuracy.

39. Consider the following short case as you respond to the question: Scott and Logan are the CEO and CFO of MLN Corporation. The firm has lately been losing customers to MLN's competitors; Scott and Logan believe an ERP system could help MLN obtain more timely information that will enable them to retain old customers and acquire new ones. They formed a six-person team with representatives from three of MLN's ten departments and instructed them to use the steps in the systems development life cycle to choose and implement an ERP system. A year later, the team had completed its work and implemented the system by transferring data from MLN's general ledger software to the ERP system. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of them was best achieved in the case?

A. Communicating strategic goals clearly. B. Viewing ERP as an enterprise-wide venture. C. Ensuring data accuracy. D. All of these.

40. Consider the following short case as you respond to the question: Scott and Logan are the CEO and CFO of MLN Corporation. The firm has lately been losing customers to MLN's competitors; Scott and Logan believe an ERP system could help MLN obtain more timely information that will enable them to retain old customers and acquire new ones. They formed a six-person team with representatives from three of MLN's ten departments and instructed them to use the steps in the systems development life cycle to choose and implement an ERP system. A year later, the team had completed its work and implemented the system by transferring data from MLN's general ledger software to the ERP system. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of the following statements is most true?

A. Forming a six-person team ensures that ERP will be seen as an enterprise-wide venture. B. Resolving multi-site issues may not have been an issue for MLN. C. Both forming a six-person team ensures that ERP will be seen as an enterprise-wide venture and resolving multi-site issues may not have been an issue for MLN are true. D. Neither forming a six-person team ensures that ERP will be seen as an enterprise-wide venture nor resolving multi-site issues may not have been an issue for MLN is true.

41. Consider the following short case as you respond to the question: Scott and Logan are the CEO and CFO of MLN Corporation. The firm has lately been losing customers to MLN's competitors; Scott and Logan believe an ERP system could help MLN obtain more timely information that will enable them to retain old customers and acquire new ones. They formed a six-person team with representatives from three of MLN's ten departments and instructed them to use the steps in the systems development life cycle to choose and implement an ERP system. A year later, the team had completed its work and implemented the system by transferring data from MLN's general ledger software to the ERP system. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of the following pieces of advice is most applicable to MLN?

A. Form a smaller implementation team. B. Ensure that the implementation team has wider representation. C. Both form a smaller implementation team and ensure that the implementation team has wider representation. D. Neither form a smaller implementation team nor ensure that the implementation team has wider representation.

42. Consider the following short case as you respond to the question: Scott and Logan are the CEO and CFO of MLN Corporation. The firm has lately been losing customers to MLN's competitors; Scott and Logan believe an ERP system could help MLN obtain more timely information that will enable them to retain old customers and acquire new ones. They formed a six-person team with representatives from three of MLN's ten departments and instructed them to use the steps in the systems development life cycle to choose and implement an ERP system. A year later, the team had completed its work and implemented the system by transferring data from MLN's general ledger software to the ERP system. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of the following is most closely related to communicating strategic goals clearly?

A. The firm has lately been losing customers to MLN's competitors. B. They formed a six-person team. C. A year later, the team had completed its work. D. Use the steps in the systems development life cycle.

43. An organization that provides a contractual service to deploy, host and manage applications for customers remotely from a centralized location is called an:

A. Enterprise resource planning consultant B. Application service provider C. Enterprise service provider D. Application service planning consultant

44. An ASP specializes in software applications for government agencies. It is best described as which type of ASP?

A. Enterprise B. Vertical market C. Volume business D. Application

45. A corporation hired an ERP consultant to recommend an ASP for its payroll processing. In a systems flowchart of the payroll process, which of the following is most likely to be outside the system boundary?

A. ERP consultant B. ASP C. Both ERP consultant and ASP D. Neither ERP consultant nor ASP

46. SSAE 16 is a form of ___ with respect to an ASP.

A. internal control B. information technology C. Both internal control and information technology D. Neither internal control nor information technology

47. With respect to an ASP, service interruptions and compromised data would be most effectively addressed with:

A. An enterprise risk management plan. B. A systems flowchart. C. The steps in the accounting cycle. D. The capability maturity model.

48. Both e-business and ASPs create risks and costs for organizations. Which of the following best pairs a potential cost of e-business with a potential risk of using an ASP?

A. Potential for customer distrust, inability to pay monthly fees B. Financial costs associated with setting up networks, reduced flexibility C. Potential for customer distrust, psychological & behavioral factors D. Financial costs associated with setting up networks, psychological & behavioral factors

49. Both e-business and ASPs can provide benefits for organizations. Which of the following best pairs a potential benefit of e-business with a potential benefit of using an ASP?

A. Quicker service delivery, increased flexibility B. Geographic market expansion, role in disaster recovery plans C. Quicker service delivery, role in disaster recovery plans D. Geographic market expansion, reduced consequences for technology breakdowns

50. As a form of internal control, an SSAE 16 audit is least likely to address which of the following risks associated with ASPs?

A. Compromised data B. Inability to pay monthly fees C. Financial costs associated with setting up a computer network D. Cost of purchasing software

51. Well-known enterprise resource planning systems include: (i) Oracle's PeopleSoft, (ii) SAP, (iii) Microsoft Excel.

A. I and II only B. I and III only C. II and III only D. I, II and III

52. Virtually all ERP systems are organized in:

A. database queries. B. spreadsheets. C. modules. D. application service providers.

53. Within the context of ERP systems, a module is:

A. a part of the program aligned with a specific function of the organization. B. another name for a database table. C. Both a part of the program aligned with a specific function of the organization and another name for a database table. D. Neither a part of the program aligned with a specific function of the organization nor another name for a database table.

54. STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The three tables are linked via which of the following fields?

A. Cash B. Account number C. Currency D. Some other field

55. STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The cash receipts table is most likely to be part of which ERP module?

A. CRM B. HRM C. SCM D. Financial management

56. STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The cash payments table is most likely to be part of which ERP module?

A. CRM B. HRM C. SCM D. Financial management

57. STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The cash table is most likely to be part of which ERP module?

A. CRM B. HRM C. SCM D. Financial management

58. STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. Foreign keys in the cash payments table would include: (i) vendor ID, (ii) account number, (iii) cash payment date.

A. I and II only B. I and III only C. II and III only D. I, II and III

59. STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. Foreign keys in the cash receipts table would include: (i) customer ID, (ii) account number, (iii) cash receipt date.

A. I and II only B. I and III only C. II and III only D. I, II and III

60. SSAE 16 includes three broad types of SOC Reports. SOC 1 reports on:

A. ERP systems. B. the COSO framework. C. controls over security, availability, processing integrity, confidentiality or privacy. D. controls relevant to user entities internal control over financial reporting.

Essay Questions

61. Fill in the blanks below based on the benefits and costs of e-business discussed in the chapter. a. ___ markets b. Financial costs associated with ___ c. Geographic ___ d. More ___ marketing e. Need to develop different ___ systems f. Potential for ___ g. Quicker ___ delivery h. Reduced ___ i. Severe consequences for ___ j. Streamlined ___

62. According to the table presented in the text, which major form of e-business describes each of the following? a. Dell Computers b. eBay c. EDGAR d. Internal Revenue Service f. Travelocity

63. Indicate one ERP module where you would expect to find information about each of the following items. a. Accrued vacation time b. All transactions affecting cash c. Chart of accounts d. Client name e. Date of last inventory purchase f. Pension plan data g. Projected profits h. Sales history i. Shareholder names and addresses j. Vendor quality ratings

64. The chapter discussed five types of ASPs: (a) enterprise, (b) local/regional, (c) specialist, (d) vertical market and (e) volume business. Which of the five types best describes each of the following? 1. Attendance and vacation tracking for small businesses in St Louis 2. Credit card processing for retail department stores 3. Diverse IT-related services for mid-range businesses in Shreveport 4. ERP systems 5. Online employee training 6. Payroll processing for banks and other financial institutions 7. Pension fund management 8. Recruiting executives for the Fortune 500 9. Several marketing-related services for small business 10. Small business general ledger software in Dallas

65. PLM Corporation was preparing to implement its first ERP system. Several actions taken by the ERP project team to promote the project's success are listed below. Which of Umble and Umble's six conditions for successful ERP implementation best describes each one? a. Asked internal auditors to review the work of employees who input data to the system b. Conducted focus groups with selected employee groups to address concerns c. Ensured that PLM's wireless network adequately connected all of its offices throughout the United States d. Included employees from all departments on the ERP project team e. Incorporated echo checks as a form of internal control to reduce employee mistakes f. Interviewed company executives to determine if they truly supported the project g. Published a monthly newsletter on the role of the ERP system in improving competitiveness h. Set up demonstrations to show employees how the ERP system would allow them to get better information more quickly i. Solicited suggestions from all employees about how to improve business processes j. Visited similar companies to learn about their experiences with ERP software

66. TWR Corporation attempted to implement its first ERP system using the systems development life cycle, but the project was deemed a failure. Some of the actions that led to the failure are listed below. For each one, indicate the major cause of ERP implementation failure suggested by Umble and Umble that most clearly applies. Do not use any major cause more than once. a. Employees using the ERP system were expected to learn how to use the system after it was operational. b. Employees who input information to the system made errors. c. Only employees from the information systems department were on the project team. d. The company president missed most of the planning meetings. e. The ERP project team leader predicted a 90% reduction in information technology costs after the system was implemented. f. The project team leader promised that no-one would lose their job as a result of ERP system implementation. g. The project team skipped steps in the systems development life cycle. h. The system implemented could not be customized for TWR's operations. i. TWR continued to rely on paper-based forms and spreadsheet software to track inventory. j. TWR's existing computers could not run the software fast enough.

67. Organizations that implement ERP systems bear the risk of project failure for a variety of reasons, one of which is inadequate education and training. Complete the table below to develop an enterprise risk management plan that addresses that risk.

68. Enterprise resource planning systems are a sophisticated form of relational database technology; one common ERP system module is supply chain management. Organize the field names below into four tables you would expect to find in an ERP system's supply chain management module. Indicate primary keys by underlining and foreign keys with brackets; ensure that each table is in 3NF. Beginning date Beginning units on hand Cost per unit of beginning inventory Cost per unit purchased Employee ID Item description Item number Location of supplier Purchase order number Quantity purchased Supplier name Transaction date

69. Reliable Reminder Services is a small company that, for a fee, assists its clients in remembering important dates, purchasing and sending greeting cards and providing specialized shopping services for occasions like birthdays and anniversaries. The company's owners want to use an application service provider to develop and host a web page that will help them attract new clients. They completed the following steps to select an ASP: Choose an ASP from the finalists. Conduct in-house interviews. Contact references provided by finalists. Develop request for proposals from ASPs. Evaluate submitted proposals. Negotiate a contract with the selected ASP. Select top five proposals. Select top three proposals. Send thank you letters to rejected ASPs. Send the original contract to the ASP; retain an electronic copy in the database. Put the steps in order and prepare a systems flowchart of the ASP selection process; assume that all steps occur in the same department. Ensure that your flowchart conforms to the principles discussed in the text.

70. Enterprise resource planning systems are a sophisticated form of relational database technology; one common ERP system module is customer relationship management. Create database specifications (table names and field names) for three tables you would expect to find in an ERP system's customer relationship management module. At least one of the tables must be a junction table. Indicate primary keys by underlining and foreign keys with brackets; ensure that each table is in 3NF.

Short Answer Questions

71. List and briefly discuss five major forms of e-business.

72. CSB Corporation has used traditional general ledger software to maintain its accounting records. However, the company is now growing and needs more sophisticated information technology that will provide more comprehensive information for running the firm. Recommend a form of information technology that will meet CSB's need; describe the basic nature, purpose and structure of the IT you recommend.

73. Jose is an artist specializing in family portraits. Although his business started as a traditional "brick and mortar" enterprise, he is now interested in expanding into e-business. He has hired you as a consultant; explain four changes Jose is likely to see if he expands into the ebusiness arena.

74. Bumble Beasley runs a medium-sized consulting firm with offices throughout the United States and Europe. For the past several years, the firm has provided continuing education to its 500 employees via monthly seminars in various locations. But, travel costs are becoming prohibitively expensive, leading Bumble to look for other ways to provide continuing education. Bumble has contacted Training Services Unlimited, an application service provider that specializes in delivering Web-based training on various topics to professional services firms. What type of ASP is Training Services Unlimited? What are the advantages and disadvantages of using their services? Discuss the nature and value of an SSAE 16 audit within the context of this case.

75. JRS Corporation attempted to install an enterprise resource planning system with very poor results. The project took significantly longer than expected; actual costs exceeded budgeted costs by a significant margin. In addition, the system has been poorly utilized because it was never completed. The management of JRS has hired you to bring the project to a successful completion. Write a letter to management explaining three common causes of ERP implementation failure; also make four recommendations that will help them be more successful with the implementation now.

Chapter 10 E-business and Enterprise Resource Planning Systems Answer Key

Multiple Choice Questions

Which of the following is most closely related to one of the benefits of e-business discussed in the text?

A. Internal controls B. Company finances C. Selling to a broader range of customers D. All of these are related to benefits of e-business. Internal controls can allow an organization to streamline its operations. Company finances are related to reduced operating costs. Selling to a broader range of customers is related to the marketing benefits of e-business.

AACSB: Analytical Thinking AICPA: BB Industry Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

The central feature of e-business is:

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

Costs associated with e-business include:

A. Financial costs associated with setting up networks. B. Need to develop different, better internal control systems. C. Potential for customer distrust. D. All of these.

AACSB: Technology AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

E-business offers many potential benefits for a company's marketing efforts. Those benefits include:

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

WebTrust and SysTrust are most closely related to which of the following?

A. Elements of Brown's risk taxonomy B. Flowcharting C. Expectancy theory D. All of these

WebTrust and SysTrust can be incorporated into an organization's:

A. Internal control plan B. Enterprise risk management plan C. Both internal control plan and enterprise risk management plan D. Neither internal control plan nor enterprise risk management plan

TNS Corporation had been doing business via traditional brick-and-mortar methods for many years, then decided to expand into e-business. Based on the benefits and costs of e-business listed in the text, which of the following numbers is likely to increase?

A. Sales B. Profits C. Prepaid assets D. Retained earnings

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

The CEO and CFO of TNS Corporation wanted to expand into e-business, but the company's board of directors was unwilling to approve their plan. Which of the following theories will best help the CEO and CFO persuade the board of directors to support their idea?

A. Capability maturity model B. Systems development life cycle C. Expectancy theory D. COSO enterprise risk management framework

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

Which of the following statements is true?

mortar" organizations. Topic: E-business

10.

When the Internal Revenue Service encourages individual taxpayers to submit forms electronically, it is engaging in which form of e-business?

A. B2C B. G2C C. C2C D. B2B

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

11.

The US Department of State provides information on its web site for US citizens traveling to other countries and for citizens of other countries traveling to the US. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

12.

Hewlett-Packard builds and sells computers and related accessories. It can engage in which of the following forms of e-business?

A. B2C B. B2B C. Both of these. D. None of these.

13.

Which of the following statements about B2B e-business is most true?

14.

A company engaged in B2C e-business needs to create a new computer network. The process of creating the network would benefit most from:

A. The capability maturity model. B. The systems development life cycle. C. The use of expectancy theory. D. Re-ordering the steps in the accounting cycle.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard 10-47 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

15.

Consider the following flowcharting shapes as you answer the question:

SBL Corporation is preparing to expand into B2B e-business. A flowchart of their sales process should definitely include which of the following symbols?

A. Symbol A B. Symbol B C. Symbol C D. Symbol D

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

16.

Consider the following flowcharting shapes as you answer the question:

SBL Corporation is preparing to expand into B2B e-business. In a flowchart of their sales process, "take order via Web site" is most likely to be represented with:

A. Symbol A B. Symbol B C. Symbol C D. Symbol D

17.

SBL Corporation is preparing to expand into B2B e-business. It is least likely to need which of the following database tables as part of its network?

A. Customer B. Employee C. Business D. Order

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

18.

SBL Corporation is preparing to expand into B2B e-business. If SBL sells office supplies to its customers, its database for sales transactions should include all of the following tables except:

A. Supplies B. Inventory C. Order D. Order/inventory

19.

A modular information technology designed to provide comprehensive information about a company is called:

A. An enterprise resource planning system. B. A spreadsheet. C. A risk management plan. D. The accounting cycle.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

20.

In which module of an ERP system would you expect to find the most detailed information about purchase orders?

A. Customer relationship management B. Human resource management C. Supply chain management D. Financial management

21.

RVW Corporation uses an enterprise resource planning system. An accountant wants to create a report of the last month's sales sorted by client that also includes the name of the salesperson who assisted with each transaction. Which modules of the ERP system will provide the relevant information?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

22.

RVW Corporation uses an enterprise resource planning system. An accountant wants to create a report of the last month's purchases sorted by vendor that also includes the name of the purchasing agent who assisted with each transaction. Which modules of the ERP system will provide the relevant information?

Topic: ERP systems

23.

Modules in an ERP system that contain information about inventory include all the following except:

A. Customer relationship management B. Human resource management C. Supply chain management D. Financial management

24.

Which modules in an ERP system are likely to contain information about a company's plant assets?

A. Supply chain management B. Financial management C. Both supply chain management and financial management D. Neither supply chain management nor financial management

25.

An ERP system is a sophisticated form of relational database software; within each module, data are stored in tables. In which modules would you expect to find "employee ID" as a field in one or more tables: (i) customer relationship management, (ii) human resource management, (iii) supply chain management?

A. I and II only B. I and III only C. II and III only D. I, II and III

AACSB: Technology AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

26.

As a processing tool in an accounting information system, ERP software is capable of generating outputs in the form of general-purpose financial statements. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand 10-54 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

27.

Common causes of ERP implementation failure include:

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Topic: ERP systems

28.

An organization is at the "chaotic" level of the capability maturity model. If it attempts to implement an ERP system, which of the following is most likely to cause the implementation to fail?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 10-55 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Topic: ERP systems

29.

TNG Corporation implemented an ERP system using the steps in the systems development life cycle. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Topic: ERP systems

30.

Expectancy theory is most likely to be helpful in addressing which of the following common causes of ERP implementation failure?

A. Poor leadership from top management B. Automating existing redundant processes C. Inaccurate data in the system D. Significant technical difficulties

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. 10-56 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: ERP systems

31.

Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. If Sue and Sally accept Robert's proposal, which of the following common causes of ERP implementation failure is likely to be the most serious?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Topic: ERP systems

32.

Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. Based on the information in the case, all parties need to be concerned with which of the following common causes of ERP implementation failure?

A. Inaccurate data in the system B. Unrealistic expectations C. Both inaccurate data in the system and unrealistic expectations D. Neither inaccurate data in the system nor unrealistic expectations

33.

Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. Which of the following best pairs a fact from the case with an appropriate cause of ERP system failures?

34.

Please consider the following short case as you respond to the question: Sue and Sally are partners in a small local bakery specializing in wedding and birthday cakes. They use a simple Excel spreadsheet to record journal entries and prepare financial statements and tax returns. Robert, the owner of a consulting company that installs and maintains ERP systems, has recently approached them about the possibility of implementing an ERP system in their operations. If they accept his offer, Robert will provide a series of online tutorials to help them learn about the new system. Sue and Sally believe the implementation of the ERP system will make it easier for them to borrow money to expand the bakery. Which of the following best pairs a fact from the case with an appropriate cause of ERP system failures?

35.

Which of the following are conditions commonly associated with a successful ERP implementation?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-05 List and discuss steps associated with successful ERP implementations. Topic: ERP systems

36.

SPL Corporation is an information technology consulting firm with offices in six states. In implementing an ERP system for its own use, management should be careful to:

37.

Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of the conditions is most clearly related to the "internal environment" component of the COSO frameworks on internal control and enterprise risk management?

A. Obtain organizational commitment. B. Ensure data accuracy. C. Select a compatible ERP system. D. All of these.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-05 List and discuss steps associated with successful ERP implementations. Topic: ERP systems

38.

Umble and Umble suggested six necessary conditions for a successful ERP implementation. Expectancy theory can be useful in achieving all of the following conditions except:

A. Obtaining organizational commitment. B. Viewing ERP as an enterprise-wide venture. C. Resolving multisite issues. D. Ensuring data accuracy. Expectancy theory is useful whenever human motivation is involved; resolving multisite issues is more a question of information technology than of human motivation.

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-05 List and discuss steps associated with successful ERP implementations. Topic: ERP systems

39.

Consider the following short case as you respond to the question: Scott and Logan are the CEO and CFO of MLN Corporation. The firm has lately been losing customers to MLN's competitors; Scott and Logan believe an ERP system could help MLN obtain more timely information that will enable them to retain old customers and acquire new ones. They formed a six-person team with representatives from three of MLN's ten departments and instructed them to use the steps in the systems development life cycle to choose and implement an ERP system. A year later, the team had completed its work and implemented the system by transferring data from MLN's general ledger software to the ERP system. Umble and Umble suggested six necessary conditions for a successful ERP implementation. Which of them was best achieved in the case?

A. Communicating strategic goals clearly. B. Viewing ERP as an enterprise-wide venture. C. Ensuring data accuracy. D. All of these.

40.

41.

42.

43.

An organization that provides a contractual service to deploy, host and manage applications for customers remotely from a centralized location is called an:

A. Enterprise resource planning consultant B. Application service provider C. Enterprise service provider D. Application service planning consultant

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

44.

An ASP specializes in software applications for government agencies. It is best described as which type of ASP?

A. Enterprise B. Vertical market C. Volume business D. Application

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

45.

A corporation hired an ERP consultant to recommend an ASP for its payroll processing. In a systems flowchart of the payroll process, which of the following is most likely to be outside the system boundary?

A. ERP consultant B. ASP C. Both ERP consultant and ASP D. Neither ERP consultant nor ASP

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

46.

SSAE 16 is a form of ___ with respect to an ASP.

A. internal control B. information technology C. Both internal control and information technology D. Neither internal control nor information technology

47.

With respect to an ASP, service interruptions and compromised data would be most effectively addressed with:

A. An enterprise risk management plan. B. A systems flowchart. C. The steps in the accounting cycle. D. The capability maturity model.

48.

Both e-business and ASPs create risks and costs for organizations. Which of the following best pairs a potential cost of e-business with a potential risk of using an ASP?

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

49.

Both e-business and ASPs can provide benefits for organizations. Which of the following best pairs a potential benefit of e-business with a potential benefit of using an ASP?

50.

As a form of internal control, an SSAE 16 audit is least likely to address which of the following risks associated with ASPs?

A. Compromised data B. Inability to pay monthly fees C. Financial costs associated with setting up a computer network D. Cost of purchasing software Note that only "compromised data" and "inability to pay monthly fees" are risks associated with ASPs.

51.

Well-known enterprise resource planning systems include: (i) Oracle's PeopleSoft, (ii) SAP, (iii) Microsoft Excel.

A. I and II only B. I and III only C. II and III only D. I, II and III

52.

Virtually all ERP systems are organized in:

A. database queries. B. spreadsheets. C. modules. D. application service providers.

53.

Within the context of ERP systems, a module is:

54.

STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The three tables are linked via which of the following fields?

A. Cash B. Account number C. Currency D. Some other field

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: ERP systems 10-72 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

55.

STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The cash receipts table is most likely to be part of which ERP module?

A. CRM B. HRM C. SCM D. Financial management

56.

STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The cash payments table is most likely to be part of which ERP module?

A. CRM B. HRM C. SCM D. Financial management Although HRM involves cash payments in the form of payroll, STC is likely to maintain separate tables for payroll.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: ERP systems

57.

STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. The cash table is most likely to be part of which ERP module?

A. CRM B. HRM C. SCM D. Financial management

58.

STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. Foreign keys in the cash payments table would include: (i) vendor ID, (ii) account number, (iii) cash payment date.

A. I and II only B. I and III only C. II and III only D. I, II and III

AICPA: BB Leveraging Technology Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: ERP systems

59.

STC Corporation's enterprise resource planning system contains a cash payments table, a cash receipts table and a cash table. Foreign keys in the cash receipts table would include: (i) customer ID, (ii) account number, (iii) cash receipt date.

A. I and II only B. I and III only C. II and III only D. I, II and III

60.

SSAE 16 includes three broad types of SOC Reports. SOC 1 reports on:

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

Essay Questions

61.

Fill in the blanks below based on the benefits and costs of e-business discussed in the chapter. a. ___ markets b. Financial costs associated with ___ c. Geographic ___ d. More ___ marketing e. Need to develop different ___ systems f. Potential for ___ g. Quicker ___ delivery h. Reduced ___ i. Severe consequences for ___ j. Streamlined ___

a. hard to reach b. setting up networks c. market expansion d. targeted e. better internal control f. customer distrust g. easier product and service h. operating costs i. technology breakdowns j. operations

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-01 Explain the nature of e-business, comparing and contrasting it with traditional "brick andmortar" organizations. Topic: E-business

62.

According to the table presented in the text, which major form of e-business describes each of the following? a. Dell Computers b. eBay c. EDGAR d. Internal Revenue Service f. Travelocity

a. B2C or B2B b. C2C c. G2C d. G2C or G2B f. B2C

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

63.

Indicate one ERP module where you would expect to find information about each of the following items. a. Accrued vacation time b. All transactions affecting cash c. Chart of accounts d. Client name e. Date of last inventory purchase f. Pension plan data g. Projected profits h. Sales history i. Shareholder names and addresses j. Vendor quality ratings

a. human resource management b. financial management c. financial management d. customer relationship management e. supply chain management f. human resource management g. financial management h. customer relationship management i. financial management j. supply chain management

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

64.

The chapter discussed five types of ASPs: (a) enterprise, (b) local/regional, (c) specialist, (d) vertical market and (e) volume business. Which of the five types best describes each of the following? 1. Attendance and vacation tracking for small businesses in St Louis 2. Credit card processing for retail department stores 3. Diverse IT-related services for mid-range businesses in Shreveport 4. ERP systems 5. Online employee training 6. Payroll processing for banks and other financial institutions 7. Pension fund management 8. Recruiting executives for the Fortune 500 9. Several marketing-related services for small business 10. Small business general ledger software in Dallas

1. b 2. d 3. e 4. a 5. c 6. d 7. c 8. c 9. e 10. c

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

65.

PLM Corporation was preparing to implement its first ERP system. Several actions taken by the ERP project team to promote the project's success are listed below. Which of Umble and Umble's six conditions for successful ERP implementation best describes each one? a. Asked internal auditors to review the work of employees who input data to the system b. Conducted focus groups with selected employee groups to address concerns c. Ensured that PLM's wireless network adequately connected all of its offices throughout the United States d. Included employees from all departments on the ERP project team e. Incorporated echo checks as a form of internal control to reduce employee mistakes f. Interviewed company executives to determine if they truly supported the project g. Published a monthly newsletter on the role of the ERP system in improving competitiveness h. Set up demonstrations to show employees how the ERP system would allow them to get better information more quickly i. Solicited suggestions from all employees about how to improve business processes j. Visited similar companies to learn about their experiences with ERP software

a. ensure data accuracy b. obtain organizational commitment c. resolve multisite issues d. view ERP as an enterprise-wide venture e. ensure data accuracy f. obtain organizational commitment g. communicate strategic goals clearly h. obtain organizational commitment i. view ERP as an enterprise-wide venture j. select a compatible ERP system

AACSB: Analytical Thinking AICPA: BB Leveraging Technology 10-81 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-05 List and discuss steps associated with successful ERP implementations. Topic: ERP systems

66.

TWR Corporation attempted to implement its first ERP system using the systems development life cycle, but the project was deemed a failure. Some of the actions that led to the failure are listed below. For each one, indicate the major cause of ERP implementation failure suggested by Umble and Umble that most clearly applies. Do not use any major cause more than once. a. Employees using the ERP system were expected to learn how to use the system after it was operational. b. Employees who input information to the system made errors. c. Only employees from the information systems department were on the project team. d. The company president missed most of the planning meetings. e. The ERP project team leader predicted a 90% reduction in information technology costs after the system was implemented. f. The project team leader promised that no-one would lose their job as a result of ERP system implementation. g. The project team skipped steps in the systems development life cycle. h. The system implemented could not be customized for TWR's operations. i. TWR continued to rely on paper-based forms and spreadsheet software to track inventory. j. TWR's existing computers could not run the software fast enough.

a. inadequate education and training b. inaccurate data in the system c. ERP implementation viewed as an IT project d. poor leadership from top management e. unrealistic expectations f. trying to maintain the status quo g. poor project management h. a bad match between ERP software and organizational processes i. automating existing redundant or non-value-added processes in the new system j. significant technical difficulties

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Topic: ERP systems

67.

Organizations that implement ERP systems bear the risk of project failure for a variety of reasons, one of which is inadequate education and training. Complete the table below to develop an enterprise risk management plan that addresses that risk.

Internal environment: C-suite executives participate in the training alongside "regular" employees. Risk response: Reduce. Control activities: Give each employee specific time off from regular duties to participate in ERP training. Information and communication: Send quarterly emails to employees discussing various aspects of the ERM plan. (Note: ensure that this element focuses on the ERM plan, not the ERP system.) Monitoring: Form a multidisciplinary team tasked with reviewing the ERM plan annually.

(Note: ensure that this element focuses on the ERM plan, not the ERP system.)

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Topic: ERP systems

68.

Enterprise resource planning systems are a sophisticated form of relational database technology; one common ERP system module is supply chain management. Organize the field names below into four tables you would expect to find in an ERP system's supply chain management module. Indicate primary keys by underlining and foreign keys with brackets; ensure that each table is in 3NF. Beginning date Beginning units on hand Cost per unit of beginning inventory Cost per unit purchased Employee ID Item description Item number Location of supplier Purchase order number Quantity purchased Supplier name Transaction date

Inventory table: item number, item description, beginning date, beginning units on hand, cost per unit of beginning inventory Purchases table: purchase order number, [employee ID], [supplier name], transaction date Vendor table: supplier name, location of supplier Inventory/Purchases table: [purchase order number], [item number], quantity purchased, cost per unit purchased

AACSB: Analytical Thinking

AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

69.

Reliable Reminder Services is a small company that, for a fee, assists its clients in remembering important dates, purchasing and sending greeting cards and providing specialized shopping services for occasions like birthdays and anniversaries. The company's owners want to use an application service provider to develop and host a web page that will help them attract new clients. They completed the following steps to select an ASP: Choose an ASP from the finalists. Conduct in-house interviews. Contact references provided by finalists. Develop request for proposals from ASPs. Evaluate submitted proposals. Negotiate a contract with the selected ASP. Select top five proposals. Select top three proposals. Send thank you letters to rejected ASPs. Send the original contract to the ASP; retain an electronic copy in the database. Put the steps in order and prepare a systems flowchart of the ASP selection process; assume that all steps occur in the same department. Ensure that your flowchart conforms to the principles discussed in the text.

The steps, in order, are: 1) Develop request for proposals from ASPs. 2) Evaluate submitted proposals. 3) Select top five proposals. 4) Conduct in-house interviews. 5) Select top three proposals. 6) Contact references provided by finalists. 7) Choose an ASP from the finalists. 8) Send thank you letters to rejected ASPs. 9) Negotiate a contract with the selected ASP.

10) Send the original contract to the ASP; retain an electronic copy in the database. 11) Disburse one-third of the fee when the contract is signed. A flowchart follows:

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

70.

Enterprise resource planning systems are a sophisticated form of relational database technology; one common ERP system module is customer relationship management. Create database specifications (table names and field names) for three tables you would expect to find in an ERP system's customer relationship management module. At least one of the tables must be a junction table. Indicate primary keys by underlining and foreign keys with brackets; ensure that each table is in 3NF.

Customer table: Customer ID, customer last name, customer first name, *other usual data* Sales table: Sales transaction ID, sales transaction date, [customer ID], [employee ID] Sales/inventory table: [Sales transaction ID], [Inventory ID], number of units sold, price per unit sold

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

Short Answer Questions

71.

List and briefly discuss five major forms of e-business.

The major forms of e-business are: (1) business-to-consumer, (2) business-to-business, (3) government-to-consumer, (4) government-to-business, (5) consumer-to-consumer.

AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

72.

CSB Corporation has used traditional general ledger software to maintain its accounting records. However, the company is now growing and needs more sophisticated information technology that will provide more comprehensive information for running the firm. Recommend a form of information technology that will meet CSB's need; describe the basic nature, purpose and structure of the IT you recommend.

An enterprise resource planning system should meet CSB's needs. ERP systems are comprehensive relational databases that span the breadth and depth of the organization; they are organized in modules, such as customer relationship management and financial management.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-03 Describe the basic nature, purpose, and structure of enterprise resource planning systems. Topic: ERP systems

73.

Jose is an artist specializing in family portraits. Although his business started as a traditional "brick and mortar" enterprise, he is now interested in expanding into ebusiness. He has hired you as a consultant; explain four changes Jose is likely to see if he expands into the e-business arena.

Jose is likely to see at least four of the "benefits and costs" of e-business outlined in the chapter. The benefits are: geographic market expansion, more targeted marketing, ability to access hard-to-reach markets, reduced operating costs, streamlined operations, quicker and easier product and service delivery. The costs are: financial costs associated with setting up networks, need to develop different internal control systems, potential for customer distrust and severe consequences for technology breakdowns.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-02 Discuss major forms of e-business, including business-to-business, consumer-toconsumer, business-to-consumer, government-to-business, and government-to-consumer. Topic: E-business

74.

Bumble Beasley runs a medium-sized consulting firm with offices throughout the United States and Europe. For the past several years, the firm has provided continuing education to its 500 employees via monthly seminars in various locations. But, travel costs are becoming prohibitively expensive, leading Bumble to look for other ways to provide continuing education. Bumble has contacted Training Services Unlimited, an application service provider that specializes in delivering Web-based training on various topics to professional services firms. What type of ASP is Training Services Unlimited? What are the advantages and disadvantages of using their services? Discuss the nature and value of an SSAE 16 audit within the context of this case.

Training Services Unlimited is a specialist ASP, since it provides an application for a specific need (i.e., training). Using an ASP can involve the following benefits: less costly than purchasing software outright, increased flexibility, potentially improved customer service and role in disaster recovery plans. On the other hand, ASPs can involve the following costs: psychological and behavioral factors, service interruptions, compromised data and inability to pay monthly fees. An SSAE 16 audit, otherwise known as a Service Organization Control report, can give ASP clients some assurance that the ASP has adequate internal controls over its own operations relative to its involvement with the client.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 10-06 Discuss the role of application service providers in e-business. Topic: Application service providers

75.

JRS Corporation attempted to install an enterprise resource planning system with very poor results. The project took significantly longer than expected; actual costs exceeded budgeted costs by a significant margin. In addition, the system has been poorly utilized because it was never completed. The management of JRS has hired you to bring the project to a successful completion. Write a letter to management explaining three common causes of ERP implementation failure; also make four recommendations that will help them be more successful with the implementation now.

Common causes of ERP implementation failure are: (1) poor leadership from top management, (2) automating existing redundant or non-value-added processes in the new system, (3) unrealistic expectations, (4) poor project management, (5) inadequate education and training, (6) trying to maintain the status quo, (7) a bad match between ERP software and organizational processes, (8) inaccurate data in the system, (9) ERP implementation viewed as an IT project and (10) significant technical difficulties. Conditions that contribute to successful ERP implementations are: (1) obtain organizational commitment, (2) communicate strategic goals clearly, (3) view ERP as an enterprise-wide venture, (4) select a compatible ERP system, (5) resolve multisite issues and (6) ensure data accuracy.

AACSB: Analytical Thinking AICPA: BB Leveraging Technology Blooms: Remember Difficulty: 1 Easy Learning Objective: 10-04 Give examples and analyze the causes of ERP system failures. Learning Objective: 10-05 List and discuss steps associated with successful ERP implementations. Topic: ERP systems

Chapter 11 Computer Crime and Information Technology Security

Multiple Choice Questions

1. According to Carter's taxonomy, use of a computer to further a criminal end refers to which of the following categories?

A. Target B. Instrumentality C. Incidental D. Associated

2. Which category of computer crime in Carter's taxonomy recognizes that the presence of computers has generated new versions of traditional crimes?

A. Target B. Instrumentality C. Incidental D. Associated

3. George received an e-mail that threatened to release his personal financial data unless he paid a fee. Which category of computer crime best describes that situation?

A. Target B. Instrumentality C. Incidental D. Associated

4. A bank's information system was hacked in an effort to obtain clients' personal financial information. Which category of computer crime best describes that situation?

A. Target B. Instrumentality C. Incidental D. Associated

5. The terms target, instrumentality, incidental and associated from Carter's taxonomy are most closely associated with which form of risk from Brown's taxonomy?

A. Human error B. Liquidity C. Systems D. Market

6. Computer crimes that fall under Carter's "target" category are most closely associated with which generic element of an accounting information system?

A. Processing B. Storage C. Both processing and storage D. Neither processing nor storage

7. Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. An employee receives threats from a co-worker via e-mail. iv. An unhappy customer launches a denial-of-service attack. Carter's taxonomy of computer crime comprises four categories. Which of the following pairs includes two items from the same category?

A. I and II B. II and III C. II and IV D. I and IV

8. Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. An employee receives threats from a co-worker via e-mail. iv. An unhappy customer launches a denial-of-service attack. Carter's taxonomy of computer crime comprises four categories. Which of the following pairs includes items from different categories?

A. I and IV B. II and III C. Both I and IV and II and III D. Neither I and IV nor II and III

9. Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. An employee receives threats from a co-worker via e-mail. iv. An unhappy customer launches a denial-of-service attack. Carter's taxonomy of computer crime comprises four categories. Which of the following statements is most true?

A. The list includes examples of all four categories. B. The list includes examples of all categories except associated. C. The list includes examples of all categories except target. D. The list includes examples of all categories except incidental.

10. Business risks and threats to information systems include all of the following except:

A. Error B. Intrusions C. Malicious software D. Instrumentality

11. George received an e-mail that threatened to release his personal financial data unless he paid a fee. That situation is an example of:

A. Extortion B. Intrusion C. Information manipulation D. Error

12. An information systems development company routinely creates a password that they do not disclose to their clients. In that way, the development company can bypass any security the client adds on later if the system needs maintenance. The client's information system is therefore at greatest risk for:

A. Error B. Intrusion C. Web site defacement D. Extortion

13. The risk of disclosure of confidential information is most closely related to which category in Carter's taxonomy?

A. Target B. Instrumentality C. Both target and instrumentality D. Neither target nor instrumentality

14. Malicious software, such as a logic bomb, is most closely related to which generic element of the accounting information system?

A. Inputs B. Processing C. Outputs D. Storage

15. Disclosure of confidential information is one risk associated with information technology. Which of the following would be considered confidential information?

A. The stock price of Microsoft B. The book value of Disney Corporation's fixed assets C. The social security numbers of GE's board of directors D. All of these are examples of confidential information.

16. The difference between "error" and "information manipulation" as business risks associated with information technology is:

A. The person's intent B. The kind of information involved C. The potential dollar amount of the loss D. The classification on Carter's taxonomy

17. Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. A supervisor receives threats from a worker via e-mail; the worker demands promotion as a condition of not exposing the supervisor's illegal acts. iv. An unhappy customer launches a denial-of-service attack. Which two items represent the same category of risk from the list discussed in the chapter?

A. I and II B. I and III C. II and IV D. None of these

18. Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. A supervisor receives threats from a worker via e-mail; the worker demands promotion as a condition of not exposing the supervisor's illegal acts. iv. An unhappy customer launches a denial-of-service attack. Which of the following pairs an item from the list with an appropriate description of a business risk?

A. Extortion, i B. Service interruption, ii C. Extortion, iii D. None of these

19. According to COBIT's principles, information technology governance and management should meet ___ needs.

A. stakeholder B. the AICPA Core Competency framework C. International Accounting Standards Board D. holistic

20. According to COBIT's principles, information technology governance and management should cover the enterprise:

A. from governance to management. B. end to end. C. inside the information systems and accounting departments only. D. outside the information systems and accounting departments only.

21. According to COBIT's principles, information technology governance and management should:

A. focus on the four purposes of internal control. B. address systems risk only. C. apply a single integrated framework. D. apply an end-to-end framework.

22. According to COBIT's principles, information technology governance and management should enable a ___ approach.

A. stakeholder B. framework C. behavioral D. holistic

23. COBIT comprises ___ principles and ___ enablers.

A. five; seven B. seven; five C. five; five D. seven; seven

24. According to ISACA, which COBIT enabler focuses on an often underestimated success factor in governance and management activities?

A. principles, policies and frameworks B. culture, ethics and behavior C. services, infrastructure and applications D. people, skills and competencies

25. According to ISACA, which COBIT enabler provides the vehicle for translating desired behavior into practical guidance for day-to-day management?

A. principles, policies and frameworks B. culture, ethics and behavior C. services, infrastructure and applications D. people, skills and competencies

26. Which COBIT enabler focuses on things like product demand, employee satisfaction and vendor reliability?

A. organizational structures B. information C. separating governance from management D. meeting stakeholder needs

27. All of the following are elements of the CIA triad except:

A. Clarity B. Confidentiality C. Availability D. Data integrity

28. A firewall is an example of which type of control?

A. Physical security B. Technical security C. Administrative security D. Enterprise security

29. WER Corporation forces its employees to change their system password every six months. Which type of security control best describes the company's policy?

A. Physical B. Technical C. Administrative D. Hacking

30. At HCK Corporation, only employees in the information systems department can install new software on a computer. Which type of security control best describes that practice?

A. Physical B. Technical C. Administrative D. Practice

31. Consider the following short case as you respond to the question: Melissa is an internal auditor for the County of Bufflufia. Her job responsibilities include providing training on information systems security and checking the work of data entry clerks. Melissa is also part of a team that responds to denial-of-service attacks on the county's information system. Her co-worker, Eugene, ensures that all the county's computers have the most up-to-date antivirus software; he also enforces the county's policy of backing up sensitive data, such as employee social security numbers and other payroll information, at least once a day. The back-ups are dated and stored in a locked filing cabinet. Which employee has responsibilities related to technical security controls?

A. Melissa only B. Eugene only C. Both Melissa and Eugene D. Neither Melissa nor Eugene

32. Consider the following short case as you respond to the question: Melissa is an internal auditor for the County of Bufflufia. Her job responsibilities include providing training on information systems security and checking the work of data entry clerks. Melissa is also part of a team that responds to denial-of-service attacks on the county's information system. Her co-worker, Eugene, ensures that all the county's computers have the most up-to-date antivirus software; he also enforces the county's policy of backing up sensitive data, such as employee social security numbers and other payroll information, at least once a day. The back-ups are dated and stored in a locked filing cabinet. Which employee has responsibilities related to all three elements of the CIA triad?

A. Melissa only B. Eugene only C. Both Melissa and Eugene D. Neither Melissa nor Eugene

33. Consider the following short case as you respond to the question: Melissa is an internal auditor for the County of Bufflufia. Her job responsibilities include providing training on information systems security and checking the work of data entry clerks. Melissa is also part of a team that responds to denial-of-service attacks on the county's information system. Her co-worker, Eugene, ensures that all the county's computers have the most up-to-date antivirus software; he also enforces the county's policy of backing up sensitive data, such as employee social security numbers and other payroll information, at least once a day. The back-ups are dated and stored in a locked filing cabinet. Which of the following statements is most true?

A. Eugene's responsibilities span both physical and technical controls. B. Melissa's responsibilities are related to at least one element of the CIA triad. C. Both Eugene's responsibilities span both physical and technical controls and Melissa's responsibilities are related to at least one element of the CIA triad are true. D. Neither Eugene's responsibilities span both physical and technical controls nor Melissa's responsibilities are related to at least one element of the CIA triad is true.

34. Consider the following short case as you respond to the question: Melissa is an internal auditor for the County of Bufflufia. Her job responsibilities include providing training on information systems security and checking the work of data entry clerks. Melissa is also part of a team that responds to denial-of-service attacks on the county's information system. Her co-worker, Eugene, ensures that all the county's computers have the most up-to-date antivirus software; he also enforces the county's policy of backing up sensitive data, such as employee social security numbers and other payroll information, at least once a day. The back-ups are dated and stored in a locked filing cabinet. Melissa's responsibilities relate to which elements of the CIA triad?

A. Confidentiality and availability B. Confidentiality and data integrity C. Availability and data integrity D. None of these

35. According to COBIT 5, an organization's information technology governance and management should meet stakeholder needs. Which of the following best pairs a stakeholder with an information need?

A. vice president of finance, interest rates on newly acquired debt B. human resources manager, cost of conducting a new employee search C. Both vice president of finance, interest rates on newly acquired debt and human resources manager, cost of conducting a new employee search D. Neither vice president of finance, interest rates on newly acquired debt nor human resources manager, cost of conducting a new employee search

36. According to COBIT 5, an organization's information technology governance and management should cover the enterprise end-to-end. Which of the following parts of an organization would likely need information on inventory levels?

A. production and operations B. marketing C. accounting D. all of these

37. According to COBIT 5, an organization's information technology governance and management should apply a single integrated framework for managing information. Which of the following best pairs an established framework with an element of the framework?

A. COSO enterprise risk management, cost of managing risk B. COSO internal control, risk/control matrix C. Both COSO enterprise risk management, cost of managing risk and COSO internal control, risk/control matrix D. Neither COSO enterprise risk management, cost of managing risk nor COSO internal control, risk/control matrix

38. According to COBIT 5, an organization's information technology governance and management should apply a single integrated framework for managing information. Which of the following best pairs an established framework with an element of the framework?

A. FASB Conceptual Framework of Accounting, qualitative characteristics of internal control B. FASB Conceptual Framework of Accounting, elements of financial statements C. Both FASB Conceptual Framework of Accounting, qualitative characteristics of internal control and FASB Conceptual Framework of Accounting, elements of financial statements D. Neither FASB Conceptual Framework of Accounting, qualitative characteristics of internal control nor FASB Conceptual Framework of Accounting, elements of financial statements

39. According to COBIT 5, an organization's information technology governance and management should enable a holistic approach. Which of the following frameworks provides the most holistic view of an organization?

A. FASB Conceptual Framework B. AICPA Core Competencies Framework C. Brown's risk taxonomy D. Vroom's expectancy theory

40. According to COBIT 5, an organization's information technology governance and management should separate governance from management. In that context, examples of governance include:

A. developing a comprehensive organizational budget. B. deciding the dollar amount of an upcoming dividend. C. Both developing a comprehensive organizational budget and deciding the dollar amount of an upcoming dividend. D. Neither developing a comprehensive organizational budget nor deciding the dollar amount of an upcoming dividend.

41. According to COBIT 5, an organization's information technology governance and management should separate governance from management. In that context, examples of management include:

42. COBIT's enablers include principles, policies and frameworks. Which of the following provides the best example of that enabler based on ISACA's explanation?

A. a risk/control matrix B. a comprehensive set of financial statements C. a corporate tax return D. all of these

43. COBIT's enablers include organizational processes. Which of the following best pairs a common process with an output of the process?

A. conversion process, cost of production report B. financing process, depreciation schedule for long-term bonds C. Both conversion process, cost of production report and financing process, depreciation schedule for long-term bonds D. Neither conversion process, cost of production report nor financing process, depreciation schedule for long-term bonds

44. COBIT's enablers include organizational structures. Based on ISACA's explanation, which of the following are most appropriately paired?

A. sales/collection process, vice president of marketing B. conversion process, vice president of conversion C. human resources process, payroll clerk D. financing process, bank teller

45. COBIT's enablers include culture, ethics and behavior. Which element of the COSO internal control framework is most closely related to that enabler?

A. control environment B. control behaviors C. behavioral environment D. all of these

46. COBIT's enablers include "information." According to ISACA, information is very often the key product of the enterprise itself. Which of the following best exemplifies ISACA's explanation?

A. A CPA firm B. A computer manufacturer C. A textbook publisher D. A college bookstore

47. COBIT's enablers include services, infrastructure and applications. Which of the following best pairs one of those with an example based on ISACA's explanation of the enabler?

A. services, payroll department B. applications, software that calculates payroll amounts C. Both services, payroll department and applications, software that calculates payroll amounts D. Neither services, payroll department nor applications, software that calculates payroll amounts

48. COBIT's enablers include people, skills and competencies. According to the AICPA, broad business perspective competencies needed by accounting professionals include:

A. legal and global B. legal and measurement C. global and measurement D. legal, global and measurement

49. COBIT's enablers include people, skills and competencies. Personal competencies needed by accounting professionals include:

A. legal/regulatory perspective B. measurement C. professional demeanor D. all of these

50. COBIT's enablers include people, skills and competencies. Functional competencies needed by accounting professionals include:

A. legal/regulatory perspective B. measurement C. professional demeanor D. all of these

51. Carter suggested a four-part taxonomy for classifying computer crime. Which of the following contains elements that would help an accounting professional prevent one or more of the four types?

A. COBIT B. AICPA Core Competencies framework C. Both COBIT and AICPA Core Competencies framework D. Neither COBIT nor AICPA Core Competencies framework

52. Carter suggested a four-part taxonomy for classifying computer crime; COBIT identified a series of enablers to make the best possible use of information and information technology vis-à-vis the needs of organizational stakeholders. Which of the following pairs a COBIT enabler with an element of Carter's taxonomy?

A. Information and target, because the "target" category focuses on system information. B. Instrumentality and processes, because the "instrumentality" category always involves at least two business processes. C. Associated and principles/policies/frameworks, because the "associated" category involves comprising organizational policies. D. All of these are good pairings of COBIT enablers and Carter categories.

53. COBIT's principles include the need to separate governance from management. Based on Carter's taxonomy, which types of computer crime are most likely to occur if governance and management are not separated?

A. target and instrumentality B. incidental and associated C. target and associated D. Cannot be determined from the information given

54. COBIT's enablers include culture, ethics and behavior. Establishing an organizational culture that values honesty is least likely to prevent which of the following risks to information systems?

A. error B. fraud C. extortion D. malicious processes

55. Which of the following best pairs a COBIT enabler with an element of the FASB conceptual framework of accounting?

A. processes, the process of producing financial statements B. information, elements of financial statements C. culture, international elements of the conceptual framework D. organizational structures, assumptions/principles/constraints on those structures

56. According to ISACA, one of COBIT's enablers is required for successful completion of all activities. Which of the following is most closely related to that enabler?

A. AICPA Core Competency framework B. COSO internal control framework C. COSO enterprise risk management framework D. Capability Maturity Model

57. According to ISACA, one of COBIT's enablers is required for keeping the organization running and well governed; that enabler is often the key product of the enterprise itself. It is therefore most closely related to which generic element of the accounting information system?

A. inputs B. internal control C. storage D. outputs

58. According to ISACA, one of COBIT's enablers is an organized set of practices and activities to achieve certain objectives. That enabler is most closely related to:

A. the steps in the accounting cycle B. Brown's risk taxonomy C. Carter's taxonomy D. none of these

59. Following the principles and enablers of COBIT will enable organizations to better:

A. apply the systems development life cycle. B. address all elements of the C-I-A triad. C. focus on technical controls, since they are generally more important than physical and administrative controls. D. ensure that they address all categories of Brown's risk taxonomy.

60. Which of the following best pairs a COBIT enabler with a broad category of information technology controls?

A. processes, process controls B. policies, administrative controls C. behavior, behavioral controls D. information, C-I-A triad controls

Essay Questions

61. Information technology controls can be classified as physical, technical or administrative. Consider each independent situation below; suggest one control from the indicated classification that would address (prevent/detect/correct) the risk. a) A bank's customer database is hacked. Administrative: _____________________________________________ b) A careless employee spills coffee on a network server. Physical: _____________________________________________ c) A corporation's sales data are manipulated by a member of the sales staff. Technical: _____________________________________________ d) A former employee introduces a logic bomb to a company's payroll system. Administrative: _____________________________________________ e) A political candidate's web site is defaced. Technical: _____________________________________________ f) A senior citizen sends money to a fake religious organization based on a fraudulent e-mail. Administrative: _____________________________________________ g) A waitress steals a customer's credit card number. Physical: _____________________________________________ h) An employee uses work time to shop online using the company's computer. Administrative: _____________________________________________ i) Corporate spies steal research and development information. Technical: _____________________________________________ j) Fake compromising photos of a corporate CEO are posted to a social networking site. Technical: _____________________________________________

62. Fill in the blanks below according to the principles and enablers of the COBIT framework. a. ___, policies and frameworks. b. Applying a ___. c. Covering the enterprise ___. d. Culture, ___ and behavior. e. Enabling a ___ approach. f. Meeting ___ needs. g. Organizational ___. h. People, ___ and ___. i. Separating ___ from ___. j. Services, infrastructure and ___.

63. Which element of Carter's taxonomy of computer crime is associated with each item below? a. Computer is not required for the crime but is related to the criminal act b. Computer is used to commit the crime c. Computer use may make a crime more difficult to trace d. Growth of the Internet creates new ways of reaching victims e. Objective is to impact the confidentiality, availability and/or integrity of data f. Presence of computers has generated new versions of fairly traditional crimes g. Targets the system or its data h. Technological growth creates new crime targets i. Use of the computer simplifies criminal actions j. Uses the computer to further a criminal end

64. In each statement that follows, circle the business risk or threat that most clearly applies based on the list provided in the text. a. Disclosure of confidential information or intrusion: Employee data are made available on the Internet. b. DOS attacks or extortion: Prevent computer systems from functioning in accordance with their intended purpose. c. Error or web site defacement: Digital graffiti. d. Fraud or error: Losses can vary widely depending on where the problem originated. e. Information theft or information manipulation: An employee creates fake refunds to benefit a family member. f. Intrusion or extortion: Main objective is to gain access to a network. g. Intrusion or service interruption: Classified as accidental, willful neglect or malicious behavior. h. Malicious software or information theft: Logic bombs, replicating worm, Trojan horse. i. Service interruption or disclosure of confidential information: Can lead to missed deadlines for receivables or payables. j. Web site defacement or extortion: Criminal contacts an organization after successfully stealing information.

65. For each IT control listed below, indicate the group which most clearly applies: (a) physical security control, (b) technical security control or (c) administrative security control. 1. Audible alarm when a computer detects a virus-infected e-mail attachment 2. Conflict of interest policy 3. Different passwords for each ERP module 4. Filing cabinets requiring keys 5. Fire suppression systems 6. Keystroke monitoring software 7. Locking compartments in desks 8. Log-ins requiring fingerprint identification 9. Mandatory password rotation 10. Periodic internal audits

66. The CoBIT framework can be used to strengthen internal controls against computer crime in various ways. Indicate whether each statement below is (a) always true, (b) sometimes true or (c) never true. 1. As a form of internal control, each step of the systems development life cycle focuses on one of CoBIT's enablers. 2. CoBIT can be used in conjunction with the COSO internal control framework to identify appropriate control activities. 3. CoBIT's principles provide detailed standards for evaluating information inputs and outputs that can help strengthen internal control. 4. As defined in CoBIT, organizational stakeholders include management and employees. 5. The COSO enterprise risk management framework requires the use of CoBIT to identify risks.

67. The chapter discussed the four elements of Carter's taxonomy of computer crime and eleven business risks/threats to information systems. Classify each item below using each of them.

Short Answer Questions

68. List the elements of Carter's taxonomy of computer crime.

69. The COBIT framework comprises five principles and seven enablers. In your own words, explain the relationship between each principle and enabler paired below; the first one is done as an example. a. Meeting stakeholder needs/People, skills and competencies. People inside and outside the organization are stakeholders. b. Covering the enterprise end-to-end/Processes. c. Applying a single integrated framework/Principles, policies and frameworks. d. Enabling a holistic approach/Information. e. Separating governance from management/Culture, ethics and behavior. f. Meeting stakeholder needs/Processes.

70. A private university maintains sensitive information about its donors in both a paper file and an electronic database. Using the three-part control taxonomy discussed in the chapter, identify and describe two controls in each category that should be implemented to prevent/detect/correct the risk that such information might be compromised.

71. The chapter discussed eleven examples of risks and threats to information systems and seven enablers from the COBIT framework. Consider the items below, each of which pairs risk with an enabler; explain how the two are related. The first item is done as an example. a. Fraud/Processes. Every organization should have a process in place for reporting suspected fraud. b. Information theft/Information. c. Malicious software/Services, infrastructure and applications. d. Disclosure of confidential information/Culture, ethics and behavior. e. Service interruptions and delays/Organizational structures. f. Fraud/People, skills and competencies.

72. Ethan is an information technology security consultant. He has been asked to speak to a local professional organization about ways to strengthen internal controls against computer crime, and wants to relate his comments to the COBIT framework. Prepare a short summary of the key points Ethan should make in his presentation; ensure that each one has a clear relationship to the COBIT framework.

Chapter 11 Computer Crime and Information Technology Security Answer Key

Multiple Choice Questions

According to Carter's taxonomy, use of a computer to further a criminal end refers to which of the following categories?

A. Target B. Instrumentality C. Incidental D. Associated

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

Which category of computer crime in Carter's taxonomy recognizes that the presence of computers has generated new versions of traditional crimes?

A. Target B. Instrumentality C. Incidental D. Associated

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

George received an e-mail that threatened to release his personal financial data unless he paid a fee. Which category of computer crime best describes that situation?

A. Target B. Instrumentality C. Incidental D. Associated "Associated" is the best answer because extortion has been around for many, many years. "Instrumentality," while an OK answer, is not the best answer.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

A bank's information system was hacked in an effort to obtain clients' personal financial information. Which category of computer crime best describes that situation?

A. Target B. Instrumentality C. Incidental D. Associated

AACSB: Analytical Thinking

AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

The terms target, instrumentality, incidental and associated from Carter's taxonomy are most closely associated with which form of risk from Brown's taxonomy?

A. Human error B. Liquidity C. Systems D. Market

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

Computer crimes that fall under Carter's "target" category are most closely associated with which generic element of an accounting information system?

A. Processing B. Storage C. Both processing and storage D. Neither processing nor storage

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply

Difficulty: 3 Hard Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. An employee receives threats from a co-worker via e-mail. iv. An unhappy customer launches a denial-of-service attack. Carter's taxonomy of computer crime comprises four categories. Which of the following pairs includes two items from the same category?

A. I and II B. II and III C. II and IV D. I and IV I and IV, target. II, instrumentality. III, associated.

A. I and IV B. II and III C. Both I and IV and II and III D. Neither I and IV nor II and III I and IV, target. II, instrumentality. III, associated.

10.

Business risks and threats to information systems include all of the following except:

A. Error B. Intrusions C. Malicious software D. Instrumentality

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-02 Identify and describe business risks and threats to information systems. Topic: Business risks and threats to information systems

11.

George received an e-mail that threatened to release his personal financial data unless he paid a fee. That situation is an example of:

A. Extortion B. Intrusion C. Information manipulation D. Error

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-02 Identify and describe business risks and threats to information systems. Topic: Business risks and threats to information systems

12.

An information systems development company routinely creates a password that they do not disclose to their clients. In that way, the development company can bypass any security the client adds on later if the system needs maintenance. The client's information system is therefore at greatest risk for:

A. Error B. Intrusion C. Web site defacement D. Extortion

13.

The risk of disclosure of confidential information is most closely related to which category in Carter's taxonomy?

A. Target B. Instrumentality C. Both target and instrumentality D. Neither target nor instrumentality

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-02 Identify and describe business risks and threats to information systems. Topic: Business risks and threats to information systems

14.

Malicious software, such as a logic bomb, is most closely related to which generic element of the accounting information system?

A. Inputs B. Processing C. Outputs D. Storage

15.

Disclosure of confidential information is one risk associated with information technology. Which of the following would be considered confidential information?

16.

The difference between "error" and "information manipulation" as business risks associated with information technology is:

A. The person's intent B. The kind of information involved C. The potential dollar amount of the loss D. The classification on Carter's taxonomy

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-02 Identify and describe business risks and threats to information systems. Topic: Business risks and threats to information systems

17.

Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. A supervisor receives threats from a worker via e-mail; the worker demands promotion as a condition of not exposing the supervisor's illegal acts. iv. An unhappy customer launches a denial-of-service attack. Which two items represent the same category of risk from the list discussed in the chapter?

A. I and II B. I and III C. II and IV D. None of these I, information theft. II, fraud. III, extortion. IV, denial of service attack.

18.

Consider the following examples of computer crime as you answer the question: i. Social Security numbers are stolen from a company's database. ii. A fraudster uses a computer to identify people over the age of 80 with annual incomes of $250,000 or more. iii. A supervisor receives threats from a worker via e-mail; the worker demands promotion as a condition of not exposing the supervisor's illegal acts. iv. An unhappy customer launches a denial-of-service attack. Which of the following pairs an item from the list with an appropriate description of a business risk?

A. Extortion, i B. Service interruption, ii C. Extortion, iii D. None of these I, information theft. II, fraud. III, extortion. IV, denial of service attack.

19.

According to COBIT's principles, information technology governance and management should meet ___ needs.

A. stakeholder B. the AICPA Core Competency framework C. International Accounting Standards Board D. holistic

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

20.

According to COBIT's principles, information technology governance and management should cover the enterprise:

A. from governance to management. B. end to end. C. inside the information systems and accounting departments only. D. outside the information systems and accounting departments only.

21.

According to COBIT's principles, information technology governance and management should:

A. focus on the four purposes of internal control. B. address systems risk only. C. apply a single integrated framework. D. apply an end-to-end framework.

22.

According to COBIT's principles, information technology governance and management should enable a ___ approach.

A. stakeholder B. framework C. behavioral D. holistic

23.

COBIT comprises ___ principles and ___ enablers.

A. five; seven B. seven; five C. five; five D. seven; seven

24.

According to ISACA, which COBIT enabler focuses on an often underestimated success factor in governance and management activities?

A. principles, policies and frameworks B. culture, ethics and behavior C. services, infrastructure and applications D. people, skills and competencies

25.

According to ISACA, which COBIT enabler provides the vehicle for translating desired behavior into practical guidance for day-to-day management?

A. principles, policies and frameworks B. culture, ethics and behavior C. services, infrastructure and applications D. people, skills and competencies

26.

Which COBIT enabler focuses on things like product demand, employee satisfaction and vendor reliability?

A. organizational structures B. information C. separating governance from management D. meeting stakeholder needs

27.

All of the following are elements of the CIA triad except:

A. Clarity B. Confidentiality C. Availability D. Data integrity

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Topic: Information security

28.

A firewall is an example of which type of control?

A. Physical security B. Technical security C. Administrative security D. Enterprise security

29.

WER Corporation forces its employees to change their system password every six months. Which type of security control best describes the company's policy?

A. Physical B. Technical C. Administrative D. Hacking

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Topic: Information security

30.

At HCK Corporation, only employees in the information systems department can install new software on a computer. Which type of security control best describes that practice?

A. Physical B. Technical C. Administrative D. Practice

31.

Consider the following short case as you respond to the question: Melissa is an internal auditor for the County of Bufflufia. Her job responsibilities include providing training on information systems security and checking the work of data entry clerks. Melissa is also part of a team that responds to denial-of-service attacks on the county's information system. Her co-worker, Eugene, ensures that all the county's computers have the most up-to-date antivirus software; he also enforces the county's policy of backing up sensitive data, such as employee social security numbers and other payroll information, at least once a day. The back-ups are dated and stored in a locked filing cabinet. Which employee has responsibilities related to technical security controls?

A. Melissa only B. Eugene only C. Both Melissa and Eugene D. Neither Melissa nor Eugene

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Topic: Information security

32.

A. Melissa only B. Eugene only C. Both Melissa and Eugene D. Neither Melissa nor Eugene

33.

34.

Consider the following short case as you respond to the question: Melissa is an internal auditor for the County of Bufflufia. Her job responsibilities include providing training on information systems security and checking the work of data entry clerks. Melissa is also part of a team that responds to denial-of-service attacks on the county's information system. Her co-worker, Eugene, ensures that all the county's computers have the most up-to-date antivirus software; he also enforces the county's policy of backing up sensitive data, such as employee social security numbers and other payroll information, at least once a day. The back-ups are dated and stored in a locked filing cabinet. Melissa's responsibilities relate to which elements of the CIA triad?

A. Confidentiality and availability B. Confidentiality and data integrity C. Availability and data integrity D. None of these

35.

According to COBIT 5, an organization's information technology governance and management should meet stakeholder needs. Which of the following best pairs a stakeholder with an information need?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

36.

According to COBIT 5, an organization's information technology governance and management should cover the enterprise end-to-end. Which of the following parts of an organization would likely need information on inventory levels?

A. production and operations B. marketing C. accounting D. all of these

Topic: COBIT

37.

According to COBIT 5, an organization's information technology governance and management should apply a single integrated framework for managing information. Which of the following best pairs an established framework with an element of the framework?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

38.

39.

According to COBIT 5, an organization's information technology governance and management should enable a holistic approach. Which of the following frameworks provides the most holistic view of an organization?

A. FASB Conceptual Framework B. AICPA Core Competencies Framework C. Brown's risk taxonomy D. Vroom's expectancy theory

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

40.

According to COBIT 5, an organization's information technology governance and management should separate governance from management. In that context, examples of governance include:

41.

According to COBIT 5, an organization's information technology governance and management should separate governance from management. In that context, examples of management include:

42.

COBIT's enablers include principles, policies and frameworks. Which of the following provides the best example of that enabler based on ISACA's explanation?

A. a risk/control matrix B. a comprehensive set of financial statements C. a corporate tax return D. all of these

43.

COBIT's enablers include organizational processes. Which of the following best pairs a common process with an output of the process?

44.

COBIT's enablers include organizational structures. Based on ISACA's explanation, which of the following are most appropriately paired?

A. sales/collection process, vice president of marketing B. conversion process, vice president of conversion C. human resources process, payroll clerk D. financing process, bank teller

45.

COBIT's enablers include culture, ethics and behavior. Which element of the COSO internal control framework is most closely related to that enabler?

A. control environment B. control behaviors C. behavioral environment D. all of these

46.

COBIT's enablers include "information." According to ISACA, information is very often the key product of the enterprise itself. Which of the following best exemplifies ISACA's explanation?

A. A CPA firm B. A computer manufacturer C. A textbook publisher D. A college bookstore

47.

COBIT's enablers include services, infrastructure and applications. Which of the following best pairs one of those with an example based on ISACA's explanation of the enabler?

48.

COBIT's enablers include people, skills and competencies. According to the AICPA, broad business perspective competencies needed by accounting professionals include:

A. legal and global B. legal and measurement C. global and measurement D. legal, global and measurement Legal and global are broad business perspective competencies in the AICPA Core Competency Framework. Measurement is a functional competency.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

49.

COBIT's enablers include people, skills and competencies. Personal competencies needed by accounting professionals include:

A. legal/regulatory perspective B. measurement C. professional demeanor D. all of these

50.

COBIT's enablers include people, skills and competencies. Functional competencies needed by accounting professionals include:

A. legal/regulatory perspective B. measurement C. professional demeanor D. all of these

51.

Carter suggested a four-part taxonomy for classifying computer crime. Which of the following contains elements that would help an accounting professional prevent one or more of the four types?

A. COBIT B. AICPA Core Competencies framework C. Both COBIT and AICPA Core Competencies framework D. Neither COBIT nor AICPA Core Competencies framework

52.

Carter suggested a four-part taxonomy for classifying computer crime; COBIT identified a series of enablers to make the best possible use of information and information technology vis-à-vis the needs of organizational stakeholders. Which of the following pairs a COBIT enabler with an element of Carter's taxonomy?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply 11-66 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 3 Hard Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

53.

COBIT's principles include the need to separate governance from management. Based on Carter's taxonomy, which types of computer crime are most likely to occur if governance and management are not separated?

A. target and instrumentality B. incidental and associated C. target and associated D. Cannot be determined from the information given

54.

COBIT's enablers include culture, ethics and behavior. Establishing an organizational culture that values honesty is least likely to prevent which of the following risks to information systems?

A. error B. fraud C. extortion D. malicious processes "Malicious processes" is not one of the risks discussed in the chapter; "malicious software" is.

55.

Which of the following best pairs a COBIT enabler with an element of the FASB conceptual framework of accounting?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. 11-68 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: COBIT

56.

According to ISACA, one of COBIT's enablers is required for successful completion of all activities. Which of the following is most closely related to that enabler?

A. AICPA Core Competency framework B. COSO internal control framework C. COSO enterprise risk management framework D. Capability Maturity Model

57.

According to ISACA, one of COBIT's enablers is required for keeping the organization running and well governed; that enabler is often the key product of the enterprise itself. It is therefore most closely related to which generic element of the accounting information system?

A. inputs B. internal control C. storage D. outputs

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT 11-69 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

58.

According to ISACA, one of COBIT's enablers is an organized set of practices and activities to achieve certain objectives. That enabler is most closely related to:

A. the steps in the accounting cycle B. Brown's risk taxonomy C. Carter's taxonomy D. none of these

59.

Following the principles and enablers of COBIT will enable organizations to better:

60.

Which of the following best pairs a COBIT enabler with a broad category of information technology controls?

A. processes, process controls B. policies, administrative controls C. behavior, behavioral controls D. information, C-I-A triad controls The categories of IT controls are physical, technical and administrative.

Essay Questions

61.

Information technology controls can be classified as physical, technical or administrative. Consider each independent situation below; suggest one control from the indicated classification that would address (prevent/detect/correct) the risk. a) A bank's customer database is hacked. Administrative: _____________________________________________ b) A careless employee spills coffee on a network server. Physical: _____________________________________________ c) A corporation's sales data are manipulated by a member of the sales staff. Technical: _____________________________________________ d) A former employee introduces a logic bomb to a company's payroll system. Administrative: _____________________________________________ e) A political candidate's web site is defaced. Technical: _____________________________________________ f) A senior citizen sends money to a fake religious organization based on a fraudulent email. Administrative: _____________________________________________ g) A waitress steals a customer's credit card number. Physical: _____________________________________________ h) An employee uses work time to shop online using the company's computer. Administrative: _____________________________________________ i) Corporate spies steal research and development information. Technical: _____________________________________________ j) Fake compromising photos of a corporate CEO are posted to a social networking site. Technical: _____________________________________________

a. periodic password rotation b. enclose the server in a cabinet c. unique log-in credentials for each employee d. establish and enforce a policy that removes former employees from the information system e. firewall

f. prohibit soliciting donations via email g. install video cameras at the cash register h. establish and enforce a policy that governs use of company computers for personal affairs i. store the information on a dedicated, more secure server j. periodically use appropriate software to do an "image search"

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Topic: Information security

62.

Fill in the blanks below according to the principles and enablers of the COBIT framework. a. ___, policies and frameworks. b. Applying a ___. c. Covering the enterprise ___. d. Culture, ___ and behavior. e. Enabling a ___ approach. f. Meeting ___ needs. g. Organizational ___. h. People, ___ and ___. i. Separating ___ from ___. j. Services, infrastructure and ___.

a. principles b. single integrated framework c. end-to-end d. ethics e. holistic f. stakeholder g. structures h. skills; competencies i. governance; management j. applications

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

63.

Which element of Carter's taxonomy of computer crime is associated with each item below? a. Computer is not required for the crime but is related to the criminal act b. Computer is used to commit the crime c. Computer use may make a crime more difficult to trace d. Growth of the Internet creates new ways of reaching victims e. Objective is to impact the confidentiality, availability and/or integrity of data f. Presence of computers has generated new versions of fairly traditional crimes g. Targets the system or its data h. Technological growth creates new crime targets i. Use of the computer simplifies criminal actions j. Uses the computer to further a criminal end

a. incidental b. instrumentality c. incidental d. associated e. target f. associated g. target h. associated i. incidental j. instrumentality

Feedback: All of the phrases in this problem are drawn directly from the chapter.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

64.

In each statement that follows, circle the business risk or threat that most clearly applies based on the list provided in the text. a. Disclosure of confidential information or intrusion: Employee data are made available on the Internet. b. DOS attacks or extortion: Prevent computer systems from functioning in accordance with their intended purpose. c. Error or web site defacement: Digital graffiti. d. Fraud or error: Losses can vary widely depending on where the problem originated. e. Information theft or information manipulation: An employee creates fake refunds to benefit a family member. f. Intrusion or extortion: Main objective is to gain access to a network. g. Intrusion or service interruption: Classified as accidental, willful neglect or malicious behavior. h. Malicious software or information theft: Logic bombs, replicating worm, Trojan horse. i. Service interruption or disclosure of confidential information: Can lead to missed deadlines for receivables or payables. j. Web site defacement or extortion: Criminal contacts an organization after successfully stealing information.

a. disclosure of confidential information b. DOS attacks c. web site defacement d. error e. information manipulation f. intrusion g. service interruption h. malicious software i. service interruptions j. extortion

AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-02 Identify and describe business risks and threats to information systems. Topic: Business risks and threats to information systems

65.

For each IT control listed below, indicate the group which most clearly applies: (a) physical security control, (b) technical security control or (c) administrative security control. 1. Audible alarm when a computer detects a virus-infected e-mail attachment 2. Conflict of interest policy 3. Different passwords for each ERP module 4. Filing cabinets requiring keys 5. Fire suppression systems 6. Keystroke monitoring software 7. Locking compartments in desks 8. Log-ins requiring fingerprint identification 9. Mandatory password rotation 10. Periodic internal audits

1. b 2. c 3. b 4. a 5. a 6. b 7. a 8. b 9. c 10. c

AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Topic: Information security

66.

The CoBIT framework can be used to strengthen internal controls against computer crime in various ways. Indicate whether each statement below is (a) always true, (b) sometimes true or (c) never true. 1. As a form of internal control, each step of the systems development life cycle focuses on one of CoBIT's enablers. 2. CoBIT can be used in conjunction with the COSO internal control framework to identify appropriate control activities. 3. CoBIT's principles provide detailed standards for evaluating information inputs and outputs that can help strengthen internal control. 4. As defined in CoBIT, organizational stakeholders include management and employees. 5. The COSO enterprise risk management framework requires the use of CoBIT to identify risks.

1. c 2. a 3. c 4. a 5. c

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT

67.

The chapter discussed the four elements of Carter's taxonomy of computer crime and eleven business risks/threats to information systems. Classify each item below using each of them.

a. associated, disclosure of confidential information b. incidental, information manipulation c. target, extortion d. instrumentality, fraud

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Learning Objective: 11-02 Identify and describe business risks and threats to information systems.

Topic: Business risks and threats to information systems Topic: Computer crime taxonomy

Short Answer Questions

68.

List the elements of Carter's taxonomy of computer crime.

Target, instrumentality, incidental, associated

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 11-01 Explain Carter's taxonomy of computer crime. Topic: Computer crime taxonomy

69.

The COBIT framework comprises five principles and seven enablers. In your own words, explain the relationship between each principle and enabler paired below; the first one is done as an example. a. Meeting stakeholder needs/People, skills and competencies. People inside and outside the organization are stakeholders. b. Covering the enterprise end-to-end/Processes. c. Applying a single integrated framework/Principles, policies and frameworks. d. Enabling a holistic approach/Information. e. Separating governance from management/Culture, ethics and behavior. f. Meeting stakeholder needs/Processes.

a. (given) People inside and outside the organization are stakeholders. b. Processes are needed throughout the organization (i.e., from end to end). c. COBIT is a single integrated framework within the definition of the enabler. d. Information should be managed holistically, rather than being partitioned/stovepiped. e. Organizations need a code of ethics that explains the principle. f. Stakeholders have diverse needs that cut across many organizational processes.

70.

A private university maintains sensitive information about its donors in both a paper file and an electronic database. Using the three-part control taxonomy discussed in the chapter, identify and describe two controls in each category that should be implemented to prevent/detect/correct the risk that such information might be compromised.

Physical controls: Ensure the paper files are locked at the end of each day. Ensure that the place where they're locked is fireproof. Technical controls: Put a firewall in place. Require unique log-in credentials for each employee accessing the system. Administrative controls: Develop and enforce a policy of backing up data daily. Develop and enforce a policy regarding which employees can access the confidential information.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Topic: Information security

71.

The chapter discussed eleven examples of risks and threats to information systems and seven enablers from the COBIT framework. Consider the items below, each of which pairs risk with an enabler; explain how the two are related. The first item is done as an example. a. Fraud/Processes. Every organization should have a process in place for reporting suspected fraud. b. Information theft/Information. c. Malicious software/Services, infrastructure and applications. d. Disclosure of confidential information/Culture, ethics and behavior. e. Service interruptions and delays/Organizational structures. f. Fraud/People, skills and competencies.

a. (given) Every organization should have a process in place for reporting suspected fraud. b. Information should be encrypted to reduce the chance it can be stolen. c. Organizations should periodically review installed software to ensure it is not malicious. d. In their code of ethics, organizations should specifically address disclosure of confidential information. e. A specific department/function within the organization, such as IT or internal audit, should be tasked with monitoring and addressing any service interruptions/delays. f. Organizations should employee people who have skill in fraud detection and prevention.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-02 Identify and describe business risks and threats to information systems. Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: Business risks and threats to information systems Topic: COBIT

72.

Ethan is an information technology security consultant. He has been asked to speak to a local professional organization about ways to strengthen internal controls against computer crime, and wants to relate his comments to the COBIT framework. Prepare a short summary of the key points Ethan should make in his presentation; ensure that each one has a clear relationship to the COBIT framework.

Ethan could structure his comments around one or more of COBIT's enablers as follows: 1. Principles/policies/frameworks. Organizations should use established frameworks, such as COSO's internal control framework, to develop strong controls against computer crime. 2. Processes. The internal control plan should cover all major organizational processes. 3. Organizational structures. Organizations need to know where the primary responsibility for the internal control plan is located (e.g., within the internal audit department). 4. Culture/ethics/behavior. Organizations should develop a culture that values strong internal control, including behaviors that lead to reporting potential computer crime. 5. Information. Specific internal controls, such as data encryption, should be put in place to protect information. 6. Services/infrastructure/applications. Software applications, such as firewalls and keystroke monitoring, can strengthen internal control. 7. People/skills/competencies. Organizations need staff that can effectively design and implement internal controls.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 11-03 Discuss ways to prevent and detect computer crime. Learning Objective: 11-04 Explain the main components of the COBIT framework and their implications for IT security. Topic: COBIT Topic: Information security

Chapter 12 Sales/Collection Process

Multiple Choice Questions

1. The fundamental purpose of the sales/collection process is to:

A. Provide goods and services to clients. B. Collect payment from them. C. Both provide goods and services to clients and collect payment from them. D. Neither provide goods and services to clients nor collect payment from them.

2. The sales/collection process is important in organizations because:

A. Without it, an organization may soon cease to exist. B. It is the only method an organization has for generating cash flow. C. Both without it, an organization may soon cease to exist and it is the only method an organization has for generating cash flow. D. Neither without it, an organization may soon cease to exist nor it is the only method an organization has for generating cash flow.

3. Which of the following exemplifies the role and purpose of the sales/collection process?

A. American Home Shield sells warranties to new homeowners. B. New homeowners pay cash to American Home Shield for warranties. C. Both American Home Shield sells warranties to new homeowners and new homeowners pay cash to American Home Shield for warranties. D. Neither American Home Shield sells warranties to new homeowners nor new homeowners pay cash to American Home Shield for warranties.

4. Which of the following statements about the role and purpose of the sales/collection process is most true?

A. Only organizations that sell goods on credit have a true sales/collection process. B. Government organizations do not need a sales/collection process. C. Both only organizations that sell goods on credit have a true sales/collection process and government organizations do not need a sales/collection process are true. D. Neither only organizations that sell goods on credit have a true sales/collection process nor government organizations do not need a sales/collection process is true.

5. The sales/collection process can be related to which form of risk from Brown's taxonomy?

A. Credit risk B. Liquidity risk C. Both credit risk and liquidity risk D. Neither credit risk nor liquidity risk

6. Which of the following internal controls can be applied to the sales/collection process based on the role and purpose of the process?

A. Separation of duties B. Bank reconciliation C. Both separation of duties and bank reconciliation D. Neither separation of duties nor bank reconciliation

7. Company A sells goods to its customers on credit; Company B sells services to its customers for cash. Which of the following statements is most true?

A. The role and purpose of the sales/collection process will be fundamentally different between the two companies. B. Only Company A has a true sales/collection process because it sells goods rather than services. C. Only Company B has a true sales/collection process because it sells for cash rather than on credit. D. None of these statements is true.

8. Company A sells goods to its customers on credit; Company B sells services to its customers for cash. Which of the following statements is most true?

A. The fundamental role and purpose of the sales/collection process will be the same for both companies. B. Only Company B has a true sales/collection process because it sells services rather than goods. C. Only Company A has a true sales/collection process because it sells on credit rather than for cash. D. None of these statements is true.

9. In a paper on the role and purpose of the sales/collection process, Bumble Beasley wrote: "The sales/collection process is exclusively concerned with selling products on credit and collecting cash from clients." Which of the following should be deleted from his statement?

A. Exclusively B. Selling products on credit C. Collecting cash D. From clients

10. Which of the following steps in the sales/collection process occurs last?

A. Bill the customer. B. Approve the customer's credit. C. Ship the product. D. Fill the order based on shipping instructions.

11. Which of the following is an example of the second step in the sales/collection process?

A. A customer completes a form on the Internet. B. A sales clerk scans the customer's credit card. C. The accounting department sends an invoice to the customer. D. The cash receipts department processes the customer's check.

12. "The appropriate department processes the customer's check" is an example of which step in the sales/collection process?

A. Third B. Fifth C. Sixth D. Last

13. As a form of internal control, a bank reconciliation is most closely related to which step in the sales/collection process?

A. Second B. Fourth C. Fifth D. Sixth

14. As a form of internal control, pre-numbered documents can be related to which steps in the sales/collection process?

A. First B. Fifth C. Both first and fifth D. Neither first nor fifth

15. Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. All of the following steps in the sales/collection process are represented in the four statements except:

A. The first step. B. The second step. C. The sixth step. D. The last step.

16. Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. Which of these statements most clearly relates to the third step in the sales/collection process?

A. i B. ii C. iii D. iv

17. Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. The bookstore may need to complete the last step of the sales/collection process because:

A. It took Allison's order online. B. It uses the open invoice method of processing receivables. C. It does not outsource credit approval to a third party. D. It has inadequate separation of duties.

18. Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. Which of the following phrases relates most closely to the sixth step in the sales/collection process?

A. Applied Allison's payment to the invoices indicated B. Filled out a form C. Verified Allison's credit limit D. None of these phrases is related to the sixth step in the sales/collection process.

19. Accounting information systems have five generic elements. Which of the following would most appropriately be labeled "storage" within the context of the sales/collection process?

A. A paper file of outstanding customer invoices B. An electronic database of sales transactions C. Both a paper file of outstanding customer invoices and an electronic database of sales transactions D. Neither a paper file of outstanding customer invoices nor an electronic database of sales transactions

20. A remittance advice is an example of which generic element of an accounting information system?

A. Document B. Storage C. Both document and storage D. Neither document nor storage

21. The phrase "primary key" is most closely associated with which generic element of an accounting information system?

A. Storage B. Database C. Both storage and database D. Neither storage nor database

22. The adjective "pre-numbered" is associated with which generic element of an accounting information system?

A. Input B. Internal control C. Both input and internal control D. Neither input nor internal control

23. Consider the following information items as you respond to the question: i. Customer master file ii. Journal entry to record the receipt of cash iii. Pre-numbered documents iv. Schedule of accounts receivable Accounting information systems have five generic elements. Which of the following statements is most true?

A. All five generic elements are represented in the four information items. B. The information items omit anything related to outputs of the AIS. C. The information items omit anything related to processing in the AIS. D. Both the information items omit anything related to outputs of the AIS and the information items omit anything related to processing in the AIS are true.

24. Consider the following information items as you respond to the question: i. Customer master file ii. Journal entry to record the receipt of cash iii. Pre-numbered documents iv. Schedule of accounts receivable Accounting information systems have five generic elements. Which of the following is an example of the same element as "pre-numbered documents?"

A. Adequate supervision B. Balance sheet C. Both adequate supervision and balance sheet D. Neither adequate supervision nor balance sheet

25. Consider the following information items as you respond to the question: i. Customer master file ii. Journal entry to record the receipt of cash iii. Pre-numbered documents iv. Schedule of accounts receivable Accounting information systems have five generic elements, one of which can be directly applied to the other four. Which information item above best exemplifies that element?

A. Customer master file as an output of the AIS B. Journal entry to record the receipt of cash as a process of the AIS C. Pre-numbered documents as an internal control in the AIS D. None of these.

26. Consider the following information items as you respond to the question: i. Customer master file ii. Journal entry to record the receipt of cash iii. Pre-numbered documents iv. Schedule of accounts receivable Accounting information systems have five generic elements. Which of the following statements is most true?

A. "Pre-numbered documents" can be an example of three of the five elements. B. "Schedule of accounts receivable" can be an example of all five elements. C. Both "Pre-numbered documents" can be an example of three of the five elements and "Schedule of accounts receivable" can be an example of all five elements are true. D. Neither "Pre-numbered documents" can be an example of three of the five elements nor "Schedule of accounts receivable" can be an example of all five elements is true.

27. Common transactions in the sales/collection process include:

A. Selling goods on credit. B. Receiving cash on account. C. Both selling goods on credit and receiving cash on account. D. Neither selling goods on credit nor receiving cash on account.

28. Which of the following transactions would be appropriately processed in the sales/collection process?

A. THT Corporation purchased merchandise on account from HRS Corporation. B. HRS Corporation received cash from THT Corporation for a previous sale on account. C. Both THT Corporation purchased merchandise on account from HRS Corporation and HRS Corporation received cash from THT Corporation for a previous sale on account. D. Neither THT Corporation purchased merchandise on account from HRS Corporation nor HRS Corporation received cash from THT Corporation for a previous sale on account.

29. Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Inclusive of all the transactions that affect the income statement, VLC's gross profit on the sale was:

A. $100 B. $90 C. $94 D. $84

30. Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

A. A debit to cost of goods sold. B. A debit to delivery expense. C. A credit to gross profit. D. A credit to inventory.

31. Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Considering all entries VLC would make in its AIS to record all the preceding transactions, how many different balance sheet accounts would be involved?

A. Two B. Three C. Four D. More than four

32. Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Considering all entries VLC would make in its AIS to record all the preceding transactions, how many different income statement accounts would be involved?

A. Three B. Four C. Five D. More than five

33. Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

A. Debit Accounts Receivable, $300. Credit Sales, $300. B. Debit Cost of Goods Sold, $200. Credit Inventory, $200. C. Debit Delivery Expense, $10. Credit Cash, $10. D. Debit Cash, $294. Debit Inventory, $6. Credit Accounts Receivable, $300.

34. Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Assume VLC's general ledger showed a balance in cash of $600 before the preceding events; assume VLC's balance in inventory was also $600. Which of the following statements is most true?

A. After recording the preceding events, the balance in cash will be equal to the balance in inventory. B. After recording the preceding events, the balance in cash will be greater than the balance in inventory. C. After recording the preceding events, the balance in cash will be less than the balance in inventory. D. After recording the preceding events, the balance in cash will equal the balance in accounts receivable.

35. Internal controls in the sales/collection process include:

A. Pre-numbered documents. B. Adequate supervision. C. Bank reconciliations. D. All of these.

36. Internal controls that address liquidity risk include:

A. Sales and cash collections budgets. B. Aggressive collection policies. C. Both sales and cash collections budgets and aggressive collection policies. D. Neither sales and cash collections budgets nor aggressive collection policies.

37. CRX Corporation uses general ledger software as a processing tool in its accounting information system, which creates certain risk exposures. Internal controls to address those risk exposures include:

A. Daily file backup. B. Periodic employee training. C. Both daily file backup and periodic employee training. D. Neither daily file backup nor periodic employee training.

38. Sally, a sales representative for WER Corporation, ensures that she does a thorough credit check for customers who want to purchase goods on account. The most important internal control WER should implement is:

A. Separation of duties. B. Adequate documentation. C. A risk management plan. D. Employee training.

39. Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. Which of the following statements about SPC is most true?

A. Their sales/collection process demonstrates the strongest possible level of internal control. B. Their risk exposures include credit risk, systems risk and human error risk. C. Both their sales/collection process demonstrates the strongest possible level of internal control and their risk exposures include credit risk, systems risk and human error risk are true. D. Neither their sales/collection process demonstrates the strongest possible level of internal control nor their risk exposures include credit risk, systems risk and human error risk is true.

40. Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. Based on its risk exposures, SPC would benefit most from implementing which of the following internal controls?

A. Cross-training employees B. Separation of duties C. Normalized database files D. Use of the COSO internal control framework

41. Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. SPC's internal control in the sales/collection process would be strengthened by making changes in:

A. Its method of accounting for receivables. B. Its organizational structure and division of responsibilities. C. Both its method of accounting for receivables and its organizational structure and division of responsibilities. D. Neither its method of accounting for receivables nor its organizational structure and division of responsibilities.

42. Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. Internal control weaknesses for SPC are indicated by which of the following?

A. Sales staff access to the AIS B. Paying a fee to a lockbox firm C. Estimating bad debts using total sales D. All of these

43. Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. Which of the following techniques could be used to document ELM's sales/collection process?

A. Systems flowchart B. Data flow diagram C. REA model D. All of these

44. Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. A systems flowchart of ELM's sales/collection process would include all of the following column headings except:

A. Client B. Staff specialist C. Equipment type D. Greeter

45. Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. A REA model of ELM's sales/collection process would include how many internal agents in its rightmost column?

A. Two B. Three C. Four D. More than four

46. Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. Which of the following is most likely to be depicted as an external entity in a leveled set of data flow diagrams for ELM's sales/collection process?

A. Insurance company B. Credit card company C. Both insurance company and credit card company D. Neither insurance company nor credit card company

47. Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. Which of the following statements about documentation for ELM's sales/collection process is most true?

A. Agents in a REA model are likely to be column headings in a systems flowchart. B. A leveled set of data flow diagrams will likely include one level for each agent in a REA model. C. Both agents in a REA model are likely to be column headings in a systems flowchart and a leveled set of data flow diagrams will likely include one level for each agent in a REA model D. Neither agents in a REA model are likely to be column headings in a systems flowchart nor 12-25 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

a leveled set of data flow diagrams will likely include one level for each agent in a REA model

48. Consider the following set of symbols and the ELM case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

ELM's customer database could be represented with:

A. Symbol A only B. Symbol B only C. Either Symbol A or Symbol B D. Neither Symbol A nor Symbol B

49. Consider the following set of symbols and the ELM case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

In a systems flowchart of ELM's sales/collection process, "conduct preliminary needs assessment" would most likely be depicted with:

A. Symbol C B. Symbol D C. Symbol F D. Some other symbol not shown above

50. Consider the following set of symbols and the ELM case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

In a systems flowchart of ELM's sales/collection process, Symbol C could be labeled with any of the following except:

A. Insurance coverage. B. Needs assessment. C. Make sale. D. Additional equipment needed.

51. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Porter's value chain comprises five primary activities and four support activities. Which of the following pairs a primary activity with an example from the case?

A. operations, the proposal is forwarded to the client electronically B. infrastructure, HSO bills the client C. operations, HSO manufactures golf carts D. infrastructure, HSO designs scooters

52. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Porter's value chain comprises five primary activities and four support activities. Which of the following pairs a support activity with an example from the case?

A. information technology, reports are filed in HSO's database B. infrastructure, HSO bills the client C. operations, HSO manufactures golf carts D. infrastructure, HSO designs scooters

53. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Reviewing the completed intake questionnaire is most closely related to the ___ step of the sales/collection process.

A. first B. third C. sixth D. none of these

54. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Which of the following phrases from the case exemplifies the sixth step of the sales/collection process?

A. The new client remits half of the fee at the time the proposal is accepted. B. HSO prepares weekly progress reports as the project moves forward. C. Both the new client remits half of the fee at the time the proposal is accepted and HSO prepares weekly progress reports as the project moves forward D. Neither the new client remits half of the fee at the time the proposal is accepted nor HSO prepares weekly progress reports as the project moves forward

55. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Accounting information systems comprise five generic parts. From HSO's perspective, which of the following pairs a generic part with an example from the case?

56. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Consider the process from HSO's point of view. In a systems flowchart of the process described, all of the following would be represented with the same symbol except:

A. The office manager assembles a team of employees. B. The team determines if HSO can accept the order. C. The client decides whether to accept HSO's proposal. D. HSO determines whether to complete the final work on the project.

57. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Consider the process from HSO's point of view. Which of the following would be included as column headings in a systems flowchart?

A. HSO Corporation B. Client C. Both HSO Corporation and Client D. Neither HSO Corporation nor Client

58. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. If HSO maintains a relational database to track proposals and projects, which of the following would require a junction table?

A. The office manager assembles a team of employees to review the intake questionnaire. B. The office manager prepares a three-page written proposal. C. HSO bills clients multiple times throughout each project. D. All of these would require a junction table.

59. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. If HSO maintains a relational database to track proposals and projects:

A. The primary key from the client table will be included as a foreign key in the "prepare invoice" table. B. The IDs of the review team members will be included as foreign keys in the "assemble review team" table. C. Both the primary key from the client table will be included as a foreign key in the "prepare invoice" table and the IDs of the review team members will be included as foreign keys in the "assemble review team" table. D. Neither the primary key from the client table will be included as a foreign key in the 12-41 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

"prepare invoice" table nor the IDs of the review team members will be included as foreign keys in the "assemble review team" table.

60. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. If HSO maintains a relational database to track proposals and projects, which object(s) would it use to prepare client invoices?

A. table and query only B. table and report only C. query and report only D. table, query and report

Ranking Questions

61. Please put the steps in the sales/collection process listed below in order of their usual occurrence based on the description given in the text.

____ Take a customer's order ____ Collect payment ____ Ship the product ____ Process uncollectible receivables as necessary ____ Bill the customer ____ Approve the customer's credit ____ Fill the order based on approved credit

Essay Questions

62. Accounting information systems have five generic elements. Which one applies to each item listed below within the context of the sales/collection process? a. Customer check, from the point of view of the seller b. Customer order c. Employee master file d. Invoice e. Maintaining adequate inventory f. Record transactions in the AIS g. Remittance advice, from the point of view of the seller h. Sales/inventory junction table i. Use of the seven steps j. Using information technology to fill orders

63. Several journal entries common to the sales/collection process are listed below. For each, explain what transaction the entry is recording.

64. Several symbols that might be used in a systems flowchart of the sales/collection process are listed below.

Indicate which symbol should be used to depict each of the following. Some symbols may be used more than once; others may not be used at all. 1) Bill of lading 2) Customer invoice 3) Electronic sales transaction file 4) Employee master file (computerized) 5) Fill order 6) Grant credit? 7) Manually file by name 8) Manually prepare items for shipment 9) Start 10) To bank

65. OTA Corporation completed the following transactions as part of its sales/collection process. Record each transaction in general journal format. a. Sold consulting services for cash, $500. b. Sold merchandise with a cost of $100 on account for $300. c. Paid a common carrier $50 to ship the merchandise. d. Collected cash for sale on account, $200. e. Estimated bad debts for the year, $80.

66. OTA Corporation completed the following transactions as part of its sales/collection process. For each transaction, indicate the document(s) OTA would use. (Some transactions may require more than one document; other transactions may require no documents.) a. Sold consulting services for cash, $500. b. Sold merchandise with a cost of $100 on account for $300. c. Paid a common carrier $50 to ship the merchandise. d. Collected cash for sale on account, $200. e. Estimated bad debts for the year, $80.

67. Analyze the following narrative. Identify five risk exposures ELM faces; for each exposure, recommend two internal controls. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

68. Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week. Identify three risk exposures in HCC's sales/collection process. For each risk exposure, suggest two internal controls that will address it. Also identify two risk exposures for the independent contractors' sales/collection process; for each risk, suggest two internal controls that will address it.

69. Create a systems flowchart of the following sales/collection process. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

70. Create all necessary database specifications (table names and field names) for ELM Corporation's sales/collection process based on the following narrative. Indicate primary keys by underlining and foreign keys with brackets. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

Short Answer Questions

71. List, in order, the steps in the sales/collection process discussed in the text.

72. In your own words, explain the role and purpose of the sales/collection process. Do not list the steps in the process as part of your response.

73. Accounting information systems have five generic elements. Identify and describe one example of each element in the sales/collection process of Homemade Crafts Company based on the following narrative: Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

74. Use COSO's internal control framework to develop an internal control plan for Homemade Craft Company based on the following narrative. Focus your plan on internal controls for the sales/collection process. Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

75. Prepare a narrative description of the sales/collection process depicted in the systems flowchart below. Then, identify three risk exposures for the company's sales/collection process; for each risk exposure, suggest one internal control you would implement.

Chapter 12 Sales/Collection Process Answer Key

Multiple Choice Questions

The fundamental purpose of the sales/collection process is to:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

The sales/collection process is important in organizations because:

AACSB: Analytical Thinking AICPA: BB Critical Thinking 12-57 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

Which of the following exemplifies the role and purpose of the sales/collection process?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

Which of the following statements about the role and purpose of the sales/collection process is most true?

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

The sales/collection process can be related to which form of risk from Brown's taxonomy?

A. Credit risk B. Liquidity risk C. Both credit risk and liquidity risk D. Neither credit risk nor liquidity risk

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

Which of the following internal controls can be applied to the sales/collection process based on the role and purpose of the process?

A. Separation of duties B. Bank reconciliation C. Both separation of duties and bank reconciliation D. Neither separation of duties nor bank reconciliation

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium

Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

Company A sells goods to its customers on credit; Company B sells services to its customers for cash. Which of the following statements is most true?

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

In a paper on the role and purpose of the sales/collection process, Bumble Beasley wrote: "The sales/collection process is exclusively concerned with selling products on credit and collecting cash from clients." Which of the following should be deleted from his statement?

A. Exclusively B. Selling products on credit C. Collecting cash D. From clients

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

10.

Which of the following steps in the sales/collection process occurs last?

A. Bill the customer. B. Approve the customer's credit. C. Ship the product. D. Fill the order based on shipping instructions.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation 12-61 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

11.

Which of the following is an example of the second step in the sales/collection process?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

12.

"The appropriate department processes the customer's check" is an example of which step in the sales/collection process?

A. Third B. Fifth C. Sixth D. Last

13.

As a form of internal control, a bank reconciliation is most closely related to which step in the sales/collection process?

A. Second B. Fourth C. Fifth D. Sixth

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

14.

As a form of internal control, pre-numbered documents can be related to which steps in the sales/collection process?

A. First B. Fifth C. Both first and fifth D. Neither first nor fifth

15.

Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. All of the following steps in the sales/collection process are represented in the four statements except:

A. The first step. B. The second step. C. The sixth step. D. The last step. I is the 6th step. II is the 1st step. III is the 2nd step. IV is the 3rd step.

16.

Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. Which of these statements most clearly relates to the third step in the sales/collection process?

A. i B. ii C. iii D. iv I is the 6th step. II is the 1st step. III is the 2nd step. IV is the 3rd step.

17.

Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. The bookstore may need to complete the last step of the sales/collection process because:

A. It took Allison's order online. B. It uses the open invoice method of processing receivables. C. It does not outsource credit approval to a third party. D. It has inadequate separation of duties.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

18.

Consider the following statements as you answer the question: i. Felix, a cash receipts clerk, applied Allison's payment to the invoices indicated on her remittance advice. ii. In purchasing books, Allison filled out a form on a bookstore's web site. iii. The bookstore's web site verified Allison's credit limit. iv. William, a warehouse worker, prepared Allison's books for shipment. Which of the following phrases relates most closely to the sixth step in the sales/collection process?

A. Applied Allison's payment to the invoices indicated B. Filled out a form C. Verified Allison's credit limit D. None of these phrases is related to the sixth step in the sales/collection process.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

19.

Accounting information systems have five generic elements. Which of the following would most appropriately be labeled "storage" within the context of the sales/collection process?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

20.

A remittance advice is an example of which generic element of an accounting information system?

A. Document B. Storage C. Both document and storage D. Neither document nor storage

21.

The phrase "primary key" is most closely associated with which generic element of an accounting information system?

A. Storage B. Database C. Both storage and database D. Neither storage nor database

22.

The adjective "pre-numbered" is associated with which generic element of an accounting information system?

A. Input B. Internal control C. Both input and internal control D. Neither input nor internal control

23.

Consider the following information items as you respond to the question: i. Customer master file ii. Journal entry to record the receipt of cash iii. Pre-numbered documents iv. Schedule of accounts receivable Accounting information systems have five generic elements. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

24.

A. Adequate supervision B. Balance sheet C. Both adequate supervision and balance sheet D. Neither adequate supervision nor balance sheet Pre-numbered documents are a form of internal control, an input and an output. Adequate supervision is a form of internal control; the balance sheet is an output.

25.

A. Customer master file as an output of the AIS B. Journal entry to record the receipt of cash as a process of the AIS C. Pre-numbered documents as an internal control in the AIS D. None of these.

26.

27.

Common transactions in the sales/collection process include:

A. Selling goods on credit. B. Receiving cash on account. C. Both selling goods on credit and receiving cash on account. D. Neither selling goods on credit nor receiving cash on account.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-04 Process common transactions. Topic: AIS structure

28.

Which of the following transactions would be appropriately processed in the sales/collection process?

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-04 Process common transactions. Topic: AIS structure

29.

Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Inclusive of all the transactions that affect the income statement, VLC's gross profit on the sale was:

A. $100 B. $90 C. $94 D. $84 ($300 * 98%) - $200

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

30.

Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

A. A debit to cost of goods sold. B. A debit to delivery expense. C. A credit to gross profit. D. A credit to inventory.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-04 Process common transactions. Topic: AIS structure

31.

Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Considering all entries VLC would make in its AIS to record all the preceding transactions, how many different balance sheet accounts would be involved?

A. Two B. Three C. Four D. More than four Accounts receivable, cash and inventory

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

32.

Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Considering all entries VLC would make in its AIS to record all the preceding transactions, how many different income statement accounts would be involved?

A. Three B. Four C. Five D. More than five Sales, sales discounts, cost of goods sold, delivery expense

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

33.

Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. The entries in VLC's accounting information system to record all the preceding events will include all of the following except:

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

34.

Consider the following short case as you respond to the question: VLC Corporation sold merchandise with a cost of $200 on account for $300 to PRT Corporation; credit terms were 2/10, n/30. VLC paid the outgoing freight charge of $10. PRT paid the invoice within the discount period. Assume VLC's general ledger showed a balance in cash of $600 before the preceding events; assume VLC's balance in inventory was also $600. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

35.

Internal controls in the sales/collection process include:

A. Pre-numbered documents. B. Adequate supervision. C. Bank reconciliations. D. All of these.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Topic: Internal controls

36.

Internal controls that address liquidity risk include:

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Topic: Internal controls

37.

CRX Corporation uses general ledger software as a processing tool in its accounting information system, which creates certain risk exposures. Internal controls to address those risk exposures include:

A. Daily file backup. B. Periodic employee training. C. Both daily file backup and periodic employee training. D. Neither daily file backup nor periodic employee training.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Topic: Internal controls

38.

Sally, a sales representative for WER Corporation, ensures that she does a thorough credit check for customers who want to purchase goods on account. The most important internal control WER should implement is:

A. Separation of duties. B. Adequate documentation. C. A risk management plan. D. Employee training.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Topic: Internal controls

39.

Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. Which of the following statements about SPC is most true?

40.

Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. Based on its risk exposures, SPC would benefit most from implementing which of the following internal controls?

A. Cross-training employees B. Separation of duties C. Normalized database files D. Use of the COSO internal control framework

41.

Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. SPC's internal control in the sales/collection process would be strengthened by making changes in:

42.

Consider the following short case as you respond to the question: SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally about 1% of total sales. Internal control weaknesses for SPC are indicated by which of the following?

A. Sales staff access to the AIS B. Paying a fee to a lockbox firm C. Estimating bad debts using total sales D. All of these Sales staff should not be able to access the general ledger.

43.

Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. Which of the following techniques could be used to document ELM's sales/collection process?

A. Systems flowchart B. Data flow diagram C. REA model D. All of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

44.

Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. A systems flowchart of ELM's sales/collection process would include all of the following column headings except:

A. Client B. Staff specialist C. Equipment type D. Greeter

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

45.

Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. A REA model of ELM's sales/collection process would include how many internal agents in its rightmost column?

A. Two B. Three C. Four D. More than four The internal agents are the greeter and the sales staff.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

46.

Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. Which of the following is most likely to be depicted as an external entity in a leveled set of data flow diagrams for ELM's sales/collection process?

A. Insurance company B. Credit card company C. Both insurance company and credit card company D. Neither insurance company nor credit card company

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

47.

Consider the following short case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met. Which of the following statements about documentation for ELM's sales/collection process is most true?

A. Agents in a REA model are likely to be column headings in a systems flowchart. B. A leveled set of data flow diagrams will likely include one level for each agent in a REA model. C. Both agents in a REA model are likely to be column headings in a systems flowchart and a leveled set of data flow diagrams will likely include one level for each agent in a REA model D. Neither agents in a REA model are likely to be column headings in a systems flowchart 12-95 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

nor a leveled set of data flow diagrams will likely include one level for each agent in a REA model

48.

Consider the following set of symbols and the ELM case as you respond to the question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

ELM's customer database could be represented with:

A. Symbol A only B. Symbol B only C. Either Symbol A or Symbol B D. Neither Symbol A nor Symbol B "A" would be used in a flowchart; "B" would be used in a data flow diagram.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

49.

In a systems flowchart of ELM's sales/collection process, "conduct preliminary needs assessment" would most likely be depicted with:

A. Symbol C B. Symbol D C. Symbol F D. Some other symbol not shown above

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

50.

In a systems flowchart of ELM's sales/collection process, Symbol C could be labeled with any of the following except:

A. Insurance coverage. B. Needs assessment. C. Make sale. D. Additional equipment needed. The narrative indicates that all potential customers get a needs assessment.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

51.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Porter's value chain comprises five primary activities and four support activities. Which of the following pairs a primary activity with an example from the case?

A. operations, the proposal is forwarded to the client electronically B. infrastructure, HSO bills the client C. operations, HSO manufactures golf carts D. infrastructure, HSO designs scooters

AACSB: Analytical Thinking

AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-07 Relate Porter's value chain to the process. Topic: Process description

52.

A. information technology, reports are filed in HSO's database B. infrastructure, HSO bills the client C. operations, HSO manufactures golf carts D. infrastructure, HSO designs scooters Accounting bills the client; accounting is part of infrastructure. Although a database is a

form of information technology, we don't have enough detail in the case to assert that "A" is the best example.

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-07 Relate Porter's value chain to the process. Topic: Process description

53.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Reviewing the completed intake questionnaire is most closely related to the ___ step of the sales/collection process.

A. first B. third C. sixth D. none of these

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

54.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Which of the following phrases from the case exemplifies the sixth step of the sales/collection process?

55.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Accounting information systems comprise five generic parts. From HSO's perspective, which of the following pairs a generic part with an example from the case?

A. internal control, the office manager assembles a team of employees B. input, budget and timeline C. Both internal control, the office manager assembles a team of employees and input, budget and timeline D. Neither internal control, the office manager assembles a team of employees nor input, budget and timeline 12-111 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Assembling a team is a form of internal control designed to promote operating efficiency. From HSO's perspective, the budget and timeline are outputs.

56.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Consider the process from HSO's point of view. In a systems flowchart of the process described, all of the following would be represented with the same symbol except:

others would be represented with a decision symbol.

57.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. Consider the process from HSO's point of view. Which of the following would be included as column headings in a systems flowchart?

A. HSO Corporation B. Client C. Both HSO Corporation and Client D. Neither HSO Corporation nor Client

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

58.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. If HSO maintains a relational database to track proposals and projects, which of the following would require a junction table?

Each employee can be on multiple teams; each team has multiple employees.

AACSB: Technology AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

59.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. If HSO maintains a relational database to track proposals and projects:

A. The primary key from the client table will be included as a foreign key in the "prepare invoice" table. B. The IDs of the review team members will be included as foreign keys in the "assemble review team" table. C. Both the primary key from the client table will be included as a foreign key in the "prepare invoice" table and the IDs of the review team members will be included as foreign keys in the "assemble review team" table. 12-119 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

D. Neither the primary key from the client table will be included as a foreign key in the "prepare invoice" table nor the IDs of the review team members will be included as foreign keys in the "assemble review team" table.

60.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. If HSO maintains a relational database to track proposals and projects, which object(s) would it use to prepare client invoices?

A. table and query only B. table and report only C. query and report only D. table, query and report

AACSB: Technology

AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

Ranking Questions

61.

Please put the steps in the sales/collection process listed below in order of their usual occurrence based on the description given in the text.

7 Take a customer's order 6 Collect payment 5 Ship the product 4 Process uncollectible receivables as necessary 1 Bill the customer 3 Approve the customer's credit 2 Fill the order based on approved credit

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

Essay Questions

62.

Accounting information systems have five generic elements. Which one applies to each item listed below within the context of the sales/collection process? a. Customer check, from the point of view of the seller b. Customer order c. Employee master file d. Invoice e. Maintaining adequate inventory f. Record transactions in the AIS g. Remittance advice, from the point of view of the seller h. Sales/inventory junction table i. Use of the seven steps j. Using information technology to fill orders

a. input b. input c. storage d. output e. internal control f. process g. input h. storage i. process j. internal control

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

63.

Several journal entries common to the sales/collection process are listed below. For each, explain what transaction the entry is recording.

A. Sale on account B. Collection of cash on account C. Estimating bad debts D. Paying outbound delivery charges E. Cash sale

AACSB: Analytical Thinking AICPA: FN Measurement Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

64.

Several symbols that might be used in a systems flowchart of the sales/collection process are listed below.

1. B 2. B 3. C 4. C 5. D 6. A 7. E 8. G 9. F 10. F

65.

OTA Corporation completed the following transactions as part of its sales/collection process. Record each transaction in general journal format. a. Sold consulting services for cash, $500. b. Sold merchandise with a cost of $100 on account for $300. c. Paid a common carrier $50 to ship the merchandise. d. Collected cash for sale on account, $200. e. Estimated bad debts for the year, $80.

a. Debit Cash, $500. Credit Consulting Revenue, $500. b. Debt A/R, $300. Debit COGS, $100. Credit Sales, $300. Credit Inventory, $100. c. Debit Delivery Expense, $50. Credit Cash, $50. d. Debit Cash, $200. Credit A/R, $200. e. Debit Bad Debt Expense, $80. Credit Allowance for Bad Debts, $80.

AACSB: Analytical Thinking AICPA: FN Measurement 12-126 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-04 Process common transactions. Topic: AIS structure

66.

OTA Corporation completed the following transactions as part of its sales/collection process. For each transaction, indicate the document(s) OTA would use. (Some transactions may require more than one document; other transactions may require no documents.) a. Sold consulting services for cash, $500. b. Sold merchandise with a cost of $100 on account for $300. c. Paid a common carrier $50 to ship the merchandise. d. Collected cash for sale on account, $200. e. Estimated bad debts for the year, $80.

a. customer order, customer check b. customer order, customer invoice c. check, bill of lading d. customer check, remittance advice e. none

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

67.

Analyze the following narrative. Identify five risk exposures ELM faces; for each exposure, recommend two internal controls. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Topic: Internal controls

68.

Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week. Identify three risk exposures in HCC's sales/collection process. For each risk exposure, suggest two internal controls that will address it. Also identify two risk exposures for the independent contractors' sales/collection process; for each risk, suggest two internal controls that will address it.

69.

Create a systems flowchart of the following sales/collection process. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

70.

Create all necessary database specifications (table names and field names) for ELM Corporation's sales/collection process based on the following narrative. Indicate primary keys by underlining and foreign keys with brackets. ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.

Employee table Employee ID Employee last name Employee first name Employee job title Employee address Employee city

Employee state Employee ZIP code Employee area code Employee phone number Customer table Customer ID Customer last name Customer first name Customer address Customer city Customer state Customer ZIP code Customer area code Customer phone number Customer insurance information Assess needs table Needs assessment transaction ID Needs assessment date [Customer ID] Preliminary employee ID Detailed employee ID Assessed needs Inventory table Inventory ID Inventory description "As of" date for beginning inventory Beginning inventory quantity Beginning inventory cost per unit

Sales table Sales transaction ID Sales transaction date [Employee ID] [Customer ID] Covered by insurance? Sales/inventory table [Sales transaction ID] [Inventory ID] Quantity sold Price per unit

AACSB: Technology AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

Short Answer Questions

71.

List, in order, the steps in the sales/collection process discussed in the text.

1. Take a customer's order. 2. Approve the customer's credit. 3. Fill the order based on approved credit. 4. Ship the product. 5. Bill the customer. 6. Collect payment. 7. Process uncollectible receivables as necessary.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 12-02 List and discuss, in order, the steps in the process. Topic: Process description

72.

In your own words, explain the role and purpose of the sales/collection process. Do not list the steps in the process as part of your response.

The sales/collection process encompasses all activities from taking a customer's order through collecting payment for the order. It is one of the business processes organizations use to create value for their stakeholders.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 12-01 Explain its role and purpose. Topic: Process description

73.

Accounting information systems have five generic elements. Identify and describe one example of each element in the sales/collection process of Homemade Crafts Company based on the following narrative: Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

Input: customer order Process: deposit cash in the bank Output: customer receipt Storage: customer database Internal control: All sales are for cash.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-03 Explain how the generic structure of most AIS applies to the process.

Topic: AIS structure

74.

Use COSO's internal control framework to develop an internal control plan for Homemade Craft Company based on the following narrative. Focus your plan on internal controls for the sales/collection process. Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. All HCC's sales are for cash; each inventory item is marked up 25% on its cost to determine the selling price. For example, if a product costs $100 to buy, HCC sells it for $125. The two sales employees bring all cash receipts back to HCC's main office; the receptionist deposits the cash in the bank at least once a week.

Control environment: HCC's president announces the development of an internal control plan. Risk assessment: Theft of cash. Control activities: Reconcile cash receipts with invoices. Deposit the cash daily. Information and communication: Hold quarterly focus groups to discuss the plan. Monitoring: HCC's president can monitor the plan as part of his/her administrative duties.

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Topic: Internal controls

75.

Prepare a narrative description of the sales/collection process depicted in the systems flowchart below. Then, identify three risk exposures for the company's sales/collection process; for each risk exposure, suggest one internal control you would implement.

Sales staff pick up merchandise and manually transport it to retailers; they sell the goods and collect cash. The cash is returned to the receptionist, who deposits it in the bank. Sales staff provide receipts to the accounting staff, who prepare journal entries. Risk exposure: Inventory is damaged and cannot be sold. Internal control: Use a common carrier rather than letting sales staff transport the inventory.

Risk exposure: Sales staff steal cash and cover it up by eliminating customer receipts/invoices. Internal control: Pre-number receipts/invoices; reconcile them daily. Risk exposure: Accounting staff make incorrect journal entries. Internal control: Conduct periodic internal audits.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 12-05 Design and critique internal controls based on common risk exposures. Learning Objective: 12-06 Develop and interpret process-related systems documentation. Topic: System Documentation

Chapter 13 Acquisition/Payment Process

Multiple Choice Questions

1. The primary purpose of the acquisition/payment process is to:

A. Obtain the resources the organization needs. B. Pay for the resources the organization needs. C. Both obtain the resources the organization needs and pay for the resources the organization needs. D. Neither obtain the resources the organization needs nor pay for the resources the organization needs.

2. The acquisition/payment process:

A. Helps an organization create value for its stakeholders. B. Can only be applied if an organization sells a product. C. Both helps an organization create value for its stakeholders and can only be applied if an organization sells a product. D. Neither helps an organization create value for its stakeholders nor can only be applied if an organization sells a product.

3. The acquisition/payment process helps an organization create value for its stakeholders, which can include:

A. Vendors. B. Stockholders. C. Employees. D. All of these.

4. The acquisition/payment process helps an organization create value for its stakeholders. Which of the following authors developed a model that assists in understanding value creation?

A. Porter B. Vroom C. Pacioli D. Gates

5. The items and activities commonly associated with the acquisition/payment process can be seen in:

A. The income statement only. B. The balance sheet only. C. The statement of cash flows only. D. All of these.

6. Which of the following balance sheet items are commonly associated with the acquisition/payment process?

A. Inventory and accounts payable B. Purchases and accounts receivable C. Cash paid to vendors D. Cash received from the sale of inventory

7. Which of the following statements best explains the relationship between the acquisition/payment process and the sales/collection process?

A. The same transaction can be considered part of both processes. B. All organizations that have a sales/collection process also have an inventory acquisition/payment process. C. Both the same transaction can be considered part of both processes and all organizations that have a sales/collection process also have an inventory acquisition/payment process. D. Neither the same transaction can be considered part of both processes nor all organizations that have a sales/collection process also have an inventory acquisition/payment process.

8. Which of the following balance sheet items is least likely to be associated with the acquisition/payment process?

A. Cash B. Accounts payable C. Raw materials D. Treasury stock

9. Bumble Beasley said: "The acquisition/payment process, which often deals with the asset inventory, creates the greatest value of all business processes." Which of the following terms, if eliminated from Bumble's statement, would make it stronger?

A. Asset B. Inventory C. Greatest D. None of these; Bumble's statement is fine the way it is.

10. As the first step in the acquisition/payment process, goods are requested based on:

A. Monitored need. B. The amount of cash in the bank. C. The relationship between a buyer and a seller. D. The use of information technology.

11. Which of the following can serve as the basis for completing the first step in the acquisition/payment process?

A. Information technology B. Human judgment C. The passage of time D. All of these

12. The acquisition/payment process includes all of the following steps except:

A. Authorize a purchase. B. Prepare adjusting journal entries. C. Receive goods and services. D. Disburse cash.

13. The second step in the acquisition/payment process promotes strong internal control through:

A. Properly labeled documents. B. Separation of duties. C. Both properly labeled documents and separation of duties. D. Neither properly labeled documents nor separation of duties.

14. The fifth step in the acquisition/payment process promotes strong internal control through:

A. Bank reconciliations. B. Separation of duties. C. Both bank reconciliations and separation of duties. D. Neither bank reconciliations nor separation of duties.

15. SCP Corporation purchased inventory on account from OBP Corporation. Which of the following occurred first?

A. The first step in OBP's sales/collection process B. The first step in SCP's acquisition/payment process C. A value chain analysis of the transaction D. Management approval of the transaction

16. SCP Corporation purchased inventory on account from OBP Corporation. Which of the following happens immediately after the first step in SCP's acquisition/payment process?

A. The first step in OBP's sales/collection process B. The second step in SCP's acquisition/payment process C. The second step in OBP's sales/collection process D. An internal audit of the transaction by OBP

17. Which of the following statements about the acquisition/payment process is least true?

A. The same document is an output of the first step and an input to the second step. B. The document commonly used in the second step is both an output and an input. C. The document commonly used in the second step is never used in other steps of the acquisition/payment process. D. Many documents from the first step can be combined into a single document in the second step.

18. Which of the following statements about the acquisition/payment process is most true?

A. A single document can be either an input or an output, but never both. B. Many documents from the first step can be combined into a single document in the second step. C. Both a single document can be either an input or an output, but never both, and many documents from the first step can be combined into a single document in the second step are true. D. Neither a single document can be either an input or an output, but never both, nor many documents from the first step can be combined into a single document in the second step is true.

19. Transactions involved in the acquisition/payment process include:

A. Debit inventory, credit cash B. Debit inventory, credit accounts payable C. Debit accounts payable, credit cash D. All of these

20. Accounting information systems have five generic parts. Outputs of the acquisition/payment process can include:

A. Schedule of accounts payable. B. Checks. C. Both schedule of accounts payable and checks. D. Neither schedule of accounts payable nor checks.

21. As a form of internal control, separation of duties can be applied to which steps in the acquisition/payment process?

A. Second step B. Fourth step C. Fifth step D. All of these

22. Which of the following can serve as both an input to and an output of the acquisition/payment process?

A. Check B. Purchase order C. Both check and purchase order D. Neither check nor purchase order

23. Which of the following documents associated with the acquisition/payment process is most likely to lead to a journal entry that debits inventory and credits accounts payable?

A. Purchase requisition, purchase order and receiving report B. Purchase order, receiving report and invoice C. Purchase requisition, receiving report and invoice D. None of these

24. Which of the following items associated with the acquisition/payment process is likely to expose an organization to one or more forms of operational risk?

A. Purchase order prepared by hand B. Schedule of accounts payable prepared with Excel C. Both purchase order prepared by hand and schedule of accounts payable prepared with Excel D. Neither purchase order prepared by hand nor schedule of accounts payable prepared with Excel

25. Accounting information systems have five generic elements. Which of the following pairs includes two examples of the same element within the context of the acquisition/payment process?

A. Purchase order and schedule of accounts payable B. Purchase order and adequate documentation C. Schedule of accounts payable and adequate documentation D. All of these

26. Accounting information systems have five generic elements. Which of the following pairs includes examples of two different elements within the context of the acquisition/payment process?

A. Purchase requisition and schedule of accounts payable B. Journal entry that debits inventory and credits cash C. Separation of duties and a blind copy of the receiving report D. All of these

27. The journal entry to record the purchase of inventory on account is:

A. Debit inventory, credit accounts payable. B. Debit accounts payable, credit inventory. C. Debit inventory, credit cash. D. Debit accounts payable, credit cash.

28. Journal entries commonly processed as part of the acquisition/payment process can include:

A. Debits to inventory. B. Credits to accounts payable. C. Credits to cash. D. All of these.

29. As part of an inventory purchase, BSP Corporation paid a freight bill. The proper treatment of the freight cost in BSP's accounting information system is:

A. Capitalize to inventory. B. Capitalize to cash. C. Expense to inventory. D. Expense to cash.

30. BSP Corporation purchased inventory from RSR Corporation on account, $1,000. BSP also paid $100 freight to reimburse RSR for its payment to the common carrier that transported the merchandise. If RSR offered credit terms of 2/10, n/30 and BSP paid within the discount period, the total cash disbursed to RSR was:

A. $1,080. B. $1,078. C. $980. D. Some other amount.

31. BSP Corporation purchased inventory from RSR Corporation on account, $1,000. BSP also paid $100 freight to reimburse RSR for its payment to the common carrier that transported the merchandise. The $100 freight charge is likely to be found on:

A. The bill of lading. B. RSR Corporation's invoice. C. Both the bill of lading and RSR Corporation's invoice. D. Either the bill of lading or RSR Corporation's invoice, but not both.

32. BSP Corporation wrote a check to RSR Corporation, one of its vendors. On the remittance advice, BSP indicated which invoices it was paying. Which of the following statements is most true?

A. BSP Corporation uses the open invoice method. B. RSR Corporation uses the open invoice method. C. BSP Corporation uses the balance forward method. D. If RSR uses the open invoice method, BSP must also use the open invoice method.

33. One output of the accounting information system is the statement of cash flows. Transactions commonly associated with an organization's acquisition/payment process are most likely to be reflected in which section of the statement of cash flows?

A. Operating B. Investing C. Financing D. Non-cash investing and financing

34. One output of the accounting information system is the balance sheet. Transactions commonly associated with an organization's acquisition/payment process are most likely to be reflected in which sections of balance sheet?

A. Current assets and current liabilities B. Current assets and long-term liabilities C. Long-term assets and current liabilities D. Long-term assets and long-term liabilities

35. Internal controls associated with the acquisition/payment process include:

A. Separation of duties. B. Adequate documentation. C. Both separation of duties and adequate documentation. D. Neither separation of duties nor adequate documentation.

36. Which of the following serve as examples of strong separation of duties within the context of the acquisition/payment process?

A. Establishing a purchasing department B. Requiring all purchases over $500 to be approved by a manager C. Both establishing a purchasing department and requiring all purchases over $500 to be approved by a manager D. Neither establishing a purchasing department nor requiring all purchases over $500 to be approved by a manager

37. As a form of internal control within the acquisition/payment process, internal auditors are most likely to:

A. Prevent or detect a problem. B. Prevent or correct a problem. C. Detect or correct a problem. D. None of these; internal auditors are not a form of internal control for the acquisition/payment process.

38. Internal controls in the acquisition/payment process should address which of the following forms of risk?

A. Liquidity risk B. Human error risk C. Both liquidity risk and human error risk D. Neither liquidity risk nor human error risk

39. Consider the following short case as you respond to the question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies. Abruzzi's Italian Kitchen is exposed to:

A. Systems risk and human error risk. B. Human error risk and liquidity risk. C. Liquidity risk and systems risk. D. Human error risk, systems risk and liquidity risk.

40. Consider the following short case as you respond to the question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies. Which of the following statements about internal control at Abruzzi's Italian Kitchen is most true?

A. It has adequate separation of duties because Giuseppi is CEO and Maria is CFO. B. It has adequate separation of duties because Antonio orders kitchen supplies and Carlo orders dining room supplies. C. It does not need to separate duties because it is a family-owned business. D. None of these statements is true.

41. Consider the following short case as you respond to the question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies. Internal control would be strengthened at Abruzzi's Italian Kitchen if:

A. The company broadened its pool of vendors for kitchen and dining room supplies. B. Maria took over the responsibility of paying vendors. C. Both the company broadened its pool of vendors for kitchen and dining room supplies and Maria took over the responsibility of paying vendors. D. Neither the company broadened its pool of vendors for kitchen and dining room supplies nor Maria took over the responsibility of paying vendors.

42. Consider the following short case as you respond to the question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies. Internal control would be strengthened at Abruzzi's Italian Kitchen if:

A. Kitchen supplies were ordered more than once a month. B. Non-family members were hired in key positions. C. Both kitchen supplies were ordered more than once a month and non-family members were hired in key positions. D. Neither kitchen supplies were ordered more than once a month nor non-family members were hired in key positions.

43. Consider the following systems flowchart as you respond to the question:

The flowchart comes closest to representing:

A. Porter's value chain. B. The acquisition/payment process. C. Both porter's value chain and the acquisition/payment process. D. Neither porter's value chain nor the acquisition/payment process.

44. Consider the following systems flowchart as you respond to the question:

Based on the flowchart, which of the following statements is most true?

A. The company does not use any form of information technology in the process depicted. B. At least three tasks are completed manually. C. Both the company does not use any form of information technology in the process depicted and at least three tasks are completed manually are true. D. Neither the company does not use any form of information technology in the process depicted nor at least three tasks are completed manually is true.

45. Consider the following systems flowchart as you respond to the question:

Which of the following statements is most true?

46. Consider the following systems flowchart as you respond to the question:

In the flowchart, the vendor:

A. Is outside the system boundary and therefore should be omitted. B. Should be omitted because it has too few symbols in its column. C. Is exposed to credit risk. D. Should not ship goods before generating an invoice.

47. Consider the following systems flowchart as you respond to the question:

Which of the following statements about documents in the flowchart is most true?

A. "Purchase order" and "approved purchase order" should not be shown separately since they refer to the same document. B. The flowchart should include at least two more document symbols. C. Both "Purchase order" and "approved purchase order" should not be shown separately since they refer to the same document and the flowchart should include at least two more document symbols are true. D. Neither "Purchase order" and "approved purchase order" should not be shown separately since they refer to the same document nor the flowchart should include at least two more document symbols is true.

48. Consider the following systems flowchart as you respond to the question:

Assuming the actual process works exactly as depicted in the flowchart, ___ is in a position to steal from the company.

A. The inventory manager only B. The accounting manager only C. Either the inventory manager or the accounting manager D. Neither the inventory manager nor the accounting manager

49. Consider the flowcharting symbols shown below and the flowchart depicted above as you answer the question?

The symbol labeled "approve purchase order" would be appropriately replaced in the flowchart with which of the following:

A. Symbol A B. Symbol B C. Symbol C D. Symbol D

50. Consider the flowcharting symbols shown below and the flowchart depicted above as you answer the question:

Symbol D could be appropriately included in which column(s) of the flowchart?

A. General manager only B. Inventory manager only C. Both general manager only and inventory manager only D. Neither general manager only nor inventory manager only

51. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. Which of the following occurred first?

A. The first step in HSO's sales/collection process B. The first step in EPL's acquisition/payment process C. EPL's cash payment to HSO D. HSO's receipt of cash from EPL

52. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. Considering the accounts involved in the transaction from EPL's perspective, which of the following correctly pairs an account on the balance sheet with the appropriate section of the balance sheet?

A. inventory, current assets B. equipment, plant assets C. Both inventory, current assets and equipment, plant assets D. Neither inventory, current assets nor equipment, plant assets 13-27 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

53. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. How will EPL account for the design cost in its accounting information system?

A. It will be expensed in the period incurred. B. It will be expensed when cash is paid. C. It will be capitalized to inventory. D. It will be capitalized to some other asset.

54. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. In a systems flowchart of EPL's process, ___ is likely to be outside the system boundary.

A. HSO Corporation B. HSO's office manager C. EPL's purchasing department D. EPL's accounting department

55. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. A REA model of EPL's process will include which of the following in the first column: (i) cash, (ii) equipment, (iii) inventory?

A. I and II only B. II and III only C. I and III only D. I, II and III

56. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. A REA model of EPL's process will include which of the following in the center column: (i) choose a supplier, (ii) purchase equipment, (iii) pay invoice?

A. I and II only B. II and III only C. I and III only D. I, II and III

57. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. Which of the following would be considered a derivable amount?

A. The total cost for HSO to manufacture the golf carts B. The balance in EPL's equipment account C. The balance in EPL's cash account D. All of these

58. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. If EPL pays the final invoice within 15 days, the check will be for:

A. $1700.00 B. $850.00 C. $824.50 D. some other amount

59. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. If EPL pays the final invoice 20 days after it is received, the total dollar amount debited to inventory for the golf carts will be:

A. less than $3400. B. exactly $3400. C. more than $3400. D. the amount cannot be determined from the information given.

60. Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. For the transaction described, EPL's relational database will include a(n) ___ table with ___ as its primary key.

A. inventory; purchase order number B. equipment; purchase order number C. equipment; item identification number D. inventory; item identification number

Ranking Questions

61. The steps commonly associated with the acquisition/payment process are listed below. Number them in the correct order based on the information in the text.

____ Authorize a purchase. ____ Disburse cash. ____ Process purchase returns as necessary. ____ Request goods and services based on monitored need. ____ Receive goods/services. ____ Purchase goods/services.

Essay Questions

62. Accounting information systems have five generic elements. Which one applies to each item listed below within the context of the acquisition/payment process? a. Adequate documentation of the process b. Check, from the viewpoint of the buyer c. Inventory status report d. Purchase order, from the viewpoint of the purchasing department e. Purchase requisition, from the viewpoint of the purchasing department f. Purchases/inventory junction file g. Recording journal entries to purchase inventory h. Separation of duties i. Steps in the acquisition/payment process j. Vendor master file

63. Several journal entries common to the acquisition/payment process are listed below. For each, explain what transaction the entry is recording.

64. Several symbols that might be used in a systems flowchart of the acquisition/payment process are listed below.

Indicate which symbol should be used to depict each of the following. Some symbols may be used more than once; others may not be used at all. 1. Bill of lading 2. Electronic vendor file 3. End 4. File manually by due date 5. Manually count inventory 6. Move to next page 7. Prepare check 8. Purchase requisition 9. Sufficient inventory on hand? 10. To vendor

65. OTA Corporation completed the following events as part of its acquisition/payment process. Record each one in general journal format; if an event does not require a journal entry, write "not applicable." a. Received request to order 300 units of inventory with an expected cost of $1,400. b. Purchased inventory on account, $1,500. Terms: 2/10, n/30. c. Paid freight bill on inbound inventory, $300. d. Received previously ordered inventory. e. Returned previously purchased merchandise to supplier, $200. f. Paid vendor total amount owed on the 15th day after purchase.

66. OTA Corporation completed the following events as part of its acquisition/payment process. For each event, indicate the document(s) OTA would use. (Some events may require more than one document; other transactions may require no documents.) a. Received request to order 300 units of inventory with an expected cost of $1,400. b. Purchased inventory on account, $1,500. Terms: 2/10, n/30. c. Paid freight bill on inbound inventory, $300. d. Received previously ordered inventory. e. Returned previously purchased merchandise to supplier, $200. f. Paid vendor total amount owed on the 15th day after purchase.

67. Analyze the following narrative. Identify five risk exposures PTW faces in its acquisition/payment process; for each exposure, recommend two internal controls. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

68. Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. The company accountant records purchases in Quickbooks using invoices submitted by the two employees in charge of purchasing. Quickbooks is set up to remind the accountant to pay invoices three days before their due date. At that time, the accountant prepares a check and uses a rubber stamp of the president's signature to sign the check before mailing it to the appropriate vendor. The receptionist, who also deposits cash receipts in the bank, reconciles the bank statement once a month. Identify three risk exposures for HCC's acquisition/payment process. For each risk exposure, indicate how it would be classified in Brown's risk taxonomy. Also suggest, for each risk exposure, two internal controls. Do not use the same internal control more than once.

69. Prepare a Level Zero data flow diagram of the acquisition/payment process described below. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

70. Create all necessary database specifications (table names and field names) for PTW Corporation's acquisition/payment process based on the following narrative. Indicate primary keys by underlining and foreign keys with brackets. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

71. Consider the flowchart below (Figure TB13-4). Recommend improvements to the acquisition/payment process depicted.

Short Answer Questions

72. List, in order, the steps in the acquisition/payment process discussed in the text.

73. In your own words, explain the role and purpose of the acquisition/payment process. Do not list the steps in the process as part of your response.

74. Accounting information systems have five generic elements. Identify and describe two examples of each element in the acquisition/payment process of PTW Corporation based on the following narrative: PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

75. Using the format illustrated in the text, create a risk/control matrix for PTW Corporation's acquisition/payment process. The matrix should have three entries. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Chapter 13 Acquisition/Payment Process Answer Key

Multiple Choice Questions

The primary purpose of the acquisition/payment process is to:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 Explain its role and purpose. Topic: Process description

The acquisition/payment process:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 Explain its role and purpose. Topic: Process description

The acquisition/payment process helps an organization create value for its stakeholders, which can include:

A. Vendors. B. Stockholders. C. Employees. D. All of these.

The acquisition/payment process helps an organization create value for its stakeholders. Which of the following authors developed a model that assists in understanding value creation?

A. Porter B. Vroom C. Pacioli D. Gates

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-07 Explain how the process relates to Porter's value chain. Topic: Process description

The items and activities commonly associated with the acquisition/payment process can be seen in:

A. The income statement only. B. The balance sheet only. C. The statement of cash flows only. D. All of these.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 Explain its role and purpose. Topic: Process description

Which of the following balance sheet items are commonly associated with the acquisition/payment process?

A. Inventory and accounts payable B. Purchases and accounts receivable C. Cash paid to vendors D. Cash received from the sale of inventory

Which of the following statements best explains the relationship between the acquisition/payment process and the sales/collection process?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 13-54 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 13-01 Explain its role and purpose. Topic: Process description

Which of the following balance sheet items is least likely to be associated with the acquisition/payment process?

A. Cash B. Accounts payable C. Raw materials D. Treasury stock

Bumble Beasley said: "The acquisition/payment process, which often deals with the asset inventory, creates the greatest value of all business processes." Which of the following terms, if eliminated from Bumble's statement, would make it stronger?

A. Asset B. Inventory C. Greatest D. None of these; Bumble's statement is fine the way it is.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-01 Explain its role and purpose. Topic: Process description 13-55 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

10.

As the first step in the acquisition/payment process, goods are requested based on:

A. Monitored need. B. The amount of cash in the bank. C. The relationship between a buyer and a seller. D. The use of information technology.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-02 List and discuss, in order, the steps in the process. Topic: Process description

11.

Which of the following can serve as the basis for completing the first step in the acquisition/payment process?

A. Information technology B. Human judgment C. The passage of time D. All of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-02 List and discuss, in order, the steps in the process. Topic: Process description

12.

The acquisition/payment process includes all of the following steps except:

A. Authorize a purchase. B. Prepare adjusting journal entries. C. Receive goods and services. D. Disburse cash.

13.

The second step in the acquisition/payment process promotes strong internal control through:

A. Properly labeled documents. B. Separation of duties. C. Both properly labeled documents and separation of duties. D. Neither properly labeled documents nor separation of duties.

14.

The fifth step in the acquisition/payment process promotes strong internal control through:

A. Bank reconciliations. B. Separation of duties. C. Both bank reconciliations and separation of duties. D. Neither bank reconciliations nor separation of duties.

15.

SCP Corporation purchased inventory on account from OBP Corporation. Which of the following occurred first?

A. The first step in OBP's sales/collection process B. The first step in SCP's acquisition/payment process C. A value chain analysis of the transaction D. Management approval of the transaction

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-02 List and discuss, in order, the steps in the process. Topic: Process description

16.

SCP Corporation purchased inventory on account from OBP Corporation. Which of the following happens immediately after the first step in SCP's acquisition/payment process?

17.

Which of the following statements about the acquisition/payment process is least true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

18.

Which of the following statements about the acquisition/payment process is most true?

19.

Transactions involved in the acquisition/payment process include:

A. Debit inventory, credit cash B. Debit inventory, credit accounts payable C. Debit accounts payable, credit cash D. All of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-04 Process common transactions. Topic: AIS structure

20.

Accounting information systems have five generic parts. Outputs of the acquisition/payment process can include:

A. Schedule of accounts payable. B. Checks. C. Both schedule of accounts payable and checks. D. Neither schedule of accounts payable nor checks.

21.

As a form of internal control, separation of duties can be applied to which steps in the acquisition/payment process?

A. Second step B. Fourth step C. Fifth step D. All of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: AIS structure

22.

Which of the following can serve as both an input to and an output of the acquisition/payment process?

A. Check B. Purchase order C. Both check and purchase order D. Neither check nor purchase order While both checks and purchase orders can serve as both inputs and outputs, they do not share that relationship within this process. For example, a check is an output of acquisition-payment, but an input to sales-collection.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

23.

Which of the following documents associated with the acquisition/payment process is most likely to lead to a journal entry that debits inventory and credits accounts payable?

A. Purchase requisition, purchase order and receiving report B. Purchase order, receiving report and invoice C. Purchase requisition, receiving report and invoice D. None of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-04 Process common transactions. 13-62 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: AIS structure

24.

Which of the following items associated with the acquisition/payment process is likely to expose an organization to one or more forms of operational risk?

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: Internal control

25.

Accounting information systems have five generic elements. Which of the following pairs includes two examples of the same element within the context of the acquisition/payment process?

A. Purchase order and schedule of accounts payable B. Purchase order and adequate documentation C. Schedule of accounts payable and adequate documentation D. All of these Purchase orders and schedules of accounts payable are process outputs. Adequate documentation is a form of internal control.

26.

Accounting information systems have five generic elements. Which of the following pairs includes examples of two different elements within the context of the acquisition/payment process?

A. Purchase requisition and schedule of accounts payable B. Journal entry that debits inventory and credits cash C. Separation of duties and a blind copy of the receiving report D. All of these A purchase requisition is an input, while a schedule of accounts payable is an output. Separation of duties and a blind copy of the receiving report are both examples of internal control. The journal entry is an example of processing.

27.

The journal entry to record the purchase of inventory on account is:

A. Debit inventory, credit accounts payable. B. Debit accounts payable, credit inventory. C. Debit inventory, credit cash. D. Debit accounts payable, credit cash.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-04 Process common transactions. 13-65 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: AIS structure

28.

Journal entries commonly processed as part of the acquisition/payment process can include:

A. Debits to inventory. B. Credits to accounts payable. C. Credits to cash. D. All of these.

29.

As part of an inventory purchase, BSP Corporation paid a freight bill. The proper treatment of the freight cost in BSP's accounting information system is:

A. Capitalize to inventory. B. Capitalize to cash. C. Expense to inventory. D. Expense to cash.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-04 Process common transactions. Topic: AIS structure

30.

BSP Corporation purchased inventory from RSR Corporation on account, $1,000. BSP also paid $100 freight to reimburse RSR for its payment to the common carrier that transported the merchandise. If RSR offered credit terms of 2/10, n/30 and BSP paid within the discount period, the total cash disbursed to RSR was:

A. $1,080. B. $1,078. C. $980. D. Some other amount. $100 + ($1000 * 98%)

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 13-04 Process common transactions. Topic: AIS structure

31.

A. The bill of lading. B. RSR Corporation's invoice. C. Both the bill of lading and RSR Corporation's invoice. D. Either the bill of lading or RSR Corporation's invoice, but not both.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

32.

BSP Corporation wrote a check to RSR Corporation, one of its vendors. On the remittance advice, BSP indicated which invoices it was paying. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: Internal control

33.

One output of the accounting information system is the statement of cash flows. Transactions commonly associated with an organization's acquisition/payment process are most likely to be reflected in which section of the statement of cash flows?

A. Operating B. Investing C. Financing D. Non-cash investing and financing

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard 13-68 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

34.

One output of the accounting information system is the balance sheet. Transactions commonly associated with an organization's acquisition/payment process are most likely to be reflected in which sections of balance sheet?

A. Current assets and current liabilities B. Current assets and long-term liabilities C. Long-term assets and current liabilities D. Long-term assets and long-term liabilities

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

35.

Internal controls associated with the acquisition/payment process include:

A. Separation of duties. B. Adequate documentation. C. Both separation of duties and adequate documentation. D. Neither separation of duties nor adequate documentation.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: Internal control

36.

Which of the following serve as examples of strong separation of duties within the context of the acquisition/payment process?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: Internal control

37.

As a form of internal control within the acquisition/payment process, internal auditors are most likely to:

38.

Internal controls in the acquisition/payment process should address which of the following forms of risk?

A. Liquidity risk B. Human error risk C. Both liquidity risk and human error risk D. Neither liquidity risk nor human error risk

39.

Consider the following short case as you respond to the question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies. Abruzzi's Italian Kitchen is exposed to:

A. Systems risk and human error risk. B. Human error risk and liquidity risk. C. Liquidity risk and systems risk. D. Human error risk, systems risk and liquidity risk.

40.

41.

42.

43.

Consider the following systems flowchart as you respond to the question:

The flowchart comes closest to representing:

A. Porter's value chain. B. The acquisition/payment process. C. Both porter's value chain and the acquisition/payment process. D. Neither porter's value chain nor the acquisition/payment process.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

44.

Consider the following systems flowchart as you respond to the question:

Based on the flowchart, which of the following statements is most true?

depicted nor at least three tasks are completed manually is true.

45.

Consider the following systems flowchart as you respond to the question:

Which of the following statements is most true?

A. The company has adequate separation of duties. B. The company uses all documents commonly associated with the process depicted. C. Both the company has adequate separation of duties and the company uses all documents commonly associated with the process depicted are true. D. Neither the company has adequate separation of duties nor the company uses all documents commonly associated with the process depicted is true. The company does not have adequate separation of duties since the inventory manager both prepares the purchase order (authorization) and receives the goods (custody). The flowchart does not depict all the documents associated with the acquisition-payment process.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

46.

Consider the following systems flowchart as you respond to the question:

In the flowchart, the vendor:

AACSB: Analytical Thinking AICPA: FN Risk Analysis

Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

47.

Consider the following systems flowchart as you respond to the question:

Which of the following statements about documents in the flowchart is most true?

48.

Consider the following systems flowchart as you respond to the question:

Assuming the actual process works exactly as depicted in the flowchart, ___ is in a position to steal from the company.

A. The inventory manager only B. The accounting manager only C. Either the inventory manager or the accounting manager D. Neither the inventory manager nor the accounting manager

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

49.

Consider the flowcharting symbols shown below and the flowchart depicted above as you answer the question?

The symbol labeled "approve purchase order" would be appropriately replaced in the flowchart with which of the following:

A. Symbol A B. Symbol B C. Symbol C D. Symbol D

50.

Consider the flowcharting symbols shown below and the flowchart depicted above as you answer the question:

Symbol D could be appropriately included in which column(s) of the flowchart?

A. General manager only B. Inventory manager only C. Both general manager only and inventory manager only D. Neither general manager only nor inventory manager only

51.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. Which of the following occurred first?

A. The first step in HSO's sales/collection process B. The first step in EPL's acquisition/payment process C. EPL's cash payment to HSO D. HSO's receipt of cash from EPL

52.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. Considering the accounts involved in the transaction from EPL's perspective, which of the following correctly pairs an account on the balance sheet with the appropriate section of the balance sheet?

A. inventory, current assets B. equipment, plant assets C. Both inventory, current assets and equipment, plant assets 13-89 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

D. Neither inventory, current assets nor equipment, plant assets

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-04 Process common transactions. Topic: Process description

53.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. How will EPL account for the design cost in its accounting information system?

A. It will be expensed in the period incurred. B. It will be expensed when cash is paid. C. It will be capitalized to inventory. D. It will be capitalized to some other asset. 13-91 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-04 Process common transactions. Topic: Process description

54.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. In a systems flowchart of EPL's process, ___ is likely to be outside the system boundary.

A. HSO Corporation B. HSO's office manager C. EPL's purchasing department D. EPL's accounting department 13-93 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

55.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. A REA model of EPL's process will include which of the following in the first column: (i) cash, (ii) equipment, (iii) inventory?

A. I and II only B. II and III only C. I and III only D. I, II and III 13-95 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

56.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. A REA model of EPL's process will include which of the following in the center column: (i) choose a supplier, (ii) purchase equipment, (iii) pay invoice?

A. I and II only B. II and III only C. I and III only 13-97 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

D. I, II and III "Choose a supplier" is a decision event.

57.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. Which of the following would be considered a derivable amount?

A. The total cost for HSO to manufacture the golf carts B. The balance in EPL's equipment account C. The balance in EPL's cash account D. All of these 13-99 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

58.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. If EPL pays the final invoice within 15 days, the check will be for:

A. $1700.00 B. $850.00 C. $824.50 D. some other amount 13-101 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

HSO invoiced EPL for half the amount upon proposal acceptance ($1700). One week before the project is concluded, HSO bills the client for half of the remaining amount ($850). Thus, the final invoice will be for $850. Paying within 15 days allows EPL to take a 3% discount. $850 × 97% = $824.50.

59.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. If EPL pays the final invoice 20 days after it is received, the total dollar amount debited to inventory for the golf carts will be:

A. less than $3400. B. exactly $3400. C. more than $3400. D. the amount cannot be determined from the information given. 13-103 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

The dollar amount debited to inventory will be zero, as the carts are equipment, not inventory.

60.

Consider the following case as you respond to the questions: HSO Corp. designs, manufactures and sells golf carts, scooters and similar vehicles. When a prospective client contacts one of their seven corporate offices, the office manager fills out an "intake questionnaire" to determine if HSO can meet the prospective client's needs. The office manager assembles a team of employees with expertise in design, production, marketing and accounting; the team reviews the intake questionnaire and determines if HSO can take on the order. If so, the office manager prepares a three-page written proposal for the prospective client; the proposal explains the responsibilities of both HSO and the client, along with a timeline and a budget. The proposal is forwarded to the prospective client electronically, and the client has ten calendar days to accept it. If HSO cannot take on the order, the prospective client receives an automatically generated form letter; if the prospective client does not accept the proposal within ten calendar days, they receive a different form letter. The new client remits half of the fee at the time the proposal is accepted, and HSO prepares weekly progress reports as the project moves forward. The reports are filed in HSO's database; a hard copy is sent to the client. On a monthly basis, HSO's office manager prepares a comprehensive status report for all current engagements. One week before each project is concluded, HSO bills the client for half of the remaining amount due; after the client has paid all outstanding invoices, HSO completes the work and bills the client for all remaining amounts. HSO delivers the finished product; the client must pay the full amount due within 30 days of the final invoice date. If the client pays within 15 days, HSO gives a 3% discount off the amount due. On April 1 of the current year, EPL Corporation accepted a three-page written proposal from HSO to design and build 10 customized golf carts for EPL's internal use. The total price for the order was $3400. For the transaction described, EPL's relational database will include a(n) ___ table with ___ as its primary key.

A. inventory; purchase order number B. equipment; purchase order number C. equipment; item identification number D. inventory; item identification number 13-105 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Ranking Questions

61.

The steps commonly associated with the acquisition/payment process are listed below. Number them in the correct order based on the information in the text.

4 Authorize a purchase. 2 Disburse cash. 5 Process purchase returns as necessary. 1 Request goods and services based on monitored need. 6 Receive goods/services. 3 Purchase goods/services.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-02 List and discuss, in order, the steps in the process. Topic: Process description

Essay Questions

62.

Accounting information systems have five generic elements. Which one applies to each item listed below within the context of the acquisition/payment process? a. Adequate documentation of the process b. Check, from the viewpoint of the buyer c. Inventory status report d. Purchase order, from the viewpoint of the purchasing department e. Purchase requisition, from the viewpoint of the purchasing department f. Purchases/inventory junction file g. Recording journal entries to purchase inventory h. Separation of duties i. Steps in the acquisition/payment process j. Vendor master file

a. internal control b. output c. input (it is a form of monitoring need) d. output e. input f. storage g. process h. internal control i. process j. storage

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: Process description

63.

Several journal entries common to the acquisition/payment process are listed below. For each, explain what transaction the entry is recording.

a. purchase of inventory on account b. payment of accounts payable c. returning inventory to the vendor d. purchase of inventory for cash e. closing cost of goods sold at the end of the period

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-04 Process common transactions. Topic: Process description

64.

Several symbols that might be used in a systems flowchart of the acquisition/payment process are listed below.

1. B 2. C

3. F 4. E 5. G 6. H 7. D 8. B 9. A 10. F

65.

OTA Corporation completed the following events as part of its acquisition/payment process. Record each one in general journal format; if an event does not require a journal entry, write "not applicable." a. Received request to order 300 units of inventory with an expected cost of $1,400. b. Purchased inventory on account, $1,500. Terms: 2/10, n/30. c. Paid freight bill on inbound inventory, $300. d. Received previously ordered inventory. e. Returned previously purchased merchandise to supplier, $200. f. Paid vendor total amount owed on the 15th day after purchase.

a. not applicable b. Debit Inventory, Credit Accounts Payable, $1500. c. Debit Inventory, Credit Cash $300. d. not applicable e. Debit Accounts Payable, Credit Inventory $200. f. Debit Accounts Payable, Credit Cash $1300. ($1500 original amount less $200 return)

AACSB: Analytical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 13-04 Process common transactions. Topic: Process description

66.

OTA Corporation completed the following events as part of its acquisition/payment process. For each event, indicate the document(s) OTA would use. (Some events may require more than one document; other transactions may require no documents.) a. Received request to order 300 units of inventory with an expected cost of $1,400. b. Purchased inventory on account, $1,500. Terms: 2/10, n/30. c. Paid freight bill on inbound inventory, $300. d. Received previously ordered inventory. e. Returned previously purchased merchandise to supplier, $200. f. Paid vendor total amount owed on the 15th day after purchase.

a. purchase requisition b. purchase order c. bill of lading, check d. purchase order, receiving report e. debit memo f. purchase order, receiving report, check

67.

Analyze the following narrative. Identify five risk exposures PTW faces in its acquisition/payment process; for each exposure, recommend two internal controls. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: Internal control

68.

Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. The company accountant records purchases in Quickbooks using invoices submitted by the two employees in charge of purchasing. Quickbooks is set up to remind the accountant to pay invoices three days before their due date. At that time, the accountant prepares a check and uses a rubber stamp of the president's signature to sign the check before mailing it to the appropriate vendor. The receptionist, who also deposits cash receipts in the bank, reconciles the bank statement once a month. Identify three risk exposures for HCC's acquisition/payment process. For each risk exposure, indicate how it would be classified in Brown's risk taxonomy. Also suggest, for each risk exposure, two internal controls. Do not use the same internal control more than once.

69.

Prepare a Level Zero data flow diagram of the acquisition/payment process described below. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard 13-117 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 13-06 Develop and interpret process-related systems documentation. Topic: Systems documentation

70.

Create all necessary database specifications (table names and field names) for PTW Corporation's acquisition/payment process based on the following narrative. Indicate primary keys by underlining and foreign keys with brackets. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Employee table Employee ID Employee last name Employee first name Employee job title Employee address Employee city Employee state Employee ZIP code Employee area code Employee phone number Vendor table

Vendor ID Vendor name Vendor contact name Vendor address Vendor city Vendor state Vendor ZIP code Vendor area code Vendor phone number Vendor web site Inventory table Inventory ID Inventory description "As of" date for beginning inventory Beginning inventory quantity Beginning inventory cost per unit Purchases table Purchase order number Purchase date [Employee ID] [Vendor ID] Receiving table Receiving report number Receiving date [Purchase order number] [Employee ID] Purchases/inventory table [Purchase order number] 13-120 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

[Inventory ID] Quantity purchased Cost per unit Receiving/inventory table [Receiving report number] [Inventory ID] Quantity received

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: Systems documentation

71.

Consider the flowchart below (Figure TB13-4). Recommend improvements to the acquisition/payment process depicted.

1. Someone other than the purchasing agent should determine inventory needs. 2. Send a copy of the purchase order to the Accounting Department as well as the vendor and Receiving Department. 3. Prepare a receiving report, rather than simply emailing the accountant to confirm receipt of the goods. 4. Match the goods received against a blind copy of the purchase order.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze

Difficulty: 3 Hard Learning Objective: 13-05 Design and critique internal controls based on common risk exposures. Topic: Internal control

Short Answer Questions

72.

List, in order, the steps in the acquisition/payment process discussed in the text.

1. Request goods and services based on monitored need. 2. Authorize a purchase. 3. Purchase goods and services. 4. Receive goods and services. 5. Disburse cash. 6. When necessary, process purchase returns.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-02 List and discuss, in order, the steps in the process. Topic: Process description

73.

In your own words, explain the role and purpose of the acquisition/payment process. Do not list the steps in the process as part of your response.

The acquisition/payment process is used in organizations to acquire the goods and services they need to create value for stakeholders, as well as to pay for those goods. Although most often applied to the asset inventory, the process can be applied to virtually any asset, such as supplies or equipment.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 13-01 Explain its role and purpose. Topic: Process description

74.

Accounting information systems have five generic elements. Identify and describe two examples of each element in the acquisition/payment process of PTW Corporation based on the following narrative: PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Input: vendor invoice, receiving clerk email Process: order inventory, stock merchandise on shelves Output: purchase order, check Storage: filing cabinet, inventory database Internal control: bank reconciliation, pre-numbered documents

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 13-03 Explain how the generic structure of most AIS applies to the process. Topic: AIS structure

75.

Using the format illustrated in the text, create a risk/control matrix for PTW Corporation's acquisition/payment process. The matrix should have three entries. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his/her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Risk: Purchasing agents order too much/too little inventory. Risk category: Human error Internal control: Establish an inventory monitoring system. Internal control purpose: Preventive Comments: The system may be manual or automated. Risk: Receiving clerk steals inventory. Risk category: Liquidity risk Internal control: Require another employee to stock the shelves after the inventory is received. Internal control purpose: Preventive Comments: The employee who stocks the shelves should not have any responsibilities related to authorizing or recordkeeping for inventory. Risk: The company needs a shredded invoice.

Risk category: Human error Internal control: File the invoices after they have been paid; don't shred them. Internal control purpose: Preventive Comments: The file may be paper-based or electronic.

Chapter 14 Other Business Processes

Multiple Choice Questions

1. The purpose of an organization's conversion process is:

A. To transform raw materials into finished products. B. To determine if the company should use process costing. C. Both to transform raw materials into finished products and to determine if the company should use process costing. D. Neither to transform raw materials into finished products nor to determine if the company should use process costing.

2. The purpose of the conversion process is to transform raw materials into finished products with:

A. Direct labor. B. Overhead. C. Both direct labor and overhead. D. Neither direct labor nor overhead.

3. The conversion process involves three common resources: material, direct labor and overhead. Which of the following is an example of material in that context?

A. Paper used to create a textbook. B. Tires used to manufacture a truck. C. Both paper used to create a textbook and tires used to manufacture a truck. D. Neither paper used to create a textbook nor tires used to manufacture a truck.

4. The conversion process involves three common resources: material, direct labor and overhead. Which of the following is an example of overhead in that context?

A. Depreciation on factory equipment B. Chief financial officer's salary C. Both depreciation on factory equipment and chief financial officer's salary D. Neither depreciation on factory equipment nor chief financial officer's salary

5. The purpose of the conversion process is to transform material, labor and overhead into a finished product. Which system would an organization that manufactures decks of playing cards use for that purpose?

A. Job order B. Process C. Hybrid D. Some other system

6. The purpose of the conversion process is to transform material, labor and overhead into a finished product. Which system would an organization that manufactures unique pieces of jewelry use for that purpose?

A. Job order B. Process C. Hybrid D. Some other system

7. The purpose of the conversion process is to transform material, labor and overhead into a finished product. To accomplish that purpose, organizations can use one of three systems. Which of the following pairs includes examples of products that would use the same system?

A. Decks of playing cards, compact discs B. Compact discs, made-to-order smoothies C. Decks of playing cards, made-to-order smoothies D. All of the pairs would use the same system.

8. The purpose of the conversion process is to transform material, labor and overhead into a finished product. To accomplish that purpose, organizations can use one of three systems. Which of the following pairs includes examples of products that would use different systems?

A. Decks of playing cards, compact discs B. Compact discs, made-to-order smoothies C. Custom-built homes, original works of art D. Plastic bottles, aluminum cans

9. The purpose of the conversion process is to transform material, labor and overhead into a finished product. To accomplish that purpose, organizations can use one of three systems. Which of the following best pairs a system with products that would be appropriately manufactured using it?

A. Process: decks of playing cards, compact discs B. Job: plastic bottles, aluminum cans C. Process: custom-built homes, original works of art D. Hybrid: decks of playing cards, made-to-order smoothies

10. The purpose of the conversion process is to transform material, labor and overhead into a finished product. To accomplish that purpose, organizations can use one of three systems. Which of the following pairs would be accounted for using a job costing system?

A. Decks of playing cards, compact discs B. Plastic bottles, aluminum cans C. Custom-built homes, original works of art D. Decks of playing cards, made-to-order smoothies

11. Accounting information systems have five basic elements. Within the context of the human resource process, "inputs" include:

A. Job applications. B. Payroll-related data. C. Both job applications and payroll-related data. D. Neither job applications nor payroll-related data.

12. Accounting information systems have five basic elements. Which of the following would be associated with the human resource process?

A. Payroll transactions B. Performance evaluations C. Both payroll transactions and performance evaluations D. Neither payroll transactions nor performance evaluations

13. Accounting information systems have five basic elements. Which of the following is an output of the human resources process?

A. A payroll check B. A written performance evaluation C. Both a payroll check and a written performance evaluation D. Neither a payroll check nor a written performance evaluation

14. Accounting information systems have five basic elements. Which of the following is an internal control associated with the human resources process?

A. Adequate supervision B. Procedures manuals C. Both adequate supervision and procedures manuals D. Neither adequate supervision nor procedures manuals

15. CGI Corporation uses a process costing system to manufacture its product. As part of the processing activities in its human resource process, which of the following would CGI use to record payroll costs of its factory workers?

A. Debit work in process, credit wages payable B. Debit wages expense, credit wages payable C. Debit wages payable, credit cash D. Debit wages expense, credit retained earnings

16. CGI Corporation uses a process costing system to manufacture its product. Which of the following internal controls should CGI use to ensure its human resources employees correctly apply federal laws related to employee performance evaluation?

A. Adequate supervision B. Periodic training C. Use of information technology D. None of these; since CGI uses a process costing system, it is not likely to have a human resources process.

17. CGI Corporation requires new employees to establish their payroll withholding information for its human resources process; CGI reports year-end information for tax purposes electronically to its employees. Which of the following pieces of information is both an input for the former and an output of the latter?

A. Employee identification data B. Employer identification data C. Hours worked D. Total amount paid

18. Accounting information systems have five generic elements. Which of the following includes two examples of the same element?

A. Form W-4, Form W-2 B. Form W-2, Form 1099 C. Form W-4, Form 1099 D. All of these

19. Which of the following internal controls could be applied to the creation of Form W-2 in the human resources process?

A. Use of information technology B. Internal audits C. Both use of information technology and internal audits D. Neither use of information technology nor internal audits

20. Which of the following internal controls could be applied to processing payroll transactions in the human resources process?

A. Outsourcing B. Use of information technology C. Both outsourcing and use of information technology D. Neither outsourcing nor use of information technology

21. Which of the following transactions is commonly associated with the financing process?

A. Issuance of equity securities B. Issuance of debt securities C. Both issuance of equity securities and issuance of debt securities D. Neither issuance of equity securities nor issuance of debt securities

22. Transactions associated with the financing process include all of the following except:

A. Purchase of treasury shares. B. Issuance of equity securities. C. Payroll for finance department employees. D. Periodic repayments of debt.

23. One of the transactions commonly associated with the financing process is the distribution of dividends. Information needed to process that transaction includes:

A. Shareholder identification data. B. Type of dividend. C. Both shareholder identification data and type of dividend. D. Neither shareholder identification data nor type of dividend.

24. One of the transactions commonly associated with the financing process is the issuance of long-term debt. Which of the following pieces of information is least likely to be required to process such a transaction?

A. Coupon interest rate B. Market interest rate C. Lender identification data D. Shareholder approval

25. On May 1, CGI Corporation declared cash dividends on its common stock. The dividend was payable on May 15 to shareholders of record on May 5. Which of the following entries will CGI make on May 5 in its accounting information system?

A. Debit retained earnings, credit dividends payable B. Debit dividends payable, credit cash C. Debit retained earnings, credit cash D. None of these

26. On May 1, CGI Corporation declared cash dividends on its common stock. The dividend was payable on May 15 to shareholders of record on May 5. On which date will CGI record a debit to retained earnings and a credit to cash?

A. May 1 B. May 5 C. May 15 D. None of these

27. As part of the financing business process, corporations may need to account for an initial public offering. How many different forms of a prospectus are parts of the IPO based on the seven steps listed in the text?

A. Two B. Three C. Four D. Some other number

28. CGI Corporation was preparing to issue long-term debt securities. They planned to pay 10% interest semi-annually, although investments of similar risk were paying 12% at the time. Which of the following terms best describes the 12% interest rate?

A. Coupon B. Market C. Relevant D. Current

29. CGI Corporation had 10,000 shares of $2 par common stock outstanding; the shares had been issued at $5 per share. At the end of March 2011, CGI declared a $3 cash dividend per share when the market price of the stock was $8 per share. Which of the following statements is most true?

A. The $3 cash dividend per share is determined by analyzing the difference between the issuance price and the market value of the stock. B. The $3 cash dividend per share is determined by analyzing the difference between the issuance price and the par value of the stock. C. CGI can process the dividend payment using only the information specified above. D. None of these statements is true.

30. CGI Corporation had 10,000 shares of $2 par common stock outstanding; the shares had been issued at $5 per share. At the end of March 2011, CGI declared a $3 cash dividend per share when the market price of the stock was $8 per share. After processing the dividend transaction, the balance in CGI's common stock account will be:

A. $20,000. B. $30,000. C. $50,000. D. Some other amount.

31. Separation of duties can promote strong internal control in the conversion process. Which three duties should be separated?

A. Physical custody, authorization and recordkeeping B. Direct material, labor and overhead processing C. Assets, liabilities and equity D. Job order, process and hybrid

32. Adequate documentation can promote strong internal control in the conversion process. All of the following documents are used in the conversion process except:

A. Materials requisition. B. Labor time ticket. C. Materials move ticket. D. Form W-2.

33. In manufacturing units of Product A27, Mike is supposed to use three pounds of raw material for each unit. But, due to poor quality in a recent batch of raw materials, he used an average of four pounds. Mike's company is therefore exposed to ___ risk.

A. Hazard B. Human error C. Credit D. Market

34. In manufacturing units of Product A27, Mike is supposed to use three pounds of raw material for each unit. But, due to poor quality in a recent batch of raw materials, he used an average of four pounds. Which of the following internal controls would prevent the problem in the future?

A. Closer inspection of deliveries B. More frequent performance evaluations for Mike C. Both closer inspection of deliveries and more frequent performance evaluations for Mike D. Neither closer inspection of deliveries nor more frequent performance evaluations for Mike

35. Factory workers at OMI Corporation are scheduled to work forty hours per week, but frequently work forty-five hours per week, leading to increased payroll costs for OMI. Which of the following statements is most true?

A. OMI is exposed to liquidity risk. B. OMI should consider expanding its workforce as a form of internal control. C. Both OMI is exposed to liquidity risk and OMI should consider expanding its workforce as a form of internal control are true. D. Neither OMI is exposed to liquidity risk nor OMI should consider expanding its workforce as a form of internal control is true.

36. DRH Corporation's conversion process is highly automated; computers and other forms of information technology are used to prepare raw materials for production and to move partially completed units through the factory. Which of the following statements is most true?

A. DRH is not exposed to human error risk. B. DRH should use regular equipment inspections as a form of internal control. C. Both DRH is not exposed to human error risk and DRH should use regular equipment inspections as a form of internal control are true. D. Neither DRH is not exposed to human error risk nor DRH should use regular equipment inspections as a form of internal control is true.

37. The balance sheet of BYA Corporation reported bonds payable with a book value of $500,000 and total paid-in capital of $300,000. The balance sheet of LCA Corporation reported bonds payable with a book value of $600,000 and total paid-in capital of $250,000. Which of the following statements is most true?

38. Within the context of the financing process, separation of duties means:

A. The accounting department cannot issue dividend checks without the approval of the board of directors. B. An accountant who prepares dividend checks cannot also prepare checks for repayment of long-term debt. C. Both the accounting department cannot issue dividend checks without the approval of the board of directors and an accountant who prepares dividend checks cannot also prepare checks for repayment of long-term debt are true. D. Neither the accounting department cannot issue dividend checks without the approval of the board of directors nor an accountant who prepares dividend checks cannot also prepare checks for repayment of long-term debt is true.

39. Which of the following best pairs a financing process risk with an internal control that will address the risk?

40. Which of the following best pairs a financing process risk with an internal control that will address the risk?

A. Poorly trained employees in the finance department, required annual training B. Inability to make required payments on long-term debt, properly developed cash budget C. Both poorly trained employees in the finance department, required annual training and inability to make required payments on long-term debt, properly developed cash budget D. Neither poorly trained employees in the finance department, required annual training nor inability to make required payments on long-term debt, properly developed cash budget

41. A systems flowchart of the financing process is likely to include which of the following column headings?

A. Debt and equity B. Cash dividends and stock dividends C. Both debt and equity and cash dividends and stock dividends D. Neither debt and equity nor cash dividends and stock dividends

42. NCD Corporation pays annual dividends to its shareholders. A REA model of that process is likely to include which of the following as internal agents?

A. Shareholders B. Board of directors C. Both shareholders and board of directors D. Neither shareholders nor board of directors

43. Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. A systems flowchart of the case is likely to be divided into how many columns?

44. Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. In a REA model of the case, the cardinalities between "applicant" and "interview applicant" would be:

A. Interview applicant (0,*) ---- (1,1) Applicant B. Interview applicant (1,1) ---- (0,*) Applicant C. Interview applicant (1,1) ---- (1,1) Applicant D. Interview applicant (0,*) ---- (0,*) Applicant

45. Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. A Level Zero data flow diagram of the case would include circles labeled with all of the following except:

A. Applicant database. B. Hire recruitment firm. C. Interview applicants. D. All of these would be labels for circles in the DFD.

46. Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. How would "shareholder presentation" be represented in a leveled set of DFDs of the case?

A. With a circle B. With a rectangle C. With a set of parallel lines D. None of these

47. Consider the following set of flowcharting symbols along with the case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

Which symbol is most likely to be used in a systems flowchart to represent the board of directors narrowing the pool?

A. Symbol B B. Symbol F C. Symbol G D. Symbol I

48. Consider the following set of flowcharting symbols along with the case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

If the "recruiting firm" column of a systems flowchart includes "receive applications," it could be depicted with any of the following except:

A. Symbol A B. Symbol F C. Symbol G D. Symbol I

49. Consider the following set of flowcharting symbols along with the case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

If the "recruiting firm" column of a systems flowchart includes a predefined process labeled "receive applications," it is likely to be connected to:

A. Symbol H or Symbol J B. Symbol H or Symbol I C. Symbol I or Symbol J D. Symbol A

50. Consider the following set of flowcharting symbols along with the case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

A systems flowchart of the case would represent the final decision of the board of directors with:

A. Symbol B or Symbol F. B. Symbol B or Symbol G. C. Symbol B or Symbol I. D. Symbol G or Symbol I.

51. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Some clients have standing repeat purchase orders for a stated number of cans; MCC processes those orders monthly and ships the cans via common carrier. Dedicated sales staff members work with such clients, while other sales staff members are responsible for soliciting new clients. Considering the perspective of both MCC and its repeat customers, which of the following business processes is not included in the narrative?

A. acquisition/payment B. conversion C. financing D. sales/collection

52. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. One part of MCC's manufacturing department produces generic cans, while another part of the department customizes them for specific clients. MCC's system is therefore best described as:

A. process costing B. job costing C. hybrid costing D. view-driven costing

53. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Which of the following departments deal with primary activities in Porter's value chain?

A. accounting and human resources B. marketing and manufacturing C. accounting and marketing D. human resources and manufacturing

54. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Which of the following departments deal with support activities in Porter's value chain?

A. information systems and human resources B. marketing and manufacturing C. information systems and marketing D. human resources and manufacturing

55. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Which of the following appropriately pairs a document with one of MCC's business processes?

A. production cost report, conversion B. Form 940, human resources C. Both production cost report, conversion and Form 940, human resources D. Neither production cost report, conversion nor Form 940, human resources

56. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Which of the following pairs of documents are associated with the same business process?

A. labor time ticket, payroll register B. production cost report, Form W-2 C. labor time ticket, production cost report D. Each pair of documents is associated with the same business process.

57. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. The corporation has recently decided to complete its IPO. Which of the following statements is most true?

A. If MCC has an in-house legal staff as part of its human resources department, it does not need to hire an outside attorney for the IPO. B. If MCC's accounting manager and chief financial officer are licensed CPAs, it does not need to hire an outside accounting firm for the IPO. C. Both if MCC has an in-house legal staff as part of its human resources department, it does not need to hire an outside attorney for the IPO and if MCC's accounting manager and chief financial officer are licensed CPAs, it does not need to hire an outside accounting firm for the IPO are true. D. Neither if MCC has an in-house legal staff as part of its human resources department, it does not need to hire an outside attorney for the IPO nor if MCC's accounting manager and chief financial officer are licensed CPAs, it does not need to hire an outside accounting firm for the IPO is true.

58. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. MCC's manufacturing department is subdivided into fabrication and finishing; the fabrication function manufactures generic cans, while the finishing function customizes those cans for specific customers. If a journal entry in MCC's accounting information system includes a credit to "work in process—finishing," the corresponding debit is likely to be:

A. work in process—fabrication B. cost of goods sold C. finished goods D. cash

59. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. MCC has recently decided to complete its IPO. Which of the following tables would appear in MCC's relational database after the IPO, but not before it?

A. Cash table B. Shareholders table C. Issue long-term debt table D. Investment bank table

60. Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Which of the following internal controls is unique to the business process indicated?

A. adequate supervision, human resources B. annual operating budgets, financing C. Both adequate supervision, human resources and annual operating budgets, financing D. Neither adequate supervision, human resources nor annual operating budgets, financing

Matching Questions

61. Match each risk exposure on the left with the most appropriate internal control on the right. Each item on the left has only one best answer. Each item on the right should only be used once.

1. mistakes in IPO documents 2. cash embezzlement or larceny

adherence to a cash budget ____ documentation of proper storage conditions ____

3. inability to make

regularly scheduled audits of

payments on long-term

payroll and other information

debt 4. inability to hire well qualified workers

systems ____ market research on current salary and benefit levels ____ thorough, specific performance

5. raw material spoilage 6. lawsuit for unfair termination 7. factory equipment breakdowns 8. too little cash on hand for pension obligations

evaluations ____ internal auditors trained in fraud examination ____ independent review prior to SEC submission ____ regularly scheduled preventive maintenance ____

9. logic bomb left by

required training on

terminated employee

manufacturing procedures ____ carefully planned investment of

10. mistakes made by factory workers

employer and employee contributions ____

Essay Questions

62. Which of the following business processes is most closely associated with each of the items below: (a) conversion process, (b) financing process, (c) human resource process? 1. Americans with Disabilities Act 2. Capital stock 3. Direct material 4. Dividends 5. Form W-2 6. Hiring employees 7. Initial public offering 8. Optimal capital structure 9. Process costing 10. Thorough background checks

63. Indicate the document described in each of the following items. 1) Accumulates labor data in the conversion process 2) Computes payroll data for all employees for a given pay period 3) Establishes payroll withholding status 4) Reports amounts paid to an independent contractor 5) Reports amounts withheld by employer to IRS 6) Reports employer's federal unemployment taxes 7) Reports year-end information for tax purposes 8) Requests raw material from the warehouse for production 9) Summarizes cost and quantity information in a process costing system 10) Summarizes costs in a job costing system

64. Fill in the blanks below for common transactions processed in the conversion, human resource and financing business process.

a. __________________________________ b. __________________________________ c. __________________________________ d. __________________________________ e. __________________________________ f. __________________________________

65. Indicate the effect (increase, decrease or no change) the indicated transaction would have on the specified ratio in each of the following independent situations.

66. Which flowcharting symbol would be used to represent each independent item below? a. Begin manufacturing process b. Complete initial public offering c. Electronic applicant files d. Evaluate product quality e. Issue debt? f. Issue Form W-2 g. Job cost sheet h. Manually assemble raw materials i. Manually file Form W-4 j. Payroll check

67. Create REA model cardinalities for each of the following independent situations. a. A department manager conducts weekly meetings with his staff. b. Each factory worker is required to attend group classes on safety in the workplace. c. Each employee in the finance department is evaluated annually by his/her immediate supervisor. d. A company's board of directors assembles a committee to investigate the IPO process. e. One employee in the human resources department screens application materials for prospective new employees.

68. The text outlined seven steps companies should complete for an initial public offering. Complete the risk/control matrix below based on the indicated risks associated with an IPO.

69. Prepare a REA model of the following business process. When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

Short Answer Questions

70. Some payroll forms include employee identification data. List three such forms commonly associated with the human resource business process.

71. Transactions commonly associated with the financing process include: (a) issuance of capital stock for cash, (b) declaration of cash dividends and (c) issuance of long-term debt. In your own words, explain how each of those transactions affects each section of a corporate balance sheet. Focus your explanation at a conceptual level; do not explain the effects by indicating journal entries.

72. Olivia was a finalist for the CEO position at NTL Corporation. She wanted to focus her presentation on improving internal control in the company's financing process. Use the five elements of the COSO internal control framework to outline the main points of Olivia's presentation.

73. The text discussed five business processes: sales/collection, acquisition/payment, conversion, financing and human resources. List and discuss two ways the processes are similar; list and discuss two ways they are different from one another.

74. Create a narrative description of the REA model shown below.

75. Create specifications (table names and field names) for all database tables indicated by the REA model below.

Chapter 14 Other Business Processes Answer Key

Multiple Choice Questions

The purpose of an organization's conversion process is:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 14-01 Explain its role and purpose. Topic: Conversion process

The purpose of the conversion process is to transform raw materials into finished products with:

A. Direct labor. B. Overhead. C. Both direct labor and overhead. D. Neither direct labor nor overhead.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 14-06 Appropriately use terminology common to each process. Topic: Conversion process

The conversion process involves three common resources: material, direct labor and overhead. Which of the following is an example of material in that context?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-06 Appropriately use terminology common to each process. Topic: Conversion process

The conversion process involves three common resources: material, direct labor and overhead. Which of the following is an example of overhead in that context?

The purpose of the conversion process is to transform material, labor and overhead into a finished product. Which system would an organization that manufactures decks of playing cards use for that purpose?

A. Job order B. Process C. Hybrid D. Some other system

The purpose of the conversion process is to transform material, labor and overhead into a finished product. Which system would an organization that manufactures unique pieces of jewelry use for that purpose?

A. Job order B. Process C. Hybrid D. Some other system

The purpose of the conversion process is to transform material, labor and overhead into a finished product. To accomplish that purpose, organizations can use one of three systems. Which of the following pairs includes examples of products that would use the same system?

A. Decks of playing cards, compact discs B. Compact discs, made-to-order smoothies C. Decks of playing cards, made-to-order smoothies D. All of the pairs would use the same system. Decks of playing cards and compact discs would use process costing; made-to-order smoothies would use either job or hybrid costing.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-06 Appropriately use terminology common to each process. Topic: Conversion process

A. Decks of playing cards, compact discs B. Compact discs, made-to-order smoothies C. Custom-built homes, original works of art D. Plastic bottles, aluminum cans Compact discs would use process costing; made-to-order smoothies would use either job or hybrid costing. Decks of playing cards, plastic bottles and aluminum cans would all use process costing. Custom-built homes and original works of art would use job costing.

The purpose of the conversion process is to transform material, labor and overhead into a finished product. To accomplish that purpose, organizations can use one of three systems. Which of the following best pairs a system with products that would be appropriately manufactured using it?

10.

A. Decks of playing cards, compact discs B. Plastic bottles, aluminum cans C. Custom-built homes, original works of art D. Decks of playing cards, made-to-order smoothies

11.

Accounting information systems have five basic elements. Within the context of the human resource process, "inputs" include:

A. Job applications. B. Payroll-related data. C. Both job applications and payroll-related data. D. Neither job applications nor payroll-related data.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-02 Explain how the generic structure of most AIS applies. Topic: Human resource process

12.

Accounting information systems have five basic elements. Which of the following would be associated with the human resource process?

A. Payroll transactions B. Performance evaluations C. Both payroll transactions and performance evaluations D. Neither payroll transactions nor performance evaluations

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-01 Explain its role and purpose. Topic: Human resource process

13.

Accounting information systems have five basic elements. Which of the following is an output of the human resources process?

A. A payroll check B. A written performance evaluation C. Both a payroll check and a written performance evaluation D. Neither a payroll check nor a written performance evaluation

14.

Accounting information systems have five basic elements. Which of the following is an internal control associated with the human resources process?

A. Adequate supervision B. Procedures manuals C. Both adequate supervision and procedures manuals D. Neither adequate supervision nor procedures manuals

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 14-02 Explain how the generic structure of most AIS applies. Topic: Human resource process

15.

CGI Corporation uses a process costing system to manufacture its product. As part of the processing activities in its human resource process, which of the following would CGI use to record payroll costs of its factory workers?

A. Debit work in process, credit wages payable B. Debit wages expense, credit wages payable C. Debit wages payable, credit cash D. Debit wages expense, credit retained earnings

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-03 Identify and process common transactions. Topic: Human resource process

16.

CGI Corporation uses a process costing system to manufacture its product. Which of the following internal controls should CGI use to ensure its human resources employees correctly apply federal laws related to employee performance evaluation?

A. Adequate supervision B. Periodic training C. Use of information technology D. None of these; since CGI uses a process costing system, it is not likely to have a human resources process.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Human resource process

17.

CGI Corporation requires new employees to establish their payroll withholding information for its human resources process; CGI reports year-end information for tax purposes electronically to its employees. Which of the following pieces of information is both an input for the former and an output of the latter?

A. Employee identification data B. Employer identification data C. Hours worked D. Total amount paid

18.

Accounting information systems have five generic elements. Which of the following includes two examples of the same element?

A. Form W-4, Form W-2 B. Form W-2, Form 1099 C. Form W-4, Form 1099 D. All of these Both Form W-2 and Form 1099 are outputs. Form W-4 is an input.

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Learning Objective: 14-02 Explain how the generic structure of most AIS applies. Topic: Human resource process

19.

Which of the following internal controls could be applied to the creation of Form W-2 in the human resources process?

A. Use of information technology B. Internal audits C. Both use of information technology and internal audits D. Neither use of information technology nor internal audits

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-05 Develop and interpret process-related systems documentation. Topic: Human resource process

20.

Which of the following internal controls could be applied to processing payroll transactions in the human resources process?

A. Outsourcing B. Use of information technology C. Both outsourcing and use of information technology D. Neither outsourcing nor use of information technology

21.

Which of the following transactions is commonly associated with the financing process?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 14-03 Identify and process common transactions. Topic: Financing process

22.

Transactions associated with the financing process include all of the following except:

A. Purchase of treasury shares. B. Issuance of equity securities. C. Payroll for finance department employees. D. Periodic repayments of debt.

23.

One of the transactions commonly associated with the financing process is the distribution of dividends. Information needed to process that transaction includes:

A. Shareholder identification data. B. Type of dividend. C. Both shareholder identification data and type of dividend. D. Neither shareholder identification data nor type of dividend.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 14-03 Identify and process common transactions. Topic: Financing process

24.

One of the transactions commonly associated with the financing process is the issuance of long-term debt. Which of the following pieces of information is least likely to be required to process such a transaction?

A. Coupon interest rate B. Market interest rate C. Lender identification data D. Shareholder approval

25.

On May 1, CGI Corporation declared cash dividends on its common stock. The dividend was payable on May 15 to shareholders of record on May 5. Which of the following entries will CGI make on May 5 in its accounting information system?

A. Debit retained earnings, credit dividends payable B. Debit dividends payable, credit cash C. Debit retained earnings, credit cash D. None of these

26.

On May 1, CGI Corporation declared cash dividends on its common stock. The dividend was payable on May 15 to shareholders of record on May 5. On which date will CGI record a debit to retained earnings and a credit to cash?

A. May 1 B. May 5 C. May 15 D. None of these On May 1, CGI will debit retained earnings and credit dividends payable. On May 15, CGI will debit dividends payable and credit cash. No entry is required on May 5.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand

Difficulty: 2 Medium Learning Objective: 14-03 Identify and process common transactions. Topic: Financing process

27.

As part of the financing business process, corporations may need to account for an initial public offering. How many different forms of a prospectus are parts of the IPO based on the seven steps listed in the text?

A. Two B. Three C. Four D. Some other number

28.

CGI Corporation was preparing to issue long-term debt securities. They planned to pay 10% interest semi-annually, although investments of similar risk were paying 12% at the time. Which of the following terms best describes the 12% interest rate?

A. Coupon B. Market C. Relevant D. Current

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium 14-59 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 14-06 Appropriately use terminology common to each process. Topic: Financing process

29.

CGI Corporation had 10,000 shares of $2 par common stock outstanding; the shares had been issued at $5 per share. At the end of March 2011, CGI declared a $3 cash dividend per share when the market price of the stock was $8 per share. Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 14-03 Identify and process common transactions. Topic: Financing process

30.

A. $20,000. B. $30,000. C. $50,000. D. Some other amount. The balance in the common stock account is the number of issues shares multiplied by the par value per share.

AACSB: Analytical Thinking AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-03 Identify and process common transactions. Topic: Financing process

31.

Separation of duties can promote strong internal control in the conversion process. Which three duties should be separated?

A. Physical custody, authorization and recordkeeping B. Direct material, labor and overhead processing C. Assets, liabilities and equity D. Job order, process and hybrid

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Conversion process

32.

Adequate documentation can promote strong internal control in the conversion process. All of the following documents are used in the conversion process except:

A. Materials requisition. B. Labor time ticket. C. Materials move ticket. D. Form W-2.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Conversion process

33.

In manufacturing units of Product A27, Mike is supposed to use three pounds of raw material for each unit. But, due to poor quality in a recent batch of raw materials, he used an average of four pounds. Mike's company is therefore exposed to ___ risk.

A. Hazard B. Human error C. Credit D. Market

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. 14-62 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Conversion process

34.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Conversion process

35.

Factory workers at OMI Corporation are scheduled to work forty hours per week, but frequently work forty-five hours per week, leading to increased payroll costs for OMI. Which of the following statements is most true?

36.

DRH Corporation's conversion process is highly automated; computers and other forms of information technology are used to prepare raw materials for production and to move partially completed units through the factory. Which of the following statements is most true?

37.

The balance sheet of BYA Corporation reported bonds payable with a book value of $500,000 and total paid-in capital of $300,000. The balance sheet of LCA Corporation reported bonds payable with a book value of $600,000 and total paid-in capital of $250,000. Which of the following statements is most true?

A. BYA's exposure to liquidity risk is greater than LCA's exposure. B. BYA's exposure to liquidity risk is less than LCA's exposure. C. BYA and LCA have equal exposure to liquidity risk. D. None of these statements is true. To assess liquidity risk, an analyst would also need information on each company's available cash.

38.

Within the context of the financing process, separation of duties means:

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Financing process

39.

Which of the following best pairs a financing process risk with an internal control that will address the risk?

A. Sending a dividend check to the wrong shareholder, electronic database B. Falling stock prices due to profit restatements, independent audits C. Failure to receive IPO approval from the SEC, separation of duties D. Inability to pay dividends because of a cash shortage, corporate line of credit The mere presence of an electronic database does not prevent a corporation from sending a dividend check to the wrong shareholder.

AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Financing process

40.

Which of the following best pairs a financing process risk with an internal control that will address the risk?

41.

A systems flowchart of the financing process is likely to include which of the following column headings?

A. Debt and equity B. Cash dividends and stock dividends C. Both debt and equity and cash dividends and stock dividends D. Neither debt and equity nor cash dividends and stock dividends

42.

NCD Corporation pays annual dividends to its shareholders. A REA model of that process is likely to include which of the following as internal agents?

A. Shareholders B. Board of directors C. Both shareholders and board of directors D. Neither shareholders nor board of directors

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-05 Develop and interpret process-related systems documentation. Topic: Financing process

43.

Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. A systems flowchart of the case is likely to be divided into how many columns?

A. One, since all activities are associated with the human resource process. B. Two or three, one of which may be "applicants" C. Four or five, one of which would be "NTL shareholders" D. More than five, since there were more than five applicants. The columns would be: board of directors, recruitment firm, applicants. Since the only role of NTL shareholders is to listen to the presentation, they would likely not have a column.

44.

Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. In a REA model of the case, the cardinalities between "applicant" and "interview applicant" would be:

A. Interview applicant (0,*) ---- (1,1) Applicant B. Interview applicant (1,1) ---- (0,*) Applicant C. Interview applicant (1,1) ---- (1,1) Applicant D. Interview applicant (0,*) ---- (0,*) Applicant

45.

Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. A Level Zero data flow diagram of the case would include circles labeled with all of the following except:

A. Applicant database. B. Hire recruitment firm. C. Interview applicants. D. All of these would be labels for circles in the DFD.

46.

Consider the following short case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO. How would "shareholder presentation" be represented in a leveled set of DFDs of the case?

A. With a circle B. With a rectangle C. With a set of parallel lines D. None of these The shareholder presentation is a data flow.

47.

Consider the following set of flowcharting symbols along with the case as you respond to the question: When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

Which symbol is most likely to be used in a systems flowchart to represent the board of directors narrowing the pool?

A. Symbol B B. Symbol F C. Symbol G

D. Symbol I

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-05 Develop and interpret process-related systems documentation. Topic: Human resource process

48.

If the "recruiting firm" column of a systems flowchart includes "receive applications," it could be depicted with any of the following except:

A. Symbol A B. Symbol F C. Symbol G

D. Symbol I

49.

If the "recruiting firm" column of a systems flowchart includes a predefined process labeled "receive applications," it is likely to be connected to:

A. Symbol H or Symbol J B. Symbol H or Symbol I C. Symbol I or Symbol J

D. Symbol A

50.

A systems flowchart of the case would represent the final decision of the board of directors with:

A. Symbol B or Symbol F. B. Symbol B or Symbol G. C. Symbol B or Symbol I.

D. Symbol G or Symbol I.

51.

Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. Some clients have standing repeat purchase orders for a stated number of cans; MCC processes those orders monthly and ships the cans via common carrier. Dedicated sales staff members work with such clients, while other sales staff members are responsible for soliciting new clients. Considering the perspective of both MCC and its repeat customers, which of the following business processes is not included in the narrative?

A. acquisition/payment B. conversion C. financing D. sales/collection

52.

A. process costing B. job costing C. hybrid costing D. view-driven costing

53.

A. accounting and human resources B. marketing and manufacturing C. accounting and marketing D. human resources and manufacturing

AACSB: Analytical Thinking AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-07 Explain how each process is related to Porter's value chain. Topic: Conversion process

54.

A. information systems and human resources B. marketing and manufacturing C. information systems and marketing D. human resources and manufacturing

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-07 Explain how each process is related to Porter's value chain. Topic: Human resource process

55.

56.

A. labor time ticket, payroll register B. production cost report, Form W-2 C. labor time ticket, production cost report D. Each pair of documents is associated with the same business process. Conversion process: labor time ticket, production cost report. Human resource process: payroll register, Form W-2.

57.

58.

Missouri Can Corporation (MCC) manufactures and sells a variety of can types, such as soft drink cans, oil cans and many others. MCC has adopted a functional organization structure that includes departments for accounting, marketing, manufacturing, human resources and information systems. MCC's manufacturing department is subdivided into fabrication and finishing; the fabrication function manufactures generic cans, while the finishing function customizes those cans for specific customers. If a journal entry in MCC's accounting information system includes a credit to "work in process—finishing," the corresponding debit is likely to be:

A. work in process—fabrication B. cost of goods sold C. finished goods D. cash

59.

A. Cash table B. Shareholders table C. Issue long-term debt table D. Investment bank table

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-02 Explain how the generic structure of most AIS applies. Topic: Financing process

60.

AACSB: Analytical Thinking

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Financing process Topic: Human resource process

Matching Questions

61.

Match each risk exposure on the left with the most appropriate internal control on the right. Each item on the left has only one best answer. Each item on the right should only be used once.

1. mistakes in IPO documents 2. cash embezzlement or larceny

adherence to a cash budget 3 documentation of proper storage conditions 5

3. inability to make

regularly scheduled audits of

payments on long-term

payroll and other information

debt 4. inability to hire well qualified workers

systems 9 market research on current salary and benefit levels 4 thorough, specific performance

5. raw material spoilage 6. lawsuit for unfair termination 7. factory equipment breakdowns 8. too little cash on hand for pension obligations 9. logic bomb left by terminated employee

evaluations 6 internal auditors trained in fraud examination 2 independent review prior to SEC submission 1 regularly scheduled preventive maintenance 7 required training on manufacturing procedures 10 carefully planned investment of

10. mistakes made by factory workers

employer and employee contributions 8

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Analyze Difficulty: 3 Hard 14-90 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Conversion process Topic: Financing process Topic: Human resource process

Essay Questions

62.

Which of the following business processes is most closely associated with each of the items below: (a) conversion process, (b) financing process, (c) human resource process? 1. Americans with Disabilities Act 2. Capital stock 3. Direct material 4. Dividends 5. Form W-2 6. Hiring employees 7. Initial public offering 8. Optimal capital structure 9. Process costing 10. Thorough background checks

1. C 2. B 3. A 4. B 5. C 6. C 7. B 8. B 9. A 10. C

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 14-06 Appropriately use terminology common to each process. Topic: Conversion process Topic: Financing process Topic: Human resource process

63.

Indicate the document described in each of the following items. 1) Accumulates labor data in the conversion process 2) Computes payroll data for all employees for a given pay period 3) Establishes payroll withholding status 4) Reports amounts paid to an independent contractor 5) Reports amounts withheld by employer to IRS 6) Reports employer's federal unemployment taxes 7) Reports year-end information for tax purposes 8) Requests raw material from the warehouse for production 9) Summarizes cost and quantity information in a process costing system 10) Summarizes costs in a job costing system

1) labor time ticket 2) payroll register 3) Form W-4 4) Form 1099 5) Form 941 6) Form 940 7) Form W-2 8) materials requisition 9) production cost report 10) job cost sheet

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 14-02 Explain how the generic structure of most AIS applies. Topic: Conversion process Topic: Financing process Topic: Human resource process

64.

Fill in the blanks below for common transactions processed in the conversion, human resource and financing business process.

a. Raw material inventory b. Cost of goods sold c. Sales d. Retained earnings e. Cash f. Wages expense

AACSB: Analytical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-03 Identify and process common transactions. Topic: Conversion process Topic: Financing process Topic: Human resource process

65.

Indicate the effect (increase, decrease or no change) the indicated transaction would have on the specified ratio in each of the following independent situations.

a. decrease b. no change c. decrease d. increase e. no change

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 14-03 Identify and process common transactions. Topic: Conversion process Topic: Financing process Topic: Human resource process

66.

Which flowcharting symbol would be used to represent each independent item below? a. Begin manufacturing process b. Complete initial public offering c. Electronic applicant files d. Evaluate product quality e. Issue debt? f. Issue Form W-2 g. Job cost sheet h. Manually assemble raw materials i. Manually file Form W-4 j. Payroll check

a. terminator b. predefined or generic process c. database (cylinder) d. predefined or generic process e. decision f. predefined or generic process g. document h. manual process i. file (upside down triangle) j. document

67.

Create REA model cardinalities for each of the following independent situations. a. A department manager conducts weekly meetings with his staff. b. Each factory worker is required to attend group classes on safety in the workplace. c. Each employee in the finance department is evaluated annually by his/her immediate supervisor. d. A company's board of directors assembles a committee to investigate the IPO process. e. One employee in the human resources department screens application materials for prospective new employees.

a) Conduct meetings (0,*) ---- (1,*) Staff b) Attend class (1,*) ---- (1,*) Factory worker c) Evaluate employees (1,*) ---- (1,1) Employee d) Assemble committee (0,*) ---- (1,*) Employees e) Screen materials (0,*) ---- (1,1) Human resource employee

68.

The text outlined seven steps companies should complete for an initial public offering. Complete the risk/control matrix below based on the indicated risks associated with an IPO.

AACSB: Analytical Thinking AICPA: FN Risk Analysis Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-04 Design and critique internal controls based on common risk exposures. Topic: Financing process

69.

Prepare a REA model of the following business process. When the CEO of NTL Corporation resigned, the board of directors hired a recruitment firm to look for a replacement. The recruitment firm prepared several job announcements, then presented them to the board of directors. The board of directors approved one of the job announcements; the recruitment firm used it to advertise the position on the Internet and in relevant newspapers and professional publications. After receiving several applications, the recruitment firm selected a pool of ten to pass on to NTL's board of directors. The board of directors, with the assistance of the recruitment firm, went through three rounds of interviews, narrowing the pool from ten to three. Each of the three finalists prepared a presentation on the strategic future of NTL and delivered the presentation at a meeting of NTL shareholders. The board of directors then made the final choice for a new CEO.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply

Difficulty: 3 Hard Learning Objective: 14-05 Develop and interpret process-related systems documentation. Topic: Human resource process

Short Answer Questions

70.

Some payroll forms include employee identification data. List three such forms commonly associated with the human resource business process.

Form W-4 Form W-2 Payroll register Form 941

71.

Transactions commonly associated with the financing process include: (a) issuance of capital stock for cash, (b) declaration of cash dividends and (c) issuance of long-term debt. In your own words, explain how each of those transactions affects each section of a corporate balance sheet. Focus your explanation at a conceptual level; do not explain the effects by indicating journal entries.

(a) Increases both assets and equity (b) Increases liabilities and reduces equity (c) Increases assets and liabilities

AACSB: Analytical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-03 Identify and process common transactions. Topic: Financing process

72.

Olivia was a finalist for the CEO position at NTL Corporation. She wanted to focus her presentation on improving internal control in the company's financing process. Use the five elements of the COSO internal control framework to outline the main points of Olivia's presentation.

Control environment: Top management must demonstrate the importance of internal control. Risk assessment: The company identifies risks, such as lower market prices for its stock. Control activities: The company identifies controls to mitigate the risks, such as monitoring the market price. Information and communication: The company disseminates information about the overall internal control plan to various stakeholder groups. Monitoring: A specific individual/group takes on the responsibility for monitoring the overall internal control plan's effectiveness.

73.

The text discussed five business processes: sales/collection, acquisition/payment, conversion, financing and human resources. List and discuss two ways the processes are similar; list and discuss two ways they are different from one another.

The five processes are similar in that they all are represented in Porter's value chain; additionally, each process encompasses all five parts of the generic structure of AIS. The five processes are different in that they all have different goals and purposes; additionally, some of them are associated with primary value chain activities while others are associated with support activities.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 14-01 Explain its role and purpose. Topic: Conversion process Topic: Financing process Topic: Human resource process

74.

Create a narrative description of the REA model shown below.

Employees purchase raw materials, then inspect the raw materials. Although each transaction involves a single employee, not all employees participate in every transaction. Further, raw materials are inspected on a sampling basis only.

75.

Create specifications (table names and field names) for all database tables indicated by the REA model below.

Raw material inventory table Inventory ID Inventory description "As of" date for beginning inventory Beginning inventory quantity Beginning inventory cost per unit Purchases table Purchase order number Purchase date [Employee ID] [Vendor ID] Inspection table Inspection transaction number Inspection date 14-106 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

[Purchase order number] [Employee ID] Employee table Employee ID Employee last name Employee first name Employee job title Employee address Employee city Employee state Employee ZIP code Employee area code Employee phone number Purchases/raw material inventory table [Purchase order number] [Inventory ID] Quantity purchased Cost per unit Inspection/raw material inventory table [Inspection transaction number] [Inventory ID] [Employee ID] Raw material condition

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Apply Difficulty: 3 Hard Learning Objective: 14-05 Develop and interpret process-related systems documentation. Topic: Conversion process 14-107 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Chapter 15 Decision-Making Models and Knowledge Management

Multiple Choice Questions

1. When a decision maker reaches the point where the amount of information actually integrated into a decision begins to decline, the decision maker is experiencing:

A. Information asymmetry. B. Information overload. C. Enterprise risk. D. Relapse errors.

2. Causes of information overload include:

A. Personal factors. B. Information characteristics. C. Organizational design. D. All of these.

3. In response to information overload, decision makers can:

A. Allow more time to complete important tasks. B. Rely on informal language to describe information. C. Both allow more time to complete important tasks and rely on informal language to describe information. D. Neither allow more time to complete important tasks nor rely on informal language to describe information.

4. Jon attempted to read an advanced accounting text after sleeping four hours the previous night. Which of the following statements is most true?

A. He is experiencing information overload from personal factors. B. He is experiencing information overload from information characteristics. C. Both he is experiencing information overload from personal factors and he is experiencing information overload from information characteristics. D. Neither he is experiencing information overload from personal factors nor he is experiencing information overload from information characteristics.

5. Task and process parameters can contribute to information overload. All of the following are task and process parameters except:

A. Doing a Google search. B. Taking on a task for the first time. C. Being interrupted by a phone call. D. Waiting for a team member to complete the first part of a task.

6. Jon continually worked on a team that experienced a lot of non-productive conflict. Which of the following best describes Jon's behavior?

A. Satisficing B. Bounded rationality C. Relapse errors D. Knowledge management

7. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers are experiencing information overload due to information characteristics?

A. Irene only. B. Bradley only C. Both Irene and Bradley D. Neither Irene nor Bradley

8. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers are experiencing information overload due to task and process parameters?

A. Bradley only B. Jorge only C. Both Bradley and Jorge D. Neither Bradley nor Jorge

9. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers are experiencing relapse errors?

A. Jorge only B. Maria only C. Both Jorge and Maria D. Neither Jorge nor Maria

10. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers share at least one common cause of information overload?

A. Irene and Maria B. Irene and Bradley C. Bradley and Maria D. None of these

11. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers are experiencing different causes of information overload?

A. Irene and Jorge B. Jorge and Maria C. Both Irene and Jorge and Jorge and Maria D. Neither Irene and Jorge nor Jorge and Maria

12. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Jorge and his group would benefit from which of the following countermeasures for information overload?

A. Focus on creating value-added information. B. Compress, aggregate, categorize and structure information. C. Both focus on creating value-added information and compress, aggregate, categorize and structure information. D. Neither focus on creating value-added information nor compress, aggregate, categorize and structure information.

13. Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Bradley would benefit from which of the following countermeasures for information overload?

A. Allow more time to complete important tasks. B. Use graphs and other visual aids. C. Both allow more time to complete important tasks and use graphs and other visual aids. D. Neither allow more time to complete important tasks nor use graphs and other visual aids.

14. Ways to combat information overload include:

A. Applying effective models for making decisions. B. Managing knowledge. C. Both applying effective models for making decisions and managing knowledge. D. Neither applying effective models for making decisions nor managing knowledge.

15. The generalized set of processes people use to gather, organize and retain information is often called:

A. Bounded rationality. B. Knowledge management. C. Enterprise risk management. D. Enterprise resource planning.

16. Objectives of knowledge management include:

A. Creating knowledge repositories. B. Improving knowledge access. C. Both creating knowledge repositories and improving knowledge access. D. Neither creating knowledge repositories nor improving knowledge access.

17. Knowledge:

A. Is an element of financial statements. B. Should be managed. C. Both is an element of financial statements and should be managed. D. Neither is an element of financial statements nor should be managed.

18. Isabella is the CEO of BHR Corporation. By virtue of her position, she is in the best position to complete which of the seven steps involved in creating a knowledge management system?

A. The first step B. The third step C. The fourth step D. The sixth step

19. Brown's taxonomy of risk includes "systems risk" as a form of operational risk. An organization creating a knowledge management system has the greatest exposure to systems risk in which of the seven steps for creating the knowledge management system?

A. The fourth step B. The fifth step C. The sixth step D. All seven steps

20. Call recommended a seven-step process for creating a knowledge management system. The first step could be completed by:

A. Making knowledge management a component of performance evaluation. B. Requiring managers to conduct focus groups with their employees about the importance of knowledge management. C. Both making knowledge management a component of performance evaluation and requiring managers to conduct focus groups with their employees about the importance of knowledge management. D. Neither making knowledge management a component of performance evaluation nor requiring managers to conduct focus groups with their employees about the importance of knowledge management.

21. In preparation for her retirement, Debra, the chief information officer of TPC Corporation, developed a diagram that showed all her areas of responsibility and how they were related to one another. Her actions contributed to which of Call's seven steps for creating a knowledge management system?

A. The first step only. B. The fourth step only. C. Both the first and fourth steps. D. Neither the first nor the fourth step.

22. One step in developing a knowledge management system is to create a visual map that describes units of knowledge and the relationships between them. In creating a knowledge management system focused on internal control, such a map might include which of the following?

A. COSO framework B. COBIT framework C. Both COSO framework and COBIT framework D. Neither COSO framework nor COBIT framework

23. The systems development life cycle would be most useful in the ___ step to create a knowledge management system.

A. First B. Sixth C. Both the first and the sixth D. Neither the first nor the sixth

24. After attending a seminar on the importance of knowledge management, the managers of TCH Corporation developed a set of objectives their knowledge management system should address. As their next step, the managers should:

A. Lay out database specifications for the system. B. Interview employees to determine their level of knowledge and misunderstanding of organizational processes. C. Both lay out database specifications for the system and interview employees to determine their level of knowledge and misunderstanding of organizational processes. D. Neither lay out database specifications for the system nor interview employees to determine their level of knowledge and misunderstanding of organizational processes.

25. After developing a set of objectives their knowledge management system should address, the managers of TCH Corporation distributed a survey to employees, followed by a series of focus groups designed to identify issues such as duplication, gaps and overlaps in knowledge. To complete the next step in creating TCH's knowledge management system, the managers could use a:

A. Flowchart. B. Data flow diagram. C. REA model. D. None of these.

26. Knowledge management is important to the study of accounting information systems because:

A. Information technology is an essential part of both knowledge management and AIS. B. Knowledge is an important asset on the balance sheet. C. Both information technology is an essential part of both knowledge management and AIS and knowledge is an important asset on the balance sheet. D. Neither information technology is an essential part of both knowledge management and AIS nor knowledge is an important asset on the balance sheet.

27. Knowledge management is important to the study of accounting information systems because, like business processes, it:

A. Represents one way to create value for stakeholders. B. Crosses functional boundaries such as the accounting department and the purchasing department. C. Both represents one way to create value for stakeholders and crosses functional boundaries such as the accounting department and the purchasing department. D. Neither represents one way to create value for stakeholders nor crosses functional boundaries such as the accounting department and the purchasing department.

28. Which of the following statements about information overload and accounting information systems is most true?

A. Even with a properly designed AIS, decision makers can experience information overload. B. A well designed AIS can help decision makers manage information overload. C. Both even with a properly designed AIS, decision makers can experience information overload and a well designed AIS can help decision makers manage information overload are true. D. Neither even with a properly designed AIS, decision makers can experience information overload nor a well designed AIS can help decision makers manage information overload is true.

29. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. The less experienced accountants on Amanda's team are suffering from:

A. Relapse errors. B. Satisficing. C. Bounded rationality. D. Lack of information technology.

30. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. In assigning personnel to a specific audit team, Amanda normally has one licensed CPA working with a professional who is not yet licensed, thus cutting down on information overload due to:

A. Organizational design. B. Poor use of information technology. C. Both organizational design and poor use of information technology. D. Neither organizational design nor poor use of information technology.

31. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. In assigning personnel to a specific audit team, Amanda normally has one licensed CPA working with a professional who is not yet licensed. Rather than considering alternative approaches to the audit that might achieve the same goals more efficiently, the licensed CPAs in Amanda's firm rely on their past practice in conducting audits. The licensed CPAs are therefore demonstrating:

A. Bounded rationality. B. At least one countermeasure for information overload. C. Both bounded rationality and at least one countermeasure for information overload. D. Neither bounded rationality nor at least one countermeasure for information overload.

32. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Amanda's goal of creating a knowledge management system has helped to:

A. Create an organizational culture that supports the idea of knowledge sharing. B. Define the business goals the knowledge management system will address. C. Both create an organizational culture that supports the idea of knowledge sharing and define the business goals the knowledge management system will address. D. Neither create an organizational culture that supports the idea of knowledge sharing nor define the business goals the knowledge management system will address.

33. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. One important step in conducting an audit is the evaluation of internal controls; one step in creating a knowledge management system is the creation of a visual map. If Amanda wanted to create a visual map focused on internal control, it could be organized into which of the following categories?

A. General and application B. Physical, technical and administrative C. Safeguarding assets, promoting operational efficiency, ensuring reliable financial reporting and encouraging compliance with management directives D. Any of these

34. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Amanda's firm has set a goal that all audits be completed within seven days, regardless of the size and nature of the client. Thus, Amanda's team may be experiencing information overload due to:

35. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Amanda's staff may be committing relapse errors due to information overload. Which of the following best pairs a cause of information overload with an appropriate countermeasure?

A. Auditors regularly work ten to twelve hours per day; they need to allow more time to complete important tasks. B. Auditors work in teams of two; they need to formalize the language used to describe information. C. Auditors regularly work ten to twelve hours per day; they need to engage in more satisficing. D. Auditors work in teams of two; they need to engage in more satisficing.

36. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Call recommended seven steps for developing a knowledge management system, one of which relates to defining business goals. Appropriate business goals for Amanda's situation include:

A. Hire more auditors. B. Cut down on relapse errors. C. Both hire more auditors and cut down on relapse errors. D. Neither hire more auditors nor cut down on relapse errors.

37. Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Consider the following comments Amanda could make after purchasing or building appropriate tools for knowledge management. Which of them best demonstrates that she understands the seven steps in creating a knowledge management system?

A. I'm glad that's over. Now that the system is designed, we don't have to think about it again. B. We can monitor the system in the same ways we monitor our internal control plan. C. Now that the system is created, we need to determine its value for balance sheet purposes. D. I can be assured now that relapse errors are a thing of the past.

38. Call suggested seven steps for creating a knowledge management system. How are those seven steps similar to the COSO internal control framework?

A. They both involve organizational culture. B. They both require some form of system documentation, such as a flowchart. C. Both involve organizational culture and require some form of system documentation, such as a flowchart D. Neither involve organizational culture nor require some form of system documentation, such as a flowchart

39. Steps for Better Thinking involves all of the following stages except:

A. Identifying. B. Exploring. C. Prioritizing. D. Thinking.

40. Which of the following occurs first in Steps for Better Thinking?

A. Exploring B. Envisioning C. Knowing D. Identifying

41. In which stage of Steps for Better Thinking should a decision maker interpret and organize information?

A. Identifying B. Exploring C. Prioritizing D. Envisioning

42. Examples of Step 1 in Steps for Better Thinking include:

A. Recognizing the need to create an enterprise risk management plan. B. Learning about the eXtensible Business Reporting Language. C. Both recognizing the need to create an enterprise risk management plan and learning about the eXtensible Business Reporting Language. D. Neither recognizing the need to create an enterprise risk management plan nor learning about the eXtensible Business Reporting Language.

43. Russell had been asked by his supervisor to document the purchasing process in his company, but did not specify any particular technique for doing so. If Russell uses Steps for Better Thinking to choose a documentation technique, which of the following statements is most true?

A. He should immediately choose the documentation technique with which he is most comfortable. B. Determining his supervisor's objective in documenting the process should be part of Step 1. C. Completing a cost/benefit analysis of various documentation methods should be part of the foundation level of Steps for Better Thinking. D. None of these; Steps for Better Thinking is not an appropriate way to make the decision.

44. The COSO internal control framework includes "monitoring" as one component. Monitoring is most similar to which step in Steps for Better Thinking?

A. Identifying B. Exploring C. Prioritizing D. Envisioning

45. Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. Which of the following questions should David ask them as part of Step 1 of Steps for Better Thinking?

A. What is your budget for developing the AIS? B. Which is more important to you: cost or quality? C. Either what is your budget for developing the AIS? or which is more important to you: cost or quality? D. Neither what is your budget for developing the AIS? nor which is more important to you: cost or quality?

46. Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. As part of ___ in Steps for Better Thinking, David might ask them whether cost or quality is more important.

A. Identifying B. Exploring C. Prioritizing D. Envisioning

47. Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. As part of the "prioritizing" step in Steps for Better Thinking, David could:

A. Complete a weighted rating analysis of various software packages. B. Ask about their familiarity with general ledger software. C. Both complete a weighted rating analysis of various software packages and ask about their familiarity with general ledger software. D. Neither complete a weighted rating analysis of various software packages nor ask about their familiarity with general ledger software.

48. Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. After some discussion, they decided to use Quickbooks as their basic AIS software. Editing the standard chart of accounts to fit their clothing business would be part of ___ in Steps for Better Thinking.

A. Identifying B. Exploring C. Prioritizing D. Knowing

49. Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. If David uses Steps for Better Thinking to help them set up the system, we can infer that their accounting processes are at the ___ level of the capability maturity model.

A. Chaotic B. Repeatable C. Managed D. None of these

50. Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. Which of the following methodologies could David use to assist them?

A. Systems development life cycle B. Steps for Better Thinking C. Either systems development life cycle or steps for Better Thinking D. Neither systems development life cycle nor steps for Better Thinking

51. According to Arthur, big data is:

A. a collection of data. B. a way to refer to quantities of data processed. C. a synonym for accounting data. D. always quantifiable.

52. Big Data can arise from two broad types of sources. Which of the following best pairs one type with an example?

A. accounting, trial balance B. marketing, customer preferences C. digital, query results from a relational database D. All of these

53. Big Data can originate:

A. from inside a company only. B. from outside a company only. C. either inside or outside a company. D. only from the accounting information system.

54. All of the following are types of Big Data except:

A. big transaction data. B. web and social media data. C. biometric data. D. accounting data.

55. Soares identified five types of Big Data. Which of the following best pairs one type with an example?

A. machine-to-machine, GPS data transmitted from a company vehicle to its information system B. biometric, employees' social security numbers C. biometric, GPS data transmitted from a company vehicle to its information system D. machine-to-machine, employees' social security numbers

56. Cloud computing involves:

A. delivering hosted services over the Internet. B. only a few business processes in most organizations. C. no human intervention. D. fewer internal controls than traditional computing.

57. Decision makers can analyze Big Data using all of the following techniques except:

A. descriptive analytics. B. predictive analytics. C. decision making analytics. D. prescriptive analytics.

58. Time-series forecasting is an example of ___ analytics.

A. predictive B. prescriptive C. descriptive D. evaluative

59. Data analytics involves three broad categories. Which of the following comprises examples from a single category?

A. average age of people who bought video games, prediction of whether men or women are more likely to buy a specific video game B. prediction of whether men or women are more likely to buy a specific video game, historic data on whether men or women purchased a specific video game C. average age of people who bought video games, historic data on whether men or women purchased a specific video game D. average age of people who bought video games, historic data on whether men or women purchased a specific video game, prediction of whether men or women are more likely to buy a specific video game

60. Relational databases and spreadsheets can be used for:

A. descriptive analytics only. B. predictive analytics only. C. both descriptive and predictive analytics. D. neither descriptive nor predictive analytics.

Ranking Questions

61. Number the following steps for creating a knowledge management system in their correct order.

____ Purchase or build appropriate tools. ____ Develop a knowledge management strategy. ____ Define the business goals the knowledge management system will address. ____ Perform a knowledge audit. ____ Create an organizational culture that supports the ideas of knowledge sharing and development. ____ Periodically reassess the value of the knowledge management system. ____ Create a visual map.

62. Eric and Gloria are partners in Health Care Consulting Associates, a firm specializing in enterprise risk management and internal controls for hospitals. As their client base expands, they want to develop a knowledge management system that will benefit both themselves and their employees. In what order should they complete the following steps to achieve their goal?

____ Diagram the relationships between key knowledge areas. ____ Convene required quarterly retreats to discuss ways to improve the system. ____ Hire a consultant to construct an Access database and teach employees how to use it. ____ Hold a staff meeting to discuss the importance of learning from one another. ____ Create a team that will specify what the new system should accomplish. ____ Ask employees to complete a short online survey focused on key knowledge areas for the company. ____ Work with department managers to establish some broad principles for managing knowledge.

Essay Questions

63. Which level of Steps for Better Thinking is indicated in each of the following? a. Acquire background knowledge and skills. b. Deal with limitations to the solution. c. Identify the problem, relevant information and uncertainties. d. Implement solutions. e. Interpret and organize the information.

64. Eppler and Mengis suggested five broad causes of information overload: (a) information characteristics, (b) information technology, (c) organizational design, (d) personal factors and (e) task and process parameters. Which of them is most closely associated with each of the following independent items? 1. anxiety about job performance 2. attempting a task for the first time 3. disagreements about who should be a group leader 4. e-mail forwarded to a smart phone 5. health conditions 6. highly technical information 7. information conveyed via symbols 8. internet searches with very broad terms 9. significant time pressure 10. working with too large a group

65. Which element of Steps for Better Thinking is described in each independent item below? Use each element of the model exactly twice. a. Classifying previously identified costs and benefits as financial or nonfinancial b. Conducting internal audits to assess the effectiveness of implemented internal controls c. Organizing focus groups to discuss ways to improve internal controls after implementing several controls d. Preparing a list of previously identified costs and benefits for specific internal controls e. Ranking a list of five internal control objectives according to their importance f. Reading an article about the purposes of internal control g. Recognizing a weakness in internal control h. Recommending specific internal controls to implement i. Taking a course to learn about the COSO internal control framework j. Wondering if a CEO supports changes in internal control

66. Robert and Claudia are partners in Retail Consulting Associates (RCA), a firm specializing in enterprise risk management for small retail businesses. As their client base expands, they want to develop a knowledge management system that will benefit themselves, their employees and their clients. They have established three key knowledge areas for RCA: costs of enterprise risk management, role of information technology in enterprise risk management and communication with clients. Use those three areas to complete the following knowledge map for RCA.

67. Divide the following examples of information overload causes into five groups based on the categories suggested by Eppler and Mengis. Specify the name of each group. 1) Anxiety about job performance 2) Attempting a task for the first time 3) Disagreements about who should be a group leader 4) E-mail forwarded to a smart phone 5) Health conditions 6) Highly technical information 7) Information conveyed via symbols 8) Internet searches with very broad terms 9) Significant time pressure 10) Working with too large a group

68. The nature and complexity of topics in accounting information systems can lead to information overload. Consider the situations below; for each situation, indicate one countermeasure from the list suggested by Eppler and Mengis. a. Ray attempted to design relational database tables for his company's acquisition/payment process before lunch. b. Employees at TRM Corporation listened to Susan's two-hour presentation on the COSO internal control model. c. Peter prepared a report for the board of directors explaining each inventory purchase for the previous six months. d. Juanita, the chief financial officer of TRM Corporation, attempted to explain the role and purpose of financial statements without using the proper accounting terminology. e. After receiving a report evaluating various prospective ERP vendors, Sam decided to delay making a choice for three weeks.

69. YRC Corporation's operations had been limited to the US, Canada and Mexico, but management wanted to expand into other countries. In preparation for the expansion, they designed a knowledge management system which included the knowledge map shown below. Based on the knowledge map and the principles of database normalization, create specifications (table names and field names) for three database tables YRC should use to capture, analyze, categorize and distribute knowledge.

70. Bumble Beasley was attempting to improve internal controls over his firm's sales/collection process. He completed the following tasks in the order listed, but made several errors. Revise each statement based on Steps for Better Thinking. a. Read one general article about the importance of internal control. b. Focus on the costs of physical and technical controls in the sales/collection process. c. Make a list of three cost categories common to physical and technical controls in the sales/collection process. d. Implement the two least expensive physical and two least expensive technical controls. e. Write a report summarizing his work; store it in a three-ring binder on his office bookshelf.

Short Answer Questions

71. List, in order, the seven steps to create a knowledge management system.

72. Helena, the chief financial officer of TRM Corporation, attempted to explain the role and purpose of financial statements to employees in the production department with no prior training in accounting. Suggest two causes of information overload the production employees might experience; for each cause, suggest one countermeasure.

73. Accounting information systems work often involves documenting business processes through flowcharts, data flow diagrams and REA models. Briefly explain the importance of managing knowledge about documentation techniques; also explain, in your own words, how you would manage that knowledge.

74. YHW Corporation had been a traditional brick-and-mortar business, but was interested in expanding into e-business practices. Starting with the "identifying" phase, explain how you would use Steps for Better Thinking to make a recommendation on the expansion.

75. The chapter discussed Big Data, including five broad types of Big Data identified by Soares. In your own words, define "Big Data." Give three examples of Big Data, and indicate which of Soares' categories applies to each.

Chapter 15 Decision-Making Models and Knowledge Management Answer Key

Multiple Choice Questions

When a decision maker reaches the point where the amount of information actually integrated into a decision begins to decline, the decision maker is experiencing:

A. Information asymmetry. B. Information overload. C. Enterprise risk. D. Relapse errors.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions

Causes of information overload include:

A. Personal factors. B. Information characteristics. C. Organizational design. D. All of these.

In response to information overload, decision makers can:

Jon attempted to read an advanced accounting text after sleeping four hours the previous night. Which of the following statements is most true?

Task and process parameters can contribute to information overload. All of the following are task and process parameters except:

A. Doing a Google search. B. Taking on a task for the first time. C. Being interrupted by a phone call. D. Waiting for a team member to complete the first part of a task.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions 15-45 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Jon continually worked on a team that experienced a lot of non-productive conflict. Which of the following best describes Jon's behavior?

A. Satisficing B. Bounded rationality C. Relapse errors D. Knowledge management

Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers are experiencing information overload due to information characteristics?

A. Irene only. B. Bradley only C. Both Irene and Bradley D. Neither Irene nor Bradley Irene, information characteristics. Bradley, task and process parameters. Jorge, task and process parameters. Maria, information technology.

A. Bradley only B. Jorge only C. Both Bradley and Jorge D. Neither Bradley nor Jorge Irene, information characteristics. Bradley, task and process parameters. Jorge, task and process parameters. Maria, information technology.

A. Jorge only B. Maria only C. Both Jorge and Maria D. Neither Jorge nor Maria

10.

Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Which decision makers share at least one common cause of information overload?

A. Irene and Maria B. Irene and Bradley C. Bradley and Maria D. None of these Irene, information characteristics. Bradley, task and process parameters. Jorge, task and process parameters. Maria, information technology.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions

11.

A. Irene and Jorge B. Jorge and Maria C. Both Irene and Jorge and Jorge and Maria D. Neither Irene and Jorge nor Jorge and Maria Irene, information characteristics. Bradley, task and process parameters. Jorge, task and process parameters. Maria, information technology.

12.

Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Jorge and his group would benefit from which of the following countermeasures for information overload?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions

13.

Consider the following independent situations as you answer the questions: a. Irene, a freshman accounting major, thought she would benefit from reading an intermediate accounting text while taking introductory financial accounting. b. Bradley developed a plan to study for all four parts of the CPA exam during his last semester at college, thus making himself ready to take the exam immediately after graduation. c. Jorge met weekly with a group of five students, all of whom were preparing their resume for the very first time. d. Every time Maria encountered a topic she did not understand in her accounting information systems course, she did a Google search for it. Bradley would benefit from which of the following countermeasures for information overload?

14.

Ways to combat information overload include:

15.

The generalized set of processes people use to gather, organize and retain information is often called:

A. Bounded rationality. B. Knowledge management. C. Enterprise risk management. D. Enterprise resource planning.

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

16.

Objectives of knowledge management include:

17.

Knowledge:

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

18.

Isabella is the CEO of BHR Corporation. By virtue of her position, she is in the best position to complete which of the seven steps involved in creating a knowledge management system?

A. The first step B. The third step C. The fourth step D. The sixth step

19.

Brown's taxonomy of risk includes "systems risk" as a form of operational risk. An organization creating a knowledge management system has the greatest exposure to systems risk in which of the seven steps for creating the knowledge management system?

A. The fourth step B. The fifth step C. The sixth step D. All seven steps

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

20.

Call recommended a seven-step process for creating a knowledge management system. The first step could be completed by:

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

21.

In preparation for her retirement, Debra, the chief information officer of TPC Corporation, developed a diagram that showed all her areas of responsibility and how they were related to one another. Her actions contributed to which of Call's seven steps for creating a knowledge management system?

A. The first step only. B. The fourth step only. C. Both the first and fourth steps. D. Neither the first nor the fourth step.

AACSB: Analytical Thinking

AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

22.

One step in developing a knowledge management system is to create a visual map that describes units of knowledge and the relationships between them. In creating a knowledge management system focused on internal control, such a map might include which of the following?

A. COSO framework B. COBIT framework C. Both COSO framework and COBIT framework D. Neither COSO framework nor COBIT framework The knowledge map might include one circle for "frameworks." Both the COSO and COBIT frameworks have implications for internal control.

23.

The systems development life cycle would be most useful in the ___ step to create a knowledge management system.

A. First B. Sixth C. Both the first and the sixth D. Neither the first nor the sixth

24.

After attending a seminar on the importance of knowledge management, the managers of TCH Corporation developed a set of objectives their knowledge management system should address. As their next step, the managers should:

Topic: Decision models and knowledge management

25.

After developing a set of objectives their knowledge management system should address, the managers of TCH Corporation distributed a survey to employees, followed by a series of focus groups designed to identify issues such as duplication, gaps and overlaps in knowledge. To complete the next step in creating TCH's knowledge management system, the managers could use a:

A. Flowchart. B. Data flow diagram. C. REA model. D. None of these. Although all three items listed are visual tools, none of them is really appropriate for creating a knowledge map.

26.

Knowledge management is important to the study of accounting information systems because:

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-03 Explain why those two topics are important in the study of accounting information systems. Topic: Decision models and knowledge management

27.

Knowledge management is important to the study of accounting information systems because, like business processes, it:

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard 15-61 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 15-03 Explain why those two topics are important in the study of accounting information systems. Topic: Decision models and knowledge management

28.

Which of the following statements about information overload and accounting information systems is most true?

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-03 Explain why those two topics are important in the study of accounting information systems. Topic: Decision models and knowledge management

29.

A. Relapse errors. B. Satisficing. C. Bounded rationality. D. Lack of information technology.

30.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. In assigning personnel to a specific audit team, Amanda normally has one licensed CPA working with a professional who is not yet licensed, thus cutting down on information overload due to:

31.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. In assigning personnel to a specific audit team, Amanda normally has one licensed CPA working with a professional who is not yet licensed. Rather than considering alternative approaches to the audit that might achieve the same goals more efficiently, the licensed CPAs in Amanda's firm rely on their past practice in conducting audits. The licensed CPAs are therefore demonstrating:

32.

33.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. One important step in conducting an audit is the evaluation of internal controls; one step in creating a knowledge management system is the creation of a visual map. If Amanda wanted to create a visual map focused on internal control, it could be organized into which of the following categories?

34.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Amanda's firm has set a goal that all audits be completed within seven days, regardless of the size and nature of the client. Thus, Amanda's team may be experiencing information overload due to:

A. Task and process parameters. B. Information characteristics. C. Both task and process parameters and information characteristics. D. Neither task and process parameters nor information characteristics. The seven day time limit is an example of task and process parameters; some clients' information will be more complex than others, an example of information characteristics.

35.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Amanda's staff may be committing relapse errors due to information overload. Which of the following best pairs a cause of information overload with an appropriate countermeasure?

36.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Call recommended seven steps for developing a knowledge management system, one of which relates to defining business goals. Appropriate business goals for Amanda's situation include:

A. Hire more auditors. B. Cut down on relapse errors. C. Both hire more auditors and cut down on relapse errors. D. Neither hire more auditors nor cut down on relapse errors.

37.

Consider the following short case as you respond to the question: Amanda is a partner in a CPA firm; she supervises a staff of ten professionals, some of whom are already licensed CPAs and some of whom are still working toward licensure. She is responsible for audits of independent bookstores in California, Nevada and Arizona. Amanda is concerned that the less experienced professionals she supervises are repeating the mistakes she and the more experienced professionals on her team made when they began auditing. She therefore wants to create a knowledge management system. Consider the following comments Amanda could make after purchasing or building appropriate tools for knowledge management. Which of them best demonstrates that she understands the seven steps in creating a knowledge management system?

38.

Call suggested seven steps for creating a knowledge management system. How are those seven steps similar to the COSO internal control framework?

39.

Steps for Better Thinking involves all of the following stages except:

A. Identifying. B. Exploring. C. Prioritizing. D. Thinking.

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management

40.

Which of the following occurs first in Steps for Better Thinking?

A. Exploring B. Envisioning C. Knowing D. Identifying

41.

In which stage of Steps for Better Thinking should a decision maker interpret and organize information?

A. Identifying B. Exploring C. Prioritizing D. Envisioning

42.

Examples of Step 1 in Steps for Better Thinking include:

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management

43.

Russell had been asked by his supervisor to document the purchasing process in his company, but did not specify any particular technique for doing so. If Russell uses Steps for Better Thinking to choose a documentation technique, which of the following statements is most true?

44.

The COSO internal control framework includes "monitoring" as one component. Monitoring is most similar to which step in Steps for Better Thinking?

A. Identifying B. Exploring C. Prioritizing D. Envisioning

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze 15-75 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 3 Hard Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management

45.

Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. Which of the following questions should David ask them as part of Step 1 of Steps for Better Thinking?

AACSB: Analytical Thinking AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management

46.

Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. As part of ___ in Steps for Better Thinking, David might ask them whether cost or quality is more important.

A. Identifying B. Exploring C. Prioritizing D. Envisioning "Which is more important to you: cost or quality?" is a way to prioritize factors to consider; it is therefore part of Step 3.

47.

Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. As part of the "prioritizing" step in Steps for Better Thinking, David could:

48.

Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. After some discussion, they decided to use Quickbooks as their basic AIS software. Editing the standard chart of accounts to fit their clothing business would be part of ___ in Steps for Better Thinking.

A. Identifying B. Exploring C. Prioritizing D. Knowing

AACSB: Analytical Thinking

AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management

49.

Samantha and Josephine were preparing to start their own clothing business; they contacted their friend David, a recent graduate from Big State University's accounting program, to learn about setting up their accounting information system. If David uses Steps for Better Thinking to help them set up the system, we can infer that their accounting processes are at the ___ level of the capability maturity model.

A. Chaotic B. Repeatable C. Managed D. None of these

50.

51.

According to Arthur, big data is:

A. a collection of data. B. a way to refer to quantities of data processed. C. a synonym for accounting data. D. always quantifiable.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-05 Explain fundamental concepts associated with Big Data, data analytics, and cloud computing. Topic: Critical thinking

52.

Big Data can arise from two broad types of sources. Which of the following best pairs one type with an example?

A. accounting, trial balance B. marketing, customer preferences C. digital, query results from a relational database D. All of these The two sources are "traditional" and "digital."

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-05 Explain fundamental concepts associated with Big Data, data analytics, and cloud computing. Topic: Critical thinking

53.

Big Data can originate:

A. from inside a company only. B. from outside a company only. C. either inside or outside a company. D. only from the accounting information system.

54.

All of the following are types of Big Data except:

A. big transaction data. B. web and social media data. C. biometric data. D. accounting data.

55.

Soares identified five types of Big Data. Which of the following best pairs one type with an example?

56.

Cloud computing involves:

A. delivering hosted services over the Internet. B. only a few business processes in most organizations. C. no human intervention. D. fewer internal controls than traditional computing.

57.

Decision makers can analyze Big Data using all of the following techniques except:

A. descriptive analytics. B. predictive analytics. C. decision making analytics. D. prescriptive analytics.

58.

Time-series forecasting is an example of ___ analytics.

A. predictive B. prescriptive C. descriptive D. evaluative

59.

Data analytics involves three broad categories. Which of the following comprises examples from a single category?

AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-05 Explain fundamental concepts associated with Big Data, data analytics, and cloud computing. Topic: Critical thinking

60.

Relational databases and spreadsheets can be used for:

A. descriptive analytics only. B. predictive analytics only. C. both descriptive and predictive analytics. D. neither descriptive nor predictive analytics.

AACSB: Technology AICPA: FN Leveraging Technology Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-05 Explain fundamental concepts associated with Big Data, data analytics, and cloud computing. Topic: Critical thinking

Ranking Questions

61.

Number the following steps for creating a knowledge management system in their correct order.

5 Purchase or build appropriate tools. 4 Develop a knowledge management strategy. 2 Define the business goals the knowledge management system will address. 1 Perform a knowledge audit. 7 Create an organizational culture that supports the ideas of knowledge sharing and development. 6 Periodically reassess the value of the knowledge management system. 3 Create a visual map.

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

62.

Eric and Gloria are partners in Health Care Consulting Associates, a firm specializing in enterprise risk management and internal controls for hospitals. As their client base expands, they want to develop a knowledge management system that will benefit both themselves and their employees. In what order should they complete the following steps to achieve their goal?

4 Diagram the relationships between key knowledge areas. 7 Convene required quarterly retreats to discuss ways to improve the system. 6 Hire a consultant to construct an Access database and teach employees how to use it. 1 Hold a staff meeting to discuss the importance of learning from one another. 2 Create a team that will specify what the new system should accomplish. 3 Ask employees to complete a short online survey focused on key knowledge areas for the company. 5 Work with department managers to establish some broad principles for managing knowledge.

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

Essay Questions

63.

Which level of Steps for Better Thinking is indicated in each of the following? a. Acquire background knowledge and skills. b. Deal with limitations to the solution. c. Identify the problem, relevant information and uncertainties. d. Implement solutions. e. Interpret and organize the information.

a. knowing b. envisioning c. identifying d. prioritizing e. exploring

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management

64.

Eppler and Mengis suggested five broad causes of information overload: (a) information characteristics, (b) information technology, (c) organizational design, (d) personal factors and (e) task and process parameters. Which of them is most closely associated with each of the following independent items? 1. anxiety about job performance 2. attempting a task for the first time 3. disagreements about who should be a group leader 4. e-mail forwarded to a smart phone 5. health conditions 6. highly technical information 7. information conveyed via symbols 8. internet searches with very broad terms 9. significant time pressure 10. working with too large a group

1. D 2. E 3. C 4. B 5. D 6. A 7. A 8. B 9. E 10. C

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. 15-89 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Information overload and other barriers to good decisions

65.

Which element of Steps for Better Thinking is described in each independent item below? Use each element of the model exactly twice. a. Classifying previously identified costs and benefits as financial or nonfinancial b. Conducting internal audits to assess the effectiveness of implemented internal controls c. Organizing focus groups to discuss ways to improve internal controls after implementing several controls d. Preparing a list of previously identified costs and benefits for specific internal controls e. Ranking a list of five internal control objectives according to their importance f. Reading an article about the purposes of internal control g. Recognizing a weakness in internal control h. Recommending specific internal controls to implement i. Taking a course to learn about the COSO internal control framework j. Wondering if a CEO supports changes in internal control

a. exploring b. envisioning c. envisioning d. exploring e. prioritizing f. knowing g. identifying h. prioritizing i. knowing j. identifying

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. 15-90 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Decision models and knowledge management

66.

Robert and Claudia are partners in Retail Consulting Associates (RCA), a firm specializing in enterprise risk management for small retail businesses. As their client base expands, they want to develop a knowledge management system that will benefit themselves, their employees and their clients. They have established three key knowledge areas for RCA: costs of enterprise risk management, role of information technology in enterprise risk management and communication with clients. Use those three areas to complete the following knowledge map for RCA.

Costs: financial and nonfinancial Role of IT: risks created, benefits achieved Communication: during KMS development, after KMS development Connection between Costs and Communication: Failure to communicate during and after

KMS development may lead to significant nonfinancial costs. Connection between Communication and Role of IT: Using IT to communicate can provide benefits as compared to using non-IT methods. Connection between Costs and Role of IT: IT solutions must consider both financial and nonfinancial costs.

67.

Divide the following examples of information overload causes into five groups based on the categories suggested by Eppler and Mengis. Specify the name of each group. 1) Anxiety about job performance 2) Attempting a task for the first time 3) Disagreements about who should be a group leader 4) E-mail forwarded to a smart phone 5) Health conditions 6) Highly technical information 7) Information conveyed via symbols 8) Internet searches with very broad terms 9) Significant time pressure 10) Working with too large a group

Personal factors: 1, 5 Information characteristics: 6, 7 Task and process parameters: 2, 9 Organizational design: 3, 10 Information technology: 4, 8

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions

68.

The nature and complexity of topics in accounting information systems can lead to information overload. Consider the situations below; for each situation, indicate one countermeasure from the list suggested by Eppler and Mengis. a. Ray attempted to design relational database tables for his company's acquisition/payment process before lunch. b. Employees at TRM Corporation listened to Susan's two-hour presentation on the COSO internal control model. c. Peter prepared a report for the board of directors explaining each inventory purchase for the previous six months. d. Juanita, the chief financial officer of TRM Corporation, attempted to explain the role and purpose of financial statements without using the proper accounting terminology. e. After receiving a report evaluating various prospective ERP vendors, Sam decided to delay making a choice for three weeks.

Note—others may also be acceptable. a. Allow more time to complete important tasks. b. Compress, aggregate, categorize and structure information. c. Focus on creating value-added information. d. Formalize the language used to describe information. e. Handle information as it comes to you.

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Apply Difficulty: 3 Hard Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions

69.

YRC Corporation's operations had been limited to the US, Canada and Mexico, but management wanted to expand into other countries. In preparation for the expansion, they designed a knowledge management system which included the knowledge map shown below. Based on the knowledge map and the principles of database normalization, create specifications (table names and field names) for three database tables YRC should use to capture, analyze, categorize and distribute knowledge.

Note—other responses may also be acceptable. Cultural issues table: Cultural issue name, cultural issue description Country table: Country name, primary currency, primary language Country/cultural issues table: [Country name], [Cultural issue name]

AACSB: Technology AICPA: FN Leveraging Technology Blooms: Apply

Difficulty: 3 Hard Learning Objective: 15-02 Explain the nature of decision models and knowledge management. Topic: Decision models and knowledge management

70.

Bumble Beasley was attempting to improve internal controls over his firm's sales/collection process. He completed the following tasks in the order listed, but made several errors. Revise each statement based on Steps for Better Thinking. a. Read one general article about the importance of internal control. b. Focus on the costs of physical and technical controls in the sales/collection process. c. Make a list of three cost categories common to physical and technical controls in the sales/collection process. d. Implement the two least expensive physical and two least expensive technical controls. e. Write a report summarizing his work; store it in a three-ring binder on his office bookshelf.

Note—other alternatives may also be acceptable. a. Read several articles outlining the purposes, objectives and some examples of internal controls. (knowing) b. Identify risk exposures, the budget for improving internal controls and potential internal controls to implement. (identifying) c. Organize the potential internal controls based on the risk exposure they address and how they address it (prevent/detect/correct). (exploring) d. Select internal controls to implement based on (c) and the overall budget. (prioritizing) e. Periodically assess how well the controls are functioning; make changes as necessary. (envisioning)

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Apply Difficulty: 3 Hard Learning Objective: 15-04 Describe and apply Wolcott and Lynch's Steps for Better Thinking. Topic: Decision models and knowledge management 15-97 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Short Answer Questions

71.

List, in order, the seven steps to create a knowledge management system.

1. Create an organizational culture that supports the ideas of knowledge sharing and development. 2. Define the business goals the knowledge management system will address. 3. Perform a knowledge audit to identify any duplication, gaps, and overlaps in an organization's knowledge base. 4. Create a visual map that describes units of knowledge and the relationships between them. 5. Develop a knowledge management strategy based on the content management, integration, search mechanisms, information delivery and collaboration. 6. Purchase or build appropriate tools for capturing, analyzing, categorizing and distributing knowledge. 7. Periodically reassess the value of the knowledge management system and make necessary adjustments.

72.

Helena, the chief financial officer of TRM Corporation, attempted to explain the role and purpose of financial statements to employees in the production department with no prior training in accounting. Suggest two causes of information overload the production employees might experience; for each cause, suggest one countermeasure.

Note—other responses may also be acceptable. Cause: Information characteristics. Accounting information can be complex and difficult to understand without any background in the field. Countermeasure: Focus on creating value-added information. Determine what the production department employees really need to know, and limit the presentation to that information only. Cause: Personal factors. Employees may be fatigued depending upon when the presentation occurs. Countermeasure: Use graphs and other visual aids. Illustrations of key value-added terminology can help employees focus.

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Analyze Difficulty: 3 Hard Learning Objective: 15-01 Discuss and give examples of the concept of information overload, including causes, symptoms, and countermeasures. Topic: Information overload and other barriers to good decisions

73.

Accounting information systems work often involves documenting business processes through flowcharts, data flow diagrams and REA models. Briefly explain the importance of managing knowledge about documentation techniques; also explain, in your own words, how you would manage that knowledge.

Managing knowledge about documentation techniques is important for several reasons, including: (a) understanding the appropriate uses of each technique, such as understanding a business process or building a database, (b) training new employees in new techniques, (c) learning from experience which techniques work best in a given organization. To manage that knowledge, design a knowledge management system following the seven steps discussed in the chapter.

74.

YHW Corporation had been a traditional brick-and-mortar business, but was interested in expanding into e-business practices. Starting with the "identifying" phase, explain how you would use Steps for Better Thinking to make a recommendation on the expansion.

Identifying: The problem is whether to expand into e-business practices. Relevant information includes the costs and benefits (financial and nonfinancial) of doing so. The results of any expansion are an uncertainty. Exploring: Financial costs include the cost of accessing/building an appropriate network and training employees. Nonfinancial costs include lack of employee motivation and resistance to change. Financial benefits include increases in sales. Nonfinancial benefits include reaching a broader audience. Prioritizing: The financial costs and benefits may be marginally more important than the nonfinancial, although all of them are important. YHW Corp. can acquire/develop tools for their expansion that balance those costs and benefits. Envisioning: After the expansion, YHW Corp. management should do a "post-audit" and make any needed changes to the system.

75.

The chapter discussed Big Data, including five broad types of Big Data identified by Soares. In your own words, define "Big Data." Give three examples of Big Data, and indicate which of Soares' categories applies to each.

"Big Data" refers to diverse types of data gathered from both within and without the organization; it can be analyzed ("mined") to gain new insights about strategy and operations. Examples and categories include LinkedIn profiles (web and social media data), electronic billing records (human-generated data) and hair/eye color (biometric data).

AACSB: Analytical Thinking AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Learning Objective: 15-05 Explain fundamental concepts associated with Big Data, data analytics, and cloud computing. Topic: Critical thinking

Chapter 16 Professionalism, Ethics, and Career Planning

Multiple Choice Questions

1. Bell's characteristics of a professional include the ability to think in which of the following ways?

A. Rationally B. Logically C. Coherently D. All of these

2. Bell's characteristics of a professional include the ability to recognize the influence of:

A. Political and social forces. B. Economic forces. C. Legal and regulatory forces. D. All of these.

3. McDonald wrote that professionals utilize a specialized knowledge base. Which of the following is the best example of the specialized knowledge base in accounting?

A. Reconciling a bank statement B. Writing a check C. Making adjusting entries D. Using spreadsheet software

4. McDonald wrote that professionals utilize complex skills. Complex skills in accounting include:

A. Totaling the columns in a trial balance. B. Listing the three sections of a balance sheet. C. Recommending internal controls for a business process. D. Filing tax returns electronically.

5. Which of the following demonstrates the least professional behavior based on Bell's characteristics?

A. Developing a presentation based on the characteristics of the audience B. Correctly applying FASB standards for short-term investments C. Completing continuing professional education courses D. Ignoring principles from management and finance

6. As professionals, accountants often use a specialized knowledge base. That specialized knowledge base can come from:

A. FASB pronouncements. B. Textbooks in accounting and other fields. C. Both FASB pronouncements and Textbooks in accounting and other fields. D. Neither FASB pronouncements nor Textbooks in accounting and other fields.

7. Depreciation is the periodic allocation of an asset's cost to the periods which benefit from the asset's use. That statement is an example of:

A. Technical knowledge. B. A specialized knowledge base. C. Both technical knowledge and a specialized knowledge base. D. Neither technical knowledge nor a specialized knowledge base.

8. According to Bell, accountants should recognize the influence of:

A. The Sarbanes-Oxley Act of 2002. B. Foreign currency exchange rates. C. Both the Sarbanes-Oxley Act of 2002 and foreign currency exchange rates. D. Neither the Sarbanes-Oxley Act of 2002 nor foreign currency exchange rates.

9. Bumble Beasley remarked: "The only way to be an accounting professional is to earn a CPA license." Which of the following statements is most true?

A. There are many ways to be an accounting professional. B. All accounting professionals have degrees in accounting. C. Both there are many ways to be an accounting professional and all accounting professionals have degrees in accounting. D. Neither there are many ways to be an accounting professional nor all accounting professionals have degrees in accounting.

10. One mark of a professional is adherence to a code of ethical behavior. Which of the following statements is most true?

A. As the phrase is used in accounting, "code of ethical behavior" refers to utilitarianism and ethical egoism. B. As the phrase is used in accounting, "code of ethical behavior" refers to deontology and virtue ethics. C. Both as the phrase is used in accounting, "code of ethical behavior" refers to utilitarianism and ethical egoism and as the phrase is used in accounting, "code of ethical behavior" refers to deontology and virtue ethics are true. D. Neither as the phrase is used in accounting, "code of ethical behavior" refers to utilitarianism and ethical egoism nor as the phrase is used in accounting, "code of ethical behavior" refers to deontology and virtue ethics is true.

11. McDonald stated that professionals have autonomy of practice. In the accounting profession, autonomy of practice has been limited by:

A. FASB. B. COSO. C. PCAOB. D. All of these.

12. The PCAOB has:

A. Eliminated autonomy of practice in the accounting profession. B. Limited autonomy of practice in the accounting profession. C. Had no effect on autonomy of practice in the accounting profession. D. Worked with FASB to enhance autonomy of practice in the accounting profession.

13. According to Bell, a professional integrates knowledge from many disciplines. Accounting information systems integrates knowledge from:

A. Accounting and finance. B. Management and computer information systems. C. Both accounting and finance and management and computer information systems. D. Neither accounting and finance nor management and computer information systems.

14. According to Bell, a professional integrates knowledge from many disciplines. Knowledge about ethics requires an accountant to integrate knowledge from:

A. Philosophy. B. Communication. C. Science. D. Psychology.

15. Which of the following statements best applies a characteristic of a professional in the context of accounting?

A. Raul, a licensed CPA, learned to speak a foreign language in preparation for his firm's expansion into Europe. B. Paula, a corporate accountant, studied the roles men and women play in business in Egypt. C. Both Raul, a licensed CPA, learned to speak a foreign language in preparation for his firm's expansion into Europe and Paula, a corporate accountant, studied the roles men and women play in business in Egypt. D. Neither Raul, a licensed CPA, learned to speak a foreign language in preparation for his firm's expansion into Europe nor Paula, a corporate accountant, studied the roles men and women play in business in Egypt.

16. Which of the following statements best applies a characteristic of a professional in the context of accounting?

A. Beverly, a government accountant, prepared two versions of a presentation on governmental financial statements to deliver to two different audiences. B. Mark, a corporate accountant, resolved an ethical dilemma based on the steps recommended by Langenderfer and Rockness. C. Both Beverly, a government accountant, prepared two versions of a presentation on governmental financial statements to deliver to two different audiences and Mark, a corporate accountant, resolved an ethical dilemma based on the steps recommended by Langenderfer and Rockness. D. Neither Beverly, a government accountant, prepared two versions of a presentation on governmental financial statements to deliver to two different audiences nor Mark, a corporate accountant, resolved an ethical dilemma based on the steps recommended by Langenderfer and Rockness.

17. Which of the following best pairs a characteristic of a professional with an example of that characteristic?

A. Appropriately uses technical knowledge, closed nominal accounts at the end of the fiscal year B. Integrates knowledge from many disciplines, closed nominal accounts at the end of the fiscal year C. Appropriately uses technical knowledge, prepared a schedule of cash receipts and cash payments in Excel D. Integrates knowledge from many disciplines, prepared a schedule of cash receipts and cash payments in Excel

18. Which of the following best pairs a characteristic of a professional with an example of that characteristic?

A. Communicates effectively, selects software using the weighted-rating model B. Integrates knowledge from many disciplines, completes the steps in the systems development life cycle C. Communicates effectively, analyzes internal controls in the sales/collection process D. Integrates knowledge from many disciplines, gives two examples of COSO documents

19. Which of the following pairs provides examples of integrating knowledge from other disciplines in accounting?

A. Completes the steps in the systems development life cycle, applies expectancy theory to improve motivation B. Selects software using the weighted-rating model, analyzes internal controls in the sales/collection process C. Analyzes internal controls in the sales/collection process, applies expectancy theory to improve motivation D. Prepares a schedule of cash receipts in Excel, gives two examples of COSO documents

20. Which of the following pairs provides examples of appropriately using technical knowledge in accounting?

A. Closing nominal accounts at the end of the year, reconciling a bank statement B. Closing nominal accounts at the end of the year, using Steps for Better Thinking C. Reconciling a bank statement, using Steps for Better Thinking D. Adjusting the accounts for accrued revenue, applying complex FASB standards

21. Ethics is a set of standards that:

A. Is established by a particular group. B. Is imposed on members of the group to regulate behavior. C. Both established by a particular group and imposed on members of the group to regulate behavior. D. Neither established by a particular group nor imposed on members of the group to regulate behavior.

22. Ethics is a discipline that:

A. Studies values and guidelines for living. B. Explains why ethical egoism is the best school of ethical thought. C. Both studies values and guidelines for living and explains why ethical egoism is the best school of ethical thought. D. Neither studies values and guidelines for living nor explains why ethical egoism is the best school of ethical thought.

23. In accounting, ethics issues can arise in:

A. Revenue recognition. B. Earnings smoothing. C. Both revenue recognition and earnings smoothing. D. Neither revenue recognition nor earnings smoothing.

24. In accounting, ethics issues can arise in:

A. Determining the best school of ethical thought. B. Asset valuation. C. Both determining the best school of ethical thought and asset valuation. D. Neither determining the best school of ethical thought nor asset valuation.

25. Schools of ethical thought are:

A. points of view that help decision makers determine what is ethical. B. determined by the accounting profession. C. Both points of view that help decision makers determine what is ethical and determined by the accounting profession. D. Neither points of view that help decision makers determine what is ethical nor determined by the accounting profession.

26. Which of the following schools of ethical thought teaches that people are fundamentally solitary creatures, each pursuing their own best interest?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

27. Which of the following schools of ethical thought teaches that the most ethical decision is the one that promotes the greatest good for the greatest number of stakeholders?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

28. Which of the following schools of ethical thought teaches that individuals have rights and that ethical principles are developed through reasoning?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

29. Which of the following schools of ethical thought teaches that ethical actions are a natural outgrowth of being a fundamentally ethical person?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

30. Langenderfer and Rockness proposed:

A. that deontology is the best ethical viewpoint for professional accountants. B. an eight-step model for dealing with ethical dilemmas. C. the Sarbanes-Oxley Act of 2002. D. standards of professionalism for accountants.

31. The first step in the Langenderfer and Rockness model is:

A. Decide the best course of action. B. Identify ethics issues and stakeholders. C. Identify the facts. D. Determine which school of ethical thought to follow.

32. Which of the following steps in the Langenderfer and Rockness model comes first?

A. Identify the alternative courses of action. B. Reach a decision as to the appropriate course of action. C. Discuss the alternative with a trusted person. D. Define the norms, principles and values related to the situation.

33. Which of the following is most closely associated with the second step of the Langenderfer and Rockness model?

A. asset valuation B. utilitarianism C. Bernie Madoff D. autonomy of practice

34. Which of the following is most closely associated with the third step of the Langenderfer and Rockness model?

A. asset valuation B. utilitarianism C. Bernie Madoff D. autonomy of practice

35. Jon is a new employee at ADX Corporation. He was working late one night when he saw Beatrice, a long-time ADX employee, leaving the building with a company computer. Based on the Langenderfer and Rockness model, what should Jon do?

A. Inform Beatrice's supervisor. B. Ask Beatrice why she was leaving the building with a company computer. C. Consult ADX's code of ethics. D. Take a photo of Beatrice leaving the building with the company computer.

36. Jon is a new employee at ADX Corporation. He was working late one night when he saw Beatrice, a long-time ADX employee, leaving the building with a company computer. All of the following are relevant to the fourth step of the Langenderfer and Rockness model except:

A. Say nothing. B. Tell Beatrice's supervisor. C. Consult ADX's code of ethics. D. Ask Beatrice why she was leaving the building with a company computer.

37. Jon is a new employee at ADX Corporation. He was working late one night when he saw Beatrice, a long-time ADX employee, leaving the building with a company computer. Determining whether Beatrice is an ethical egoist or deontologist is relevant in the ___ step of the Langenderfer and Rockness model.

A. third B. fifth C. seventh D. none of these

38. Which of the following is associated with Charles Ponzi?

A. international postal reply coupons B. Bernie Madoff C. Adelphia Communications Corporation D. none of these

39. John and Gus Rigas are associated with:

A. international postal reply coupons B. Bernie Madoff C. Adelphia Communications Corporation D. none of these

40. ___ was turned in by his sons for a Ponzi scheme.

A. Charles Ponzi B. Bernie Madoff C. Jeff Skilling D. Victor Vroom

41. Which of the following companies was created in 1985 from the merger of two other companies in the natural gas and pipeline industries?

A. Enron B. Arthur Andersen C. BMIS D. Adelphia Communications Corporation

42. Debra and Dexter are CPAs specializing in tax planning and preparation. Recently, Dexter commented that there is nothing ethically wrong with tax evasion, so long as the number of people who benefit is greater than the number of people harmed. Which school of ethical thought does Dexter follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

43. Debra and Dexter are CPAs specializing in tax planning and preparation. Recently, Debra stated that, in her view, her highest responsibility is to do what's right for herself. Which school of ethical thought does Debra follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

44. Debra and Dexter are CPAs specializing in tax planning and preparation. Their father, Harry, taught them that being a good person will lead to doing good things. Which school of ethical thought does Harry follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

45. Debra and Dexter are CPAs specializing in tax planning and preparation. At a recent professional event, Maria, a fellow CPA working for another firm, explained her belief that cheating on taxes is always wrong. Which school of ethical thought does Maria follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

46. The chapter discussed four schools of ethical thought. Which of the following pairs includes ideas from a single school?

47. McDonald identified four criteria to be considered a professional. One of them requires accounting professionals to adopt the ___ school of ethical thought.

A. utilitarian B. ethical egoism C. professional D. none of these

48. Professional codes of ethics in accounting set out non-changing principles developed through reasoning; those principles constitute a universal code of ethics. Therefore, professional codes of ethics in accounting are most closely related to which school of ethical thought?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

49. Arnold, having arrived at a preliminary decision about how to resolve an ethical dilemma, discussed his alternatives with a trusted co-worker. Based on the Langenderfer and Rockness model, what should he do next?

A. Determine the stakeholders involved in the ethical dilemma. B. Evaluate the consequences of his proposed action. C. Decide what to do. D. Determine which school of ethical thought his co-worker follows.

50. Beverly determined that a case she was investigating dealt with embezzling cash, which would impact the company's employees and other groups. Based on the Langenderfer and Rockness model, what should she do next?

A. Consult the company's code of ethics. B. Talk with a trusted co-worker. C. Develop a list of alternative actions. D. Look up the definition of embezzlement.

51. Lenise laid out three potential responses for a violation of her company's ethics code. Based on the Langenderfer and Rockness model, what should she do next?

A. Determine who will be affected by each potential response. B. Speculate about what will happen for each of the three responses. C. Talk with a trusted co-worker. D. Determine if her company's ethics code is based primarily on ethical egoism or some other school of ethical thought.

52. Linda consulted the AICPA Code of Professional Conduct for an ethics issue she had recently discovered. Based on the Langenderfer and Rockness model, what should she do next?

A. Prepare a presentation of the code for the company. B. Determine her options for how to respond. C. Talk with a trusted co-worker. D. Decide how to respond to the ethics issue.

53. Which of the following is most reflective of ethical egoism?

A. In making ethical decisions, Annie strives to be true to her basic ethical nature. B. Jeff inflated his division's sales to get a bigger bonus for himself. C. Michelle reported fraud she had discovered because she believes that lying is always wrong. D. Shan agreed to coach as many CPA exam candidates as possible, in spite of his busy schedule.

54. Which of the following is most reflective of utilitarianism?

55. Which of the following is most reflective of deontology?

56. Which of the following is most reflective of virtue ethics?

57. Ethical egoism and utilitarianism are similar in that both:

A. are concerned with "benefits." B. place the concerns of individuals above concerns for society. C. Both are concerned with "benefits" and place the concerns of individuals above concerns for society. D. Neither are concerned with "benefits" nor place the concerns of individuals above concerns for society.

58. Ethical egoism and deontology both teach that:

A. the ethics of an action do not depend on its impact on others. B. ethics are based on a universal moral code. C. Both the ethics of an action do not depend on its impact on others and ethics are based on a universal moral code. D. Neither the ethics of an action do not depend on its impact on others nor ethics are based on a universal moral code.

59. Both deontology and ___ emphasize duty to others.

A. utilitarianism B. ethical egoism C. Both utilitarianism and ethical egoism D. Neither utilitarianism nor ethical egoism

60. Virtue ethics and utilitarianism differ in that ___ focuses on action, while ___ emphasizes character.

A. virtue ethics; utilitarianism B. utilitarianism; virtue ethics C. consequences; intentions D. intentions; consequences

Ranking Questions

61. The steps in the Langenderfer and Rockness model for making ethical decisions are listed below. Number them in the order of their occurrence based on the information in the text.

____ Evaluate the consequences of each possible course of action. ____ Identify the facts. ____ Identify the alternative courses of action. ____ Identify the ethics issues and the stakeholders involved. ____ If appropriate, discuss the alternative with a trusted person to help gain greater perspective regarding the alternatives. ____ Define the norms, principles and values related to the situation. ____ Decide the best course of action consistent with the norms, principles and values. ____ Reach a decision as to the appropriate course of action.

Matching Questions

62. Bell's characteristics of a professional are listed below on the right. Match each example on the left with the most appropriate characteristic on the right. Use each characteristic exactly once.

1. Samantha compared the costs and benefits of a set of internal controls.

Integrates knowledge from many disciplines ____

2. Jordan considered the impact of foreign currency exchange rates on an investment. 3. Joshua calculated straightline depreciation. 4. Albert wrote an e-mail to a prospective new client.

Recognizes the influence of political, social, economic, legal and regulatory forces ____ Actively seeks additional knowledge ____ Appropriately uses technical knowledge ____

5. Hal participated in an online conference about tax law changes. 6. Robert refused to falsify a tax return.

Exhibits ethical professional behavior ____ Thinks rationally, logically and coherently ____

7. Maria used the systems development life cycle to design a new AIS.

Communicates effectively ____

Essay Questions

63. Supply the missing words/phrases below based on the definition of ethics in the text. Ethics is a set of (a) that differentiates (b), is established by (c), and is imposed on members of the group to (d). Ethics is a discipline that studies (e) for living and considers the (f) (or lack of it) for those values.

64. The chapter discussed four schools of ethical thought: (a) ethical egoism, (b) utilitarianism, (c) deontology and (d) virtues. Which school best describes each of the following independent items? 1. After being convicted of fraud, NRN Corporation's net assets were distributed to shareholders in proportion to their original investments. 2. Ethical actions are a natural outgrowth of being a fundamentally ethical person. 3. Everyone has an ethical obligation to pursue their own best interest. 4. In a merger, the CEO of ATN Corporation inflated net income to get a better sales price for ATN. 5. Jeff makes all ethics decisions based on the principles of his religion. 6. People should never be used as a means to an end. 7. Sally sees herself as an honest person; her actions are a result of that characteristic. 8. The most ethical decision is the one that promotes the greatest good for the greatest number of stakeholders.

65. Bell identified seven criteria to be a professional. Which criterion applies to each independent situation below? 1) Albert wrote an e-mail to a prospective new client. 2) David used time value of money principles to calculate the price of a bond. 3) Hal participated in an online conference about tax law changes. 4) Jordan considered the impact of foreign currency exchange rates on an investment. 5) Joshua calculated straight-line depreciation. 6) Maria used the systems development life cycle to design a new AIS. 7) Peggy completed the annual continuing professional education requirements for her Certified Fraud Examiner credential. 8) Robert refused to falsify a tax return. 9) Ryan prepared a written summary of tax rules for a client. 10) Samantha compared the costs and benefits of a set of internal controls.

66. Langenderfer and Rockness suggested an eight-step model for resolving ethical dilemmas. Consider each of the independent statements that follow; indicate what would happen immediately after the action listed based on the Langenderfer and Rockness model. 1) Arnold, having arrived at a preliminary decision about how to resolve an ethical dilemma, discussed his alternatives with a trusted co-worker. 2) Beverly determined that a case she was investigating dealt with embezzling cash, which would impact the company's employees and other groups. 3) Lenise laid out three potential responses for a violation of her company's ethics code. 4) Linda consulted the AICPA Code of Professional Conduct for an ethics issue raised by a co-worker. 5) Maria considered what would happen to various stakeholders for each of three alternatives she had identified.

67. Consider each independent situation below. For each one, indicate the school of ethical thought the decision maker is using; circle one word or phrase that led you to your conclusion. a. In making ethical decisions, Annie strives to be true to her basic ethical nature. b. Jeff inflated his division's sales to get a bigger bonus for himself. c. Michelle reported fraud she had discovered because she believes that lying is always wrong. d. Shan agreed to coach as many CPA exam candidates as possible, in spite of his busy schedule.

68. The chapter discussed four infamous ethics cases in accounting: (a) Charles Ponzi, (b) Adelphia Communications Corporation, (c) Enron/Arthur Andersen and (d) Bernie Madoff. Indicate which case is most closely associated with each of the following items. 1. Created from a merger of two other companies in the natural gas and pipeline industries 2. Filed for bankruptcy in December 2001 3. Filed for bankruptcy in June 2002 4. Harry Markopolos 5. International postal reply coupons 6. John and Gus Rigas 7. Most business came from the financial division 8. One family received more than $2 billion in loans from the company 9. Perpetrator was turned in by his sons 10. Sentenced to five years in federal prison for mail fraud

69. Bell suggested seven characteristics necessary to be considered a professional. Revise each statement below to more appropriately reflect one of those characteristics; indicate the relevant characteristic in the space provided.

70. McDonald suggested four characteristics necessary to be considered a professional. Revise each statement below to more appropriately reflect one of those characteristics; indicate the relevant characteristic in the space provided.

Short Answer Questions

71. List the four characteristics suggested by McDonald to be considered a professional.

72. In your own words, explain the fundamental principles of each of the following schools of ethical thought: ethical egoism, utilitarianism, deontology, virtue ethics.

73. Miguel had just been promoted to Director of Accounts Receivable in the accounting department of TPC Corporation. His first responsibility was to develop and explain a better system for estimating and writing off bad debts. Without referring to the technical aspects of those tasks, discuss four things Miguel should do based on Bell's characteristics of a professional.

74. Taylor became aware of a serious ethical breach in her company related to a small group of managers recording sales revenue inappropriately. She called a meeting of all the managers in the company and told them to "confess or else." The managers, particularly those who had not committed any ethical breach, became very angry and the meeting ended in chaos. Analyze Taylor's actions. Suggest a better approach for dealing with the ethics issue in her company; ensure that your suggestions are clearly applied to Taylor's situation.

75. Taylor became aware of a serious ethical breach in her company related to a small group of managers recording sales revenue inappropriately. In interviewing those managers about the issue, Taylor asked each one why they had committed the ethical breach. Use two of the four schools of ethical thought discussed in the text to create brief responses the managers would have given Taylor. For each response, indicate the relevant school of ethical thought.

Chapter 16 Professionalism, Ethics, and Career Planning Answer Key

Multiple Choice Questions

Bell's characteristics of a professional include the ability to think in which of the following ways?

A. Rationally B. Logically C. Coherently D. All of these

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

Bell's characteristics of a professional include the ability to recognize the influence of:

A. Political and social forces. B. Economic forces. C. Legal and regulatory forces. D. All of these.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation 16-35 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

McDonald wrote that professionals utilize a specialized knowledge base. Which of the following is the best example of the specialized knowledge base in accounting?

A. Reconciling a bank statement B. Writing a check C. Making adjusting entries D. Using spreadsheet software

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

McDonald wrote that professionals utilize complex skills. Complex skills in accounting include:

A. Totaling the columns in a trial balance. B. Listing the three sections of a balance sheet. C. Recommending internal controls for a business process. D. Filing tax returns electronically.

Topic: Professionalism

Which of the following demonstrates the least professional behavior based on Bell's characteristics?

As professionals, accountants often use a specialized knowledge base. That specialized knowledge base can come from:

Depreciation is the periodic allocation of an asset's cost to the periods which benefit from the asset's use. That statement is an example of:

A. Technical knowledge. B. A specialized knowledge base. C. Both technical knowledge and a specialized knowledge base. D. Neither technical knowledge nor a specialized knowledge base.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

According to Bell, accountants should recognize the influence of:

Bumble Beasley remarked: "The only way to be an accounting professional is to earn a CPA license." Which of the following statements is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

10.

One mark of a professional is adherence to a code of ethical behavior. Which of the following statements is most true?

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Professionalism

11.

McDonald stated that professionals have autonomy of practice. In the accounting profession, autonomy of practice has been limited by:

A. FASB. B. COSO. C. PCAOB. D. All of these.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Professionalism

12.

The PCAOB has:

13.

According to Bell, a professional integrates knowledge from many disciplines. Accounting information systems integrates knowledge from:

14.

According to Bell, a professional integrates knowledge from many disciplines. Knowledge about ethics requires an accountant to integrate knowledge from:

A. Philosophy. B. Communication. C. Science. D. Psychology.

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

15.

Which of the following statements best applies a characteristic of a professional in the context of accounting?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Professionalism

16.

Which of the following statements best applies a characteristic of a professional in the context of accounting?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Professionalism

17.

Which of the following best pairs a characteristic of a professional with an example of that characteristic?

18.

Which of the following best pairs a characteristic of a professional with an example of that characteristic?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard 16-45 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

19.

Which of the following pairs provides examples of integrating knowledge from other disciplines in accounting?

20.

Which of the following pairs provides examples of appropriately using technical knowledge in accounting?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply

Difficulty: 3 Hard Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Professionalism

21.

Ethics is a set of standards that:

22.

Ethics is a discipline that:

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 16-47 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 16-03 Define ethics. Topic: Ethics

23.

In accounting, ethics issues can arise in:

A. Revenue recognition. B. Earnings smoothing. C. Both revenue recognition and earnings smoothing. D. Neither revenue recognition nor earnings smoothing.

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-03 Define ethics. Topic: Ethics

24.

In accounting, ethics issues can arise in:

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-03 Define ethics. Topic: Ethics

25.

Schools of ethical thought are:

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics

26.

Which of the following schools of ethical thought teaches that people are fundamentally solitary creatures, each pursuing their own best interest?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-03 Define ethics. Topic: Ethics

27.

Which of the following schools of ethical thought teaches that the most ethical decision is the one that promotes the greatest good for the greatest number of stakeholders?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-03 Define ethics. Topic: Ethics

28.

Which of the following schools of ethical thought teaches that individuals have rights and that ethical principles are developed through reasoning?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-03 Define ethics. Topic: Ethics

29.

Which of the following schools of ethical thought teaches that ethical actions are a natural outgrowth of being a fundamentally ethical person?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-03 Define ethics. Topic: Ethics

30.

Langenderfer and Rockness proposed:

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

31.

The first step in the Langenderfer and Rockness model is:

A. Decide the best course of action. B. Identify ethics issues and stakeholders. C. Identify the facts. D. Determine which school of ethical thought to follow.

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

32.

Which of the following steps in the Langenderfer and Rockness model comes first?

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

33.

Which of the following is most closely associated with the second step of the Langenderfer and Rockness model?

A. asset valuation B. utilitarianism C. Bernie Madoff D. autonomy of practice

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

34.

Which of the following is most closely associated with the third step of the Langenderfer and Rockness model?

A. asset valuation B. utilitarianism C. Bernie Madoff D. autonomy of practice

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

35.

Jon is a new employee at ADX Corporation. He was working late one night when he saw Beatrice, a long-time ADX employee, leaving the building with a company computer. Based on the Langenderfer and Rockness model, what should Jon do?

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

36.

Jon is a new employee at ADX Corporation. He was working late one night when he saw Beatrice, a long-time ADX employee, leaving the building with a company computer. All of the following are relevant to the fourth step of the Langenderfer and Rockness model except:

A. Say nothing. B. Tell Beatrice's supervisor. C. Consult ADX's code of ethics. D. Ask Beatrice why she was leaving the building with a company computer.

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

37.

Jon is a new employee at ADX Corporation. He was working late one night when he saw Beatrice, a long-time ADX employee, leaving the building with a company computer. Determining whether Beatrice is an ethical egoist or deontologist is relevant in the ___ step of the Langenderfer and Rockness model.

A. third B. fifth C. seventh D. none of these Beatrice's ethical point of view is largely irrelevant in this situation; Jon's actions will be determined by his own ethical point of view.

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

38.

Which of the following is associated with Charles Ponzi?

A. international postal reply coupons B. Bernie Madoff C. Adelphia Communications Corporation D. none of these

AACSB: Ethics AICPA: BB Legal Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 16-55 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics cases

39.

John and Gus Rigas are associated with:

A. international postal reply coupons B. Bernie Madoff C. Adelphia Communications Corporation D. none of these

AACSB: Ethics AICPA: BB Legal Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics cases

40.

___ was turned in by his sons for a Ponzi scheme.

A. Charles Ponzi B. Bernie Madoff C. Jeff Skilling D. Victor Vroom

41.

Which of the following companies was created in 1985 from the merger of two other companies in the natural gas and pipeline industries?

A. Enron B. Arthur Andersen C. BMIS D. Adelphia Communications Corporation

42.

Debra and Dexter are CPAs specializing in tax planning and preparation. Recently, Dexter commented that there is nothing ethically wrong with tax evasion, so long as the number of people who benefit is greater than the number of people harmed. Which school of ethical thought does Dexter follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

43.

Debra and Dexter are CPAs specializing in tax planning and preparation. Recently, Debra stated that, in her view, her highest responsibility is to do what's right for herself. Which school of ethical thought does Debra follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

44.

Debra and Dexter are CPAs specializing in tax planning and preparation. Their father, Harry, taught them that being a good person will lead to doing good things. Which school of ethical thought does Harry follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

45.

Debra and Dexter are CPAs specializing in tax planning and preparation. At a recent professional event, Maria, a fellow CPA working for another firm, explained her belief that cheating on taxes is always wrong. Which school of ethical thought does Maria follow?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

46.

The chapter discussed four schools of ethical thought. Which of the following pairs includes ideas from a single school?

A. Community is more important than individuality; people within a community should do what's best for them individually. B. Community is more important than individuality; people within a community should do what's best for the community as a whole. C. Community values cannot change based on circumstances or potential outcomes; people within a community should do what's best for them individually. D. Community values cannot change based on circumstances or potential outcomes; people within a community should do what's best for the community as a whole. People within a community should do what's best for them individually, ethical egoism. People within a community should do what's best for the community as a whole, utilitarianism. Community values cannot change based on circumstances or potential outcomes, deontology. Community is more important than individuality, utilitarianism.

47.

McDonald identified four criteria to be considered a professional. One of them requires accounting professionals to adopt the ___ school of ethical thought.

A. utilitarian B. ethical egoism C. professional D. none of these

48.

Professional codes of ethics in accounting set out non-changing principles developed through reasoning; those principles constitute a universal code of ethics. Therefore, professional codes of ethics in accounting are most closely related to which school of ethical thought?

A. ethical egoism B. utilitarianism C. deontology D. virtue ethics

49.

Arnold, having arrived at a preliminary decision about how to resolve an ethical dilemma, discussed his alternatives with a trusted co-worker. Based on the Langenderfer and Rockness model, what should he do next?

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

50.

Beverly determined that a case she was investigating dealt with embezzling cash, which would impact the company's employees and other groups. Based on the Langenderfer and Rockness model, what should she do next?

A. Consult the company's code of ethics. B. Talk with a trusted co-worker. C. Develop a list of alternative actions. D. Look up the definition of embezzlement.

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

51.

Lenise laid out three potential responses for a violation of her company's ethics code. Based on the Langenderfer and Rockness model, what should she do next?

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

52.

Linda consulted the AICPA Code of Professional Conduct for an ethics issue she had recently discovered. Based on the Langenderfer and Rockness model, what should she do next?

A. Prepare a presentation of the code for the company. B. Determine her options for how to respond. C. Talk with a trusted co-worker. D. Decide how to respond to the ethics issue.

AACSB: Ethics AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

53.

Which of the following is most reflective of ethical egoism?

54.

Which of the following is most reflective of utilitarianism?

55.

Which of the following is most reflective of deontology?

56.

Which of the following is most reflective of virtue ethics?

57.

Ethical egoism and utilitarianism are similar in that both:

58.

Ethical egoism and deontology both teach that:

AACSB: Ethics AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-04 Discuss various models/schools of ethical decision making. 16-66 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Topic: Ethics

59.

Both deontology and ___ emphasize duty to others.

A. utilitarianism B. ethical egoism C. Both utilitarianism and ethical egoism D. Neither utilitarianism nor ethical egoism

60.

Virtue ethics and utilitarianism differ in that ___ focuses on action, while ___ emphasizes character.

A. virtue ethics; utilitarianism B. utilitarianism; virtue ethics C. consequences; intentions D. intentions; consequences

Ranking Questions

61.

The steps in the Langenderfer and Rockness model for making ethical decisions are listed below. Number them in the order of their occurrence based on the information in the text.

6 Evaluate the consequences of each possible course of action. 1 Identify the facts. 5 Identify the alternative courses of action. 4 Identify the ethics issues and the stakeholders involved. 3 If appropriate, discuss the alternative with a trusted person to help gain greater perspective regarding the alternatives. 7 Define the norms, principles and values related to the situation. 8 Decide the best course of action consistent with the norms, principles and values. 2 Reach a decision as to the appropriate course of action.

AACSB: Ethics AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

Matching Questions

62.

Bell's characteristics of a professional are listed below on the right. Match each example on the left with the most appropriate characteristic on the right. Use each characteristic exactly once.

1. Samantha compared the costs and benefits of a set of internal controls.

Integrates knowledge from many disciplines 7

2. Jordan considered the impact of foreign currency exchange rates on an investment. 3. Joshua calculated straightline depreciation. 4. Albert wrote an e-mail to a prospective new client.

Recognizes the influence of political, social, economic, legal and regulatory forces 2 Actively seeks additional knowledge 5 Appropriately uses technical knowledge 3

5. Hal participated in an online conference about tax law changes. 6. Robert refused to falsify a tax return.

Exhibits ethical professional behavior 6 Thinks rationally, logically and coherently 1

7. Maria used the systems development life cycle to design a new AIS.

Communicates effectively 4

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

Essay Questions

63.

Supply the missing words/phrases below based on the definition of ethics in the text. Ethics is a set of (a) that differentiates (b), is established by (c), and is imposed on members of the group to (d). Ethics is a discipline that studies (e) for living and considers the (f) (or lack of it) for those values.

a) standards b) right from wrong c) a particular group d) regulate behavior e) values and guidelines f) justification

AACSB: Ethics AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-03 Define ethics. Topic: Ethics

64.

The chapter discussed four schools of ethical thought: (a) ethical egoism, (b) utilitarianism, (c) deontology and (d) virtues. Which school best describes each of the following independent items? 1. After being convicted of fraud, NRN Corporation's net assets were distributed to shareholders in proportion to their original investments. 2. Ethical actions are a natural outgrowth of being a fundamentally ethical person. 3. Everyone has an ethical obligation to pursue their own best interest. 4. In a merger, the CEO of ATN Corporation inflated net income to get a better sales price for ATN. 5. Jeff makes all ethics decisions based on the principles of his religion. 6. People should never be used as a means to an end. 7. Sally sees herself as an honest person; her actions are a result of that characteristic. 8. The most ethical decision is the one that promotes the greatest good for the greatest number of stakeholders.

1. B 2. D 3. A 4. A 5. C 6. C 7. D 8. B

AACSB: Ethics AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics

65.

Bell identified seven criteria to be a professional. Which criterion applies to each independent situation below? 1) Albert wrote an e-mail to a prospective new client. 2) David used time value of money principles to calculate the price of a bond. 3) Hal participated in an online conference about tax law changes. 4) Jordan considered the impact of foreign currency exchange rates on an investment. 5) Joshua calculated straight-line depreciation. 6) Maria used the systems development life cycle to design a new AIS. 7) Peggy completed the annual continuing professional education requirements for her Certified Fraud Examiner credential. 8) Robert refused to falsify a tax return. 9) Ryan prepared a written summary of tax rules for a client. 10) Samantha compared the costs and benefits of a set of internal controls.

1) communicates effectively 2) integrates knowledge from many disciplines 3) actively seeks additional knowledge 4) recognizes the influence of [various] forces 5) appropriately uses technical knowledge 6) integrates knowledge from many disciplines 7) actively seeks additional knowledge 8) exhibits ethical professional behavior 9) communicates effectively 10) thinks rationally, logically and coherently

AACSB: Ethics AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Ethics

66.

Langenderfer and Rockness suggested an eight-step model for resolving ethical dilemmas. Consider each of the independent statements that follow; indicate what would happen immediately after the action listed based on the Langenderfer and Rockness model. 1) Arnold, having arrived at a preliminary decision about how to resolve an ethical dilemma, discussed his alternatives with a trusted co-worker. 2) Beverly determined that a case she was investigating dealt with embezzling cash, which would impact the company's employees and other groups. 3) Lenise laid out three potential responses for a violation of her company's ethics code. 4) Linda consulted the AICPA Code of Professional Conduct for an ethics issue raised by a co-worker. 5) Maria considered what would happen to various stakeholders for each of three alternatives she had identified.

1) Arnold reaches a decision as to the appropriate course of action. 2) Beverly defines the norms, principles and values related to the situation. 3) Lenise evaluates the consequences of each potential response. 4) Linda identifies alternative courses of action. 5) Maria decides the best course of action.

AACSB: Ethics AICPA: FN Decision Making Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

67.

Consider each independent situation below. For each one, indicate the school of ethical thought the decision maker is using; circle one word or phrase that led you to your conclusion. a. In making ethical decisions, Annie strives to be true to her basic ethical nature. b. Jeff inflated his division's sales to get a bigger bonus for himself. c. Michelle reported fraud she had discovered because she believes that lying is always wrong. d. Shan agreed to coach as many CPA exam candidates as possible, in spite of his busy schedule.

a. virtues, basic ethical nature b. ethical egoism, bigger bonus for himself c. deontology, lying is always wrong d. utilitarianism, as many candidates as possible

AACSB: Ethics AICPA: BB Critical Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics

68.

The chapter discussed four infamous ethics cases in accounting: (a) Charles Ponzi, (b) Adelphia Communications Corporation, (c) Enron/Arthur Andersen and (d) Bernie Madoff. Indicate which case is most closely associated with each of the following items. 1. Created from a merger of two other companies in the natural gas and pipeline industries 2. Filed for bankruptcy in December 2001 3. Filed for bankruptcy in June 2002 4. Harry Markopolos 5. International postal reply coupons 6. John and Gus Rigas 7. Most business came from the financial division 8. One family received more than $2 billion in loans from the company 9. Perpetrator was turned in by his sons 10. Sentenced to five years in federal prison for mail fraud

1. C 2. C 3. B 4. D 5. A 6. B 7. C 8. B 9. D 10. A

Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics cases

69.

Bell suggested seven characteristics necessary to be considered a professional. Revise each statement below to more appropriately reflect one of those characteristics; indicate the relevant characteristic in the space provided.

Daryl tailored his presentation on pension accounting to his audience. Communicates effectively. Jack took courses in areas he had not previously studied. Actively seeks new knowledge. Opal followed her company code of ethics with respect to her co-worker. Exhibits ethical professional behavior. Marie stated it could potentially have a big impact. Recognizes the influence of [various] forces. Thomas calculated straight-line depreciation at $2000 per year. Appropriately uses technical knowledge.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-02 Explain how those characteristics apply to the accounting profession. Topic: Professionalism

70.

McDonald suggested four characteristics necessary to be considered a professional. Revise each statement below to more appropriately reflect one of those characteristics; indicate the relevant characteristic in the space provided.

a. Joey followed his company's standard audit practices. Specialized knowledge base. b. Nancy told a client that the salvage value could be set to zero. Complex skills. c. May explained that she could not guarantee a positive outcome for the audit. Autonomy of practice. d. He referred to the IMA Code of Ethics in resolving an ethical dilemma related to budgeting. Adherence to a code of ethical behavior.

Short Answer Questions

71.

List the four characteristics suggested by McDonald to be considered a professional.

Specialized knowledge base. Complex skills. Autonomy of practice. Adherence to a code of ethical behavior.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 16-01 List and discuss characteristics of a professional. Topic: Professionalism

72.

In your own words, explain the fundamental principles of each of the following schools of ethical thought: ethical egoism, utilitarianism, deontology, virtue ethics.

Ethical egoism puts the interest of the individual decision maker above all other considerations. Utilitarianism tries to create the greatest good for the greatest number of people. Deontology views ethics as universal moral standards, while virtue ethics focuses on the importance of being an ethical person.

AACSB: Ethics AICPA: BB Critical Thinking Blooms: Apply

Difficulty: 3 Hard Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics

73.

Miguel had just been promoted to Director of Accounts Receivable in the accounting department of TPC Corporation. His first responsibility was to develop and explain a better system for estimating and writing off bad debts. Without referring to the technical aspects of those tasks, discuss four things Miguel should do based on Bell's characteristics of a professional.

1. After developing the system, Miguel should communicate it appropriately based on the characteristics of his audience. 2. Miguel should consider the state of the economy and the relationship it may have to estimates of bad debts. 3. Miguel should ask employees in the marketing department about their sales techniques. 4. Miguel should use a generally accepted method for estimating bad debts.

74.

Taylor became aware of a serious ethical breach in her company related to a small group of managers recording sales revenue inappropriately. She called a meeting of all the managers in the company and told them to "confess or else." The managers, particularly those who had not committed any ethical breach, became very angry and the meeting ended in chaos. Analyze Taylor's actions. Suggest a better approach for dealing with the ethics issue in her company; ensure that your suggestions are clearly applied to Taylor's situation.

Taylor should follow an accepted model of making ethical decisions, such as the Langenderfer and Rockness model discussed in the chapter. (Students should lay out the steps and explain how each one applies to the case.)

AACSB: Ethics AICPA: FN Decision Making Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-05 Explain how to resolve ethical dilemmas. Topic: Ethics

75.

Taylor became aware of a serious ethical breach in her company related to a small group of managers recording sales revenue inappropriately. In interviewing those managers about the issue, Taylor asked each one why they had committed the ethical breach. Use two of the four schools of ethical thought discussed in the text to create brief responses the managers would have given Taylor. For each response, indicate the relevant school of ethical thought.

Ethical egoism: I always do what's best for me! Virtues: I'm a good person; I would never record sales revenue inappropriately.

Blooms: Apply Difficulty: 3 Hard Learning Objective: 16-04 Discuss various models/schools of ethical decision making. Topic: Ethics

Chapter 17 Auditing and Evaluating the AIS

Multiple Choice Questions

1. In ___, auditors examine a company's rules and procedures for conducting business.

A. A financial audit B. An operational audit C. A compliance audit D. A systems audit

2. A ___ determines whether the various forms of information technology in an accounting information system are producing expected results.

A. Financial audit B. Compliance audit C. Systems audit D. Forensic audit

3. Which type of audit is a "basket" of the other types?

A. Financial B. Operational C. International D. Management

4. An auditor is concerned that her company's purchasing process is not functioning as efficiently as possible. Which type of audit will best address her concern?

A. Financial B. Operational C. Management D. Purchasing

5. All of the following terms are associated with financial audit reports except:

A. Unmodified. B. Adverse. C. Truthful. D. Disclaimer.

6. Which of the following organizations is most likely to be subject to a compliance audit?

A. Yellow Pages Company B. City of Los Angeles C. Microsoft D. All of these are likely to be subject to a compliance audit.

7. The COSO enterprise risk management framework can be useful in:

A. Systems audits. B. Investigative audits. C. Both systems audits and investigative audits. D. Neither systems audits nor investigative audits.

8. An investigative auditor wanted to assess employees' motivation for committing fraud. Which of the following tools will be most beneficial to the auditor in that task?

A. Expectancy theory B. Capability maturity model C. Document analysis D. Management audit

9. The generic model of business process management discussed in the text is likely to be most useful in which type of audit?

A. Operational B. Financial C. Management D. Investigative

10. The text described seven types of audits common in accounting practice. Which of the following statements about them is most true?

A. Every audit involves some form of information technology. B. Most audits involve some form of human judgment. C. Both every audit involves some form of information technology and most audits involve some form of human judgment are true. D. Neither every audit involves some form of information technology nor most audits involve some form of human judgment is true.

11. A clear understanding of the steps in the accounting cycle is likely to be useful in:

A. Financial audits. B. Investigative audits. C. Both financial audits and investigative audits. D. Neither financial audits nor investigative audits.

12. The text described seven types of audits common in accounting practice. Which of the following statements about them is most true?

A. An adverse report in a financial statement audit is evidence that an investigative audit is needed. B. Expectancy theory can be useful in many types of audits. C. Both an adverse report in a financial statement audit is evidence that an investigative audit is needed and expectancy theory can be useful in many types of audits are true. D. Neither an adverse report in a financial statement audit is evidence that an investigative audit is needed nor expectancy theory can be useful in many types of audits is true.

13. A government accountant suspects someone within the government is embezzling cash. Which of the following statements is most true?

A. The government would not pass a compliance audit. B. An investigative audit will confirm the accountant's suspicion. C. Both the government would not pass a compliance audit and an investigative audit will confirm the accountant's suspicion are true. D. Neither the government would not pass a compliance audit nor an investigative audit will confirm the accountant's suspicion is true.

14. Generally accepted auditing standards are divided into three groups. All of the following are standards in the "general" group except:

A. Training B. Independence C. Professional care D. Internal control

15. Generally accepted auditing standards are divided into three groups. In which group would you find "internal control?"

A. General B. Field work C. Reporting D. None of these

16. Generally accepted auditing standards are divided into three groups. Which of the following is a standard in the "reporting" group?

A. Training B. Supervision C. Evidence D. Disclosure

17. Tim is the lead auditor on an engagement with WRT Corporation. Before starting the audit, Tim planned and reviewed the schedule with his audit team. Which of the following generally accepted audit standards did Tim uphold by planning?

A. Independence B. Professional care C. Supervision D. Disclosure

18. Which of the following generally accepted auditing standards suggests that an auditor should not have a financial interest in an audit client?

A. Professional care B. Disclosure C. Independence D. Some other standard

19. The terms "adverse" and "disclaimer" are most closely associated with which generally accepted auditing standard?

A. Reporting B. Opinion C. Disclosure D. Some other standard

20. Which of the following violates the generally accepted auditing standard indicated?

A. Opinion: Auditors issued an adverse report on financial statements. B. Consistency: An auditor explained inconsistencies between a client's application of GAAP over the last two years. C. Evidence: An auditor used last year's report as the only evidence for the current year's report. D. All of these violate the standards indicated.

21. Which of the following upholds at least one generally accepted auditing field work standard?

A. Using the COSO framework to evaluate internal controls. B. Allowing members of an audit team to choose their supervisor independently. C. Both using the COSO framework to evaluate internal controls and allowing members of an audit team to choose their supervisor independently. D. Neither using the COSO framework to evaluate internal controls nor allowing members of an audit team to choose their supervisor independently.

22. A systems flowchart could be helpful in fulfilling which generally accepted auditing standards?

A. Internal control B. Evidence C. Both internal control and evidence D. Neither internal control nor evidence

23. A company's business processes were at the managed level of the capability maturity model in 2011 and at the optimized level of the capability maturity model in 2012. Which of the following statements is most true?

A. Based on the generally accepted auditing standard of consistency, the auditors must disclose the change. B. The auditors must issue an unmodified report since the organization's processes are not chaotic. C. Both based on the generally accepted auditing standard of consistency, the auditors must disclose the change and the auditors must issue an unmodified report since the organization's processes are not chaotic are true. D. Neither based on the generally accepted auditing standard of consistency, the auditors must disclose the change nor the auditors must issue an unmodified report since the organization's processes are not chaotic is true.

24. Joe was a recent graduate of Big State University's accounting program. He was assigned to an audit team managed by Pam, a licensed CPA. Based on those two statements alone, which of the following is most true?

A. At least one of the "general" GAAS is upheld. B. At least one of the "field work" GAAS is upheld. C. Both at least one of the "general" GAAS is upheld and at least one of the "field work" GAAS is upheld are true. D. Neither at least one of the "general" GAAS is upheld nor at least one of the "field work" GAAS is upheld is true.

25. Pam is a licensed CPA; her husband, Greg, is a major shareholder in a corporation audited by Pam's firm. If Pam is involved in the audit of that firm:

A. She will likely be in violation of at least one of the "general" GAAS. B. She will likely be in violation of at least one of the "field work" GAAS. C. She will likely be in violation of at least one of the "reporting" GAAS. D. Its stock price will change due to the related party transaction.

26. In the first generic step of financial statement audits, the auditor should assess:

A. The internal control system. B. Management's integrity. C. Both the internal control system and management's integrity. D. Neither the internal control system nor management's integrity.

27. Following the model presented in the text, the second generic step in a financial statement audit is:

A. Assess management's integrity. B. Evaluate management's credentials. C. Review the internal control system. D. Uphold generally accepted auditing standards.

28. Which of the following generic steps in a financial statement audit should occur last?

A. Issue the audit report. B. Perform compliance testing. C. Review the internal control system. D. Evaluate management's credentials.

29. The third generic step in a financial statement audit could benefit from:

A. Interviews. B. Flowcharts. C. Both interviews and flowcharts. D. Neither interviews nor flowcharts.

30. An inexperienced auditor verified the computation of depreciation on a machine, but did not actually see the machine. The auditor's actions led to a weakness in the ___ generic step of a financial statement audit.

A. Second B. Third C. Fourth D. Fifth

31. In which generic step of a financial statement audit is the auditor most likely to verify the frequency of bank reconciliations?

A. First B. Second C. Third D. Fifth

32. The third generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A. General B. Field work C. Reporting D. Environmental

33. The last generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A. General B. Field work C. Reporting D. Documentation

34. Verifying the frequency of bank reconciliations and reconciling the latest bank statement are examples of actions an auditor might take in which generic steps of the financial statement audit process?

A. First and second B. Second and third C. Third and fourth D. Second and fourth

35. Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which statements relate to the second generic step in a financial statement audit?

A. TNL and OBP B. TNL and CPQ C. OBP and CPQ D. TNL, OBP and CPQ

36. Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which statements relate to the third generic step in a financial statement audit?

A. TNL and DKM B. TNL and CPQ C. DKM and CPQ D. TNL, DKM and CPQ

37. Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which corporation will require the least amount of compliance testing?

A. CPQ B. OBP C. Either TNL or DKM D. Cannot be determined from the information given

38. Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which corporation is most likely to receive an unmodified report on its financial statements?

A. TNL B. DKM C. Either CPQ or OBP D. Cannot be determined from the information given

39. Critical thinking is important in:

A. The design of accounting information systems. B. The implementation of accounting information systems. C. Auditing. D. All of these.

40. Internal controls:

A. Have four broad purposes. B. Are key elements of the third step in a financial statement audit. C. Both have four broad purposes and are key elements of the third step in a financial statement audit. D. Neither have four broad purposes nor are key elements of the third step in a financial statement audit.

41. Which of the following link accounting information systems with auditing?

A. Business processes B. Information technology skills C. Both business processes and information technology skills D. Neither business processes nor information technology skills

42. Information technology skills can link auditing to accounting information systems. Which of the following tasks can be completed using only information technology?

A. All five generic steps of a financial statement audit. B. All ten steps in the accounting cycle. C. Both all five generic steps of a financial statement audit and all ten steps in the accounting cycle. D. Neither all five generic steps of a financial statement audit nor all ten steps in the accounting cycle.

43. Understanding business processes can link auditing to accounting information systems. Which of the following can facilitate an understanding of business processes?

A. Flowcharts B. The capability maturity model C. Both flowcharts and the capability maturity model D. Neither flowcharts nor the capability maturity model

44. As a tool for understanding human behavior, expectancy theory can be useful in:

A. Accounting information systems. B. Auditing. C. Both accounting information systems and auditing. D. Neither accounting information systems nor auditing.

45. The principles of normalization can be useful in:

A. Designing an accounting information system. B. Completing a systems audit. C. Both designing an accounting information system and completing a systems audit. D. Neither designing an accounting information system nor completing a systems audit.

46. The generic steps associated with business process management can be useful in:

A. Strengthening internal controls in an accounting information system. B. An operational audit. C. Both strengthening internal controls in an accounting information system and an operational audit. D. Neither strengthening internal controls in an accounting information system nor an operational audit.

47. How does the FASB Conceptual Framework link accounting information systems with auditing?

A. Auditors must discuss whether the outputs of the AIS fulfill each of the qualitative characteristics in detail. B. Auditors prepare a report on some of the outputs of the AIS; those outputs contain the elements of financial statements from the conceptual framework. C. The purpose of accounting as stated in the conceptual framework is the same as the purpose of an AIS and the purpose of auditing. D. The conceptual framework does not link AIS with auditing.

48. A systems flowchart:

A. Can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit. B. Can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit. C. Both can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit and can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit. D. Neither can help an auditor understand an organization's business processes as part of the third generic step of a financial statement audit nor can help an auditor verify all five financial statement assertions as part of the fourth generic step of a financial statement audit.

49. As an input to the accounting information system, a properly completed sales invoice can help an auditor with which of the following financial statement assertions?

A. Existence or occurrence B. Completeness C. Both existence or occurrence and completeness D. Neither existence or occurrence nor completeness

50. As a processing tool in the AIS, general ledger software can be useful in:

A. A management audit. B. An investigative audit. C. Both a management audit and an investigative audit. D. Neither a management audit nor an investigative audit.

51. The Audit Clarity Project's objectives include:

A. making auditing standards easier to read. B. converging US auditing standards with international auditing standards. C. Both making auditing standards easier to read and converging US auditing standards with international auditing standards. D. Neither making auditing standards easier to read nor converging US auditing standards with international auditing standards.

52. All of the following are changes associated with the Audit Clarity Project except:

A. the audit report. B. terminology. C. format. D. ensuring that US standards are adopted worldwide.

53. In the Audit Clarity Project, the ___ explains when the standard applies in an audit engagement.

A. requirements section B. guidance and explanatory material C. introduction D. definitions

54. In the Audit Clarity Project, which section specifies what the auditor is trying to achieve in the audit with respect to a specific school of ethical thought?

A. introduction B. definitions C. objective D. none of these

55. In the Audit Clarity Project, requirements:

A. explain what the auditor needs to do to ensure an unmodified report is issued. B. can serve as a guide for designing specific financial statement audit procedures. C. Both explain what the auditor needs to do to ensure an unmodified report is issued and can serve as a guide for designing specific financial statement audit procedures. D. Neither explain what the auditor needs to do to ensure an unmodified report is issued nor can serve as a guide for designing specific financial statement audit procedures.

56. As the term is used in the Audit Clarity Project, "applicable financial reporting framework" can mean: (i) IFRS, (ii) COSO, (iii) US GAAP.

A. I and II only B. I and III only C. II and III only D. I, II and III

57. As specified by the Audit Clarity Project, when an audit wants to call attention to something in the financial statements, the report must include:

A. an emphasis-of-matter paragraph. B. an audit assertions paragraph. C. the relevant GAAS. D. references to appropriate professional codes of ethics.

58. As specified by the Audit Clarity Project, which element of the auditor's report must include the phrase "independent auditor's report?"

A. introductory paragraph B. auditor's opinion C. title D. some other section

59. As specified by the Audit Clarity Project, the introductory paragraph of an audit report must identify: (i) the organization, (ii) the financial statements audited, (iii) related information.

A. I and II only B. I and III only C. II and III only D. I, II and III

60. According to the Audit Clarity Project, the auditor's report must explain management's responsibilities for:

A. the board of directors and other parties. B. ensuring that the financial statements are fairly presented. C. financial statements and internal controls. D. paying the auditor when the engagement is finished.

Matching Questions

61. Match each description on the left with the appropriate type of audit on the right.

1. Determines whether the various forms of IT in an AIS are producing expected results

Operational audit ____ Investigative

2. A basket of the other types of audits

audit ____

3. Examination of a company's rules and procedures for conducting business

Systems audit ____

4. Associated with the broader field of

Compliance

forensic accounting 5. Determines the degree to which assumptions underlying decisions are valid

audit ____ International audit ____

6. Governmental and not-for-profit organizations are subject to this kind of audit

Management audit ____

7. Examination of a company's AIS and financial statements

Financial audit ____

Ranking Questions

62. Financial statement audits typically involve five generic steps. Number the steps below in the order of their occurrence based on the discussion in the chapter.

____ Review the internal control system. ____ Issue the audit report. ____ Assess management's integrity. ____ Perform compliance testing. ____ Evaluate management's credentials.

Essay Questions

63. Which generally accepted auditing standard is indicated by each independent item below? Use each standard exactly one time. 1) Charlie, the manager of an audit team, reviewed the work of inexperienced auditors closely. 2) Jill refused to accept an audit engagement because her friend was CEO of the company. 3) Leigh completed a risk/control matrix as part of an audit. 4) Leo prepared a disclaimer of report on an audit client's financial statements. 5) Marsha reviewed the background and experience of auditors in her firm as part of developing an audit team. 6) Nolan determined that a client's financial statements were fairly presented in accordance with GAAP. 7) Patricia noted that footnotes to the financial statements needed some improvement. 8) Renee explained a change between the applications of GAAP in two successive years. 9) Rich e-mailed an audit client's vendors to help determine the client's accounts payable balances. 10) Sally completed a continuing education program on auditing mortgage companies.

64. The chapter identified four links between AIS and auditing. Which link is indicated by each independent description below? 1) Alex prepared a bond discount amortization schedule using Excel. 2) Amy verified an audit client's process for validating XBRL taxonomy extensions. 3) Joan reviewed the previous year's risk/control matrix when starting an audit. 4) Josef estimated the useful life of equipment for calculating depreciation. 5) Mark debated which systems development methodology to use in developing an AIS. 6) Members of an audit team discussed a client's business processes in terms of the capability maturity model. 7) Nancy used relational database software to sample transactions for an audit. 8) Omar prepared a PowerPoint presentation summarizing the results of an audit. 9) Paul asked employees of an audit client about management's attitude on various topics. 10) Will explained the five-part COSO framework to an audit client.

65. Each numbered item below indicates one action an auditor might take as part of a financial statement audit. Which of the two lettered alternatives would be the immediate next step based on the five generic financial statement audit steps presented in the text? 1) Ask employees about the ethical tone management sets in the organization. a. Prepare a risk/control matrix. b. Examine the CEO's resume. 2) Discuss the educational background of each member of the upper management team. a. Outline the client's risk exposures. b. Verify balances in accounts receivable. 3) Determine if adequate separation of duties exists. a. Prepare a systems flowchart of the sales/collection process. b. Compute depreciation on plant assets. 4) Choose transactions to verify as part of the audit. a. Question management about their knowledge of COSO models. b. Issue an audit report. 5) Examine a systems flowchart to determine who reconciles the bank statement. a. Verify that business processes are adequately documented. b. Reconcile the latest bank statement.

66. Consider the audit descriptions and types paired below. Indicate with an X in the appropriate column whether the audit described is paired with the appropriate type.

67. Analyze each statement below about the relationships between AIS and auditing. Indicate whether each statement is: (a) always true, (b) sometimes true or (c) never true. 1) Flowcharts are the most useful form of systems documentation in a financial statement audit. 2) Strong information technology skills are essential in every type of audit. 3) A management audit requires more critical thinking skills than an investigative audit. 4) Knowledge of internal controls can be important in many different types of audits. 5) Because compliance audits are devoid of judgment, auditors do not need to understand the organizational environment in a government organization.

68. Consider the statements presented below. Choose those that would happen as part of a financial statement audit, then put them in the proper order based on the steps presented in the text. a. Check access to sensitive information and other assets. b. Consult GAO standards. c. Convert financial statements to XBRL. d. Evaluate the organization's control environment. e. Interview the CFO as a corroborative witness. f. Make recommendations for improving business processes. g. Prepare an unmodified report. h. Review management's resumes. i. Translate financial statements from German to English. j. Verify the existence of inventory and plant assets.

69. Consider the independent statements below. Organize them in three groups based on the generally accepted auditing standards discussed in the text; also indicate the name of each group based on the standards. 1) Bradley completed a continuing education program on auditing mortgage companies. 2) Cameron completed a risk/control matrix as part of an audit. 3) Elijah determined that a client's financial statements were fairly presented in accordance with GAAP. 4) Elizabeth noted that footnotes to the financial statements needed some improvement. 5) Jessica reviewed the background and experience of auditors in her firm as part of developing an audit team. 6) Luke refused to accept an audit engagement because his friend was CEO of the company. 7) Milton e-mailed an audit client's vendors to help determine the client's accounts payable balances. 8) Owen, the manager of an audit team, reviewed the work of inexperienced auditors closely. 9) Ryan prepared a disclaimer of report on an audit client's financial statements. 10) Sandra explained a change between the applications of GAAP in two successive years.

70. Revise each statement below so that it more clearly upholds the indicated generally accepted auditing standard. 1) Training: Alexis completed an online course on professional etiquette. 2) Evidence: Allison checked the employment references of an audit client's CEO as part of evaluating the CEO's credentials. 3) Report: Ann used her own words to express a report on the truth of an audit client's financial statements. 4) Independence: Blaine accepted an audit engagement with a firm owned by his mother-inlaw. 5) Professional care: Brent randomly selected auditors in his firm as part of developing an audit team. 6) Internal control: Crystal used expectancy theory to assess internal control as part of an audit. 7) Supervision: Lindsay, the manager of an audit team, scrutinized the work of all auditors on her team equally, regardless of their experience or the tasks they were completing. 8) Consistency: Louis explained a change between the applications of GAAP in 2008 and 2011. 9) Disclosure: Nicole personally prepared the footnotes for an audit client's financial statements to ensure all disclosures were properly done. 10) GAAP: Ralph determined that a client's financial statements were truthfully and accurately presented in accordance with generally accepted auditing standards.

Short Answer Questions

71. List five kinds of audits you are likely to encounter in your professional career.

72. In your own words, explain the ten generally accepted auditing standards discussed in the text.

73. The chapter described five generic steps in a financial statement audit; it also discussed six other types of audits you may encounter in your professional career. Consider the operational audit. Based on its broad purpose and objectives, explain how you would modify the five generic financial statement audit steps for the audit type you choose.

74. The chapter identified seven types of audits you are likely to encounter in your career. Identify and discuss two similarities and two differences between investigative audits and financial audits.

75. The text identified four areas that link AIS with auditing: critical thinking, internal control, business processes and information technology. Consider topics you have studied this term other than those four; choose one, and explain how it connects AIS with auditing.

Chapter 17 Auditing and Evaluating the AIS Answer Key

Multiple Choice Questions

In ___, auditors examine a company's rules and procedures for conducting business.

A. A financial audit B. An operational audit C. A compliance audit D. A systems audit

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

A ___ determines whether the various forms of information technology in an accounting information system are producing expected results.

A. Financial audit B. Compliance audit C. Systems audit D. Forensic audit

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation 17-35 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

Which type of audit is a "basket" of the other types?

A. Financial B. Operational C. International D. Management

An auditor is concerned that her company's purchasing process is not functioning as efficiently as possible. Which type of audit will best address her concern?

A. Financial B. Operational C. Management D. Purchasing

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

All of the following terms are associated with financial audit reports except:

A. Unmodified. B. Adverse. C. Truthful. D. Disclaimer.

Which of the following organizations is most likely to be subject to a compliance audit?

A. Yellow Pages Company B. City of Los Angeles C. Microsoft D. All of these are likely to be subject to a compliance audit.

The COSO enterprise risk management framework can be useful in:

A. Systems audits. B. Investigative audits. C. Both systems audits and investigative audits. D. Neither systems audits nor investigative audits.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Types of audits

An investigative auditor wanted to assess employees' motivation for committing fraud. Which of the following tools will be most beneficial to the auditor in that task?

A. Expectancy theory B. Capability maturity model C. Document analysis D. Management audit

AACSB: Analytical Thinking AICPA: BB Resource Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing

The generic model of business process management discussed in the text is likely to be most useful in which type of audit?

A. Operational B. Financial C. Management D. Investigative

10.

The text described seven types of audits common in accounting practice. Which of the following statements about them is most true?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

11.

A clear understanding of the steps in the accounting cycle is likely to be useful in:

A. Financial audits. B. Investigative audits. C. Both financial audits and investigative audits. D. Neither financial audits nor investigative audits.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing

12.

The text described seven types of audits common in accounting practice. Which of the following statements about them is most true?

13.

A government accountant suspects someone within the government is embezzling cash. Which of the following statements is most true?

14.

Generally accepted auditing standards are divided into three groups. All of the following are standards in the "general" group except:

A. Training B. Independence C. Professional care D. Internal control

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

15.

Generally accepted auditing standards are divided into three groups. In which group would you find "internal control?"

A. General B. Field work C. Reporting D. None of these

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

16.

Generally accepted auditing standards are divided into three groups. Which of the following is a standard in the "reporting" group?

A. Training B. Supervision C. Evidence D. Disclosure

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember

Difficulty: 1 Easy Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

17.

Tim is the lead auditor on an engagement with WRT Corporation. Before starting the audit, Tim planned and reviewed the schedule with his audit team. Which of the following generally accepted audit standards did Tim uphold by planning?

A. Independence B. Professional care C. Supervision D. Disclosure

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

18.

Which of the following generally accepted auditing standards suggests that an auditor should not have a financial interest in an audit client?

A. Professional care B. Disclosure C. Independence D. Some other standard

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand 17-43 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

19.

The terms "adverse" and "disclaimer" are most closely associated with which generally accepted auditing standard?

A. Reporting B. Opinion C. Disclosure D. Some other standard "Reporting" is not one of the standards.

20.

Which of the following violates the generally accepted auditing standard indicated?

AACSB: Analytical Thinking

AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

21.

Which of the following upholds at least one generally accepted auditing field work standard?

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

22.

A systems flowchart could be helpful in fulfilling which generally accepted auditing standards?

A. Internal control B. Evidence C. Both internal control and evidence D. Neither internal control nor evidence

23.

A company's business processes were at the managed level of the capability maturity model in 2011 and at the optimized level of the capability maturity model in 2012. Which of the following statements is most true?

24.

Joe was a recent graduate of Big State University's accounting program. He was assigned to an audit team managed by Pam, a licensed CPA. Based on those two statements alone, which of the following is most true?

25.

Pam is a licensed CPA; her husband, Greg, is a major shareholder in a corporation audited by Pam's firm. If Pam is involved in the audit of that firm:

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

26.

In the first generic step of financial statement audits, the auditor should assess:

A. The internal control system. B. Management's integrity. C. Both the internal control system and management's integrity. D. Neither the internal control system nor management's integrity.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

27.

Following the model presented in the text, the second generic step in a financial statement audit is:

A. Assess management's integrity. B. Evaluate management's credentials. C. Review the internal control system. D. Uphold generally accepted auditing standards.

Topic: Generic audit steps

28.

Which of the following generic steps in a financial statement audit should occur last?

A. Issue the audit report. B. Perform compliance testing. C. Review the internal control system. D. Evaluate management's credentials.

29.

The third generic step in a financial statement audit could benefit from:

A. Interviews. B. Flowcharts. C. Both interviews and flowcharts. D. Neither interviews nor flowcharts.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

30.

An inexperienced auditor verified the computation of depreciation on a machine, but did not actually see the machine. The auditor's actions led to a weakness in the ___ generic step of a financial statement audit.

A. Second B. Third C. Fourth D. Fifth

31.

In which generic step of a financial statement audit is the auditor most likely to verify the frequency of bank reconciliations?

A. First B. Second C. Third D. Fifth

32.

The third generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A. General B. Field work C. Reporting D. Environmental

33.

The last generic step in a financial statement audit has the strongest relationship to one of the ___ standards in GAAS.

A. General B. Field work C. Reporting D. Documentation

34.

Verifying the frequency of bank reconciliations and reconciling the latest bank statement are examples of actions an auditor might take in which generic steps of the financial statement audit process?

A. First and second B. Second and third C. Third and fourth D. Second and fourth

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

35.

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which statements relate to the second generic step in a financial statement audit?

A. TNL and OBP B. TNL and CPQ C. OBP and CPQ D. TNL, OBP and CPQ

AACSB: Analytical Thinking AICPA: FN Reporting

Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

36.

A. TNL and DKM B. TNL and CPQ C. DKM and CPQ D. TNL, DKM and CPQ

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

37.

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which corporation will require the least amount of compliance testing?

A. CPQ B. OBP C. Either TNL or DKM D. Cannot be determined from the information given

38.

Consider the statements below as you answer the question: • The chief financial officer of TNL Corporation is a certified public accountant. • OBP Corporation's internal audit manager is a certified fraud examiner. • CPQ Corporation maintains a set of systems flowcharts that describe current business processes. • DKM Corporation encrypts all data transmitted over its wireless network. Which corporation is most likely to receive an unmodified report on its financial statements?

A. TNL B. DKM C. Either CPQ or OBP D. Cannot be determined from the information given

39.

Critical thinking is important in:

A. The design of accounting information systems. B. The implementation of accounting information systems. C. Auditing. D. All of these.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing

40.

Internal controls:

41.

Which of the following link accounting information systems with auditing?

A. Business processes B. Information technology skills C. Both business processes and information technology skills D. Neither business processes nor information technology skills

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-05 Explain the connection between auditing and accounting information systems.

Topic: Accounting information systems and auditing

42.

Information technology skills can link auditing to accounting information systems. Which of the following tasks can be completed using only information technology?

43.

Understanding business processes can link auditing to accounting information systems. Which of the following can facilitate an understanding of business processes?

A. Flowcharts B. The capability maturity model C. Both flowcharts and the capability maturity model D. Neither flowcharts nor the capability maturity model

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing 17-58 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

44.

As a tool for understanding human behavior, expectancy theory can be useful in:

A. Accounting information systems. B. Auditing. C. Both accounting information systems and auditing. D. Neither accounting information systems nor auditing.

45.

The principles of normalization can be useful in:

46.

The generic steps associated with business process management can be useful in:

47.

How does the FASB Conceptual Framework link accounting information systems with auditing?

AACSB: Analytical Thinking AICPA: BB Critical Thinking Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-05 Explain the connection between auditing and accounting information systems.

Topic: Accounting information systems and auditing

48.

A systems flowchart:

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing

49.

As an input to the accounting information system, a properly completed sales invoice can help an auditor with which of the following financial statement assertions?

A. Existence or occurrence B. Completeness C. Both existence or occurrence and completeness D. Neither existence or occurrence nor completeness

50.

As a processing tool in the AIS, general ledger software can be useful in:

A. A management audit. B. An investigative audit. C. Both a management audit and an investigative audit. D. Neither a management audit nor an investigative audit.

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

51.

The Audit Clarity Project's objectives include:

AACSB: Analytical Thinking AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-02 Explain the purpose of the Audit Clarity Project and summarize its essential components. Topic: Audit clarity project

52.

All of the following are changes associated with the Audit Clarity Project except:

A. the audit report. B. terminology. C. format. D. ensuring that US standards are adopted worldwide.

53.

In the Audit Clarity Project, the ___ explains when the standard applies in an audit engagement.

A. requirements section B. guidance and explanatory material C. introduction D. definitions

54.

In the Audit Clarity Project, which section specifies what the auditor is trying to achieve in the audit with respect to a specific school of ethical thought?

A. introduction B. definitions C. objective D. none of these

55.

In the Audit Clarity Project, requirements:

56.

As the term is used in the Audit Clarity Project, "applicable financial reporting framework" can mean: (i) IFRS, (ii) COSO, (iii) US GAAP.

A. I and II only B. I and III only C. II and III only D. I, II and III

57.

As specified by the Audit Clarity Project, when an audit wants to call attention to something in the financial statements, the report must include:

A. an emphasis-of-matter paragraph. B. an audit assertions paragraph. C. the relevant GAAS. D. references to appropriate professional codes of ethics.

58.

As specified by the Audit Clarity Project, which element of the auditor's report must include the phrase "independent auditor's report?"

A. introductory paragraph B. auditor's opinion C. title D. some other section

59.

As specified by the Audit Clarity Project, the introductory paragraph of an audit report must identify: (i) the organization, (ii) the financial statements audited, (iii) related information.

A. I and II only B. I and III only C. II and III only D. I, II and III

60.

According to the Audit Clarity Project, the auditor's report must explain management's responsibilities for:

Matching Questions

61.

Match each description on the left with the appropriate type of audit on the right.

1. Determines whether the various forms of IT in an AIS are producing expected results

Operational audit 3 Investigative

2. A basket of the other types of audits

audit 4

3. Examination of a company's rules and procedures for conducting business

Systems audit 1

4. Associated with the broader field of

Compliance

forensic accounting 5. Determines the degree to which assumptions underlying decisions are valid

audit 6 International audit 2

6. Governmental and not-for-profit organizations are subject to this kind of audit

Management audit 5

7. Examination of a company's AIS and financial statements

Financial audit 7

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

Ranking Questions

62.

Financial statement audits typically involve five generic steps. Number the steps below in the order of their occurrence based on the discussion in the chapter.

3 Review the internal control system. 4 Issue the audit report. 2 Assess management's integrity. 5 Perform compliance testing. 1 Evaluate management's credentials.

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Remember Difficulty: 1 Easy Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

Essay Questions

63.

Which generally accepted auditing standard is indicated by each independent item below? Use each standard exactly one time. 1) Charlie, the manager of an audit team, reviewed the work of inexperienced auditors closely. 2) Jill refused to accept an audit engagement because her friend was CEO of the company. 3) Leigh completed a risk/control matrix as part of an audit. 4) Leo prepared a disclaimer of report on an audit client's financial statements. 5) Marsha reviewed the background and experience of auditors in her firm as part of developing an audit team. 6) Nolan determined that a client's financial statements were fairly presented in accordance with GAAP. 7) Patricia noted that footnotes to the financial statements needed some improvement. 8) Renee explained a change between the applications of GAAP in two successive years. 9) Rich e-mailed an audit client's vendors to help determine the client's accounts payable balances. 10) Sally completed a continuing education program on auditing mortgage companies.

1) supervision 2) independence 3) internal control 4) opinion 5) professional care 6) GAAP 7) disclosure 8) consistency 9) evidence 10) training

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Analyze

Difficulty: 3 Hard Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

64.

The chapter identified four links between AIS and auditing. Which link is indicated by each independent description below? 1) Alex prepared a bond discount amortization schedule using Excel. 2) Amy verified an audit client's process for validating XBRL taxonomy extensions. 3) Joan reviewed the previous year's risk/control matrix when starting an audit. 4) Josef estimated the useful life of equipment for calculating depreciation. 5) Mark debated which systems development methodology to use in developing an AIS. 6) Members of an audit team discussed a client's business processes in terms of the capability maturity model. 7) Nancy used relational database software to sample transactions for an audit. 8) Omar prepared a PowerPoint presentation summarizing the results of an audit. 9) Paul asked employees of an audit client about management's attitude on various topics. 10) Will explained the five-part COSO framework to an audit client.

Critical thinking: 4, 5, 9 Internal controls: 2, 3, 10 Business processes: 6 Information technology: 1, 7, 8

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing

65.

Each numbered item below indicates one action an auditor might take as part of a financial statement audit. Which of the two lettered alternatives would be the immediate next step based on the five generic financial statement audit steps presented in the text? 1) Ask employees about the ethical tone management sets in the organization. a. Prepare a risk/control matrix. b. Examine the CEO's resume. 2) Discuss the educational background of each member of the upper management team. a. Outline the client's risk exposures. b. Verify balances in accounts receivable. 3) Determine if adequate separation of duties exists. a. Prepare a systems flowchart of the sales/collection process. b. Compute depreciation on plant assets. 4) Choose transactions to verify as part of the audit. a. Question management about their knowledge of COSO models. b. Issue an audit report. 5) Examine a systems flowchart to determine who reconciles the bank statement. a. Verify that business processes are adequately documented. b. Reconcile the latest bank statement.

1) B 2) A 3) B 4) B 5) B

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Generic audit steps

66.

Consider the audit descriptions and types paired below. Indicate with an X in the appropriate column whether the audit described is paired with the appropriate type.

a. not appropriate (should be a compliance audit) b. not appropriate (should be an investigative audit) c. appropriate d. appropriate e. appropriate

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

67.

Analyze each statement below about the relationships between AIS and auditing. Indicate whether each statement is: (a) always true, (b) sometimes true or (c) never true. 1) Flowcharts are the most useful form of systems documentation in a financial statement audit. 2) Strong information technology skills are essential in every type of audit. 3) A management audit requires more critical thinking skills than an investigative audit. 4) Knowledge of internal controls can be important in many different types of audits. 5) Because compliance audits are devoid of judgment, auditors do not need to understand the organizational environment in a government organization.

1) B 2) C 3) B 4) A 5) C

68.

Consider the statements presented below. Choose those that would happen as part of a financial statement audit, then put them in the proper order based on the steps presented in the text. a. Check access to sensitive information and other assets. b. Consult GAO standards. c. Convert financial statements to XBRL. d. Evaluate the organization's control environment. e. Interview the CFO as a corroborative witness. f. Make recommendations for improving business processes. g. Prepare an unmodified report. h. Review management's resumes. i. Translate financial statements from German to English. j. Verify the existence of inventory and plant assets.

1. D 2. H 3. A 4. J 5. G

69.

Consider the independent statements below. Organize them in three groups based on the generally accepted auditing standards discussed in the text; also indicate the name of each group based on the standards. 1) Bradley completed a continuing education program on auditing mortgage companies. 2) Cameron completed a risk/control matrix as part of an audit. 3) Elijah determined that a client's financial statements were fairly presented in accordance with GAAP. 4) Elizabeth noted that footnotes to the financial statements needed some improvement. 5) Jessica reviewed the background and experience of auditors in her firm as part of developing an audit team. 6) Luke refused to accept an audit engagement because his friend was CEO of the company. 7) Milton e-mailed an audit client's vendors to help determine the client's accounts payable balances. 8) Owen, the manager of an audit team, reviewed the work of inexperienced auditors closely. 9) Ryan prepared a disclaimer of report on an audit client's financial statements. 10) Sandra explained a change between the applications of GAAP in two successive years.

General: 1 (training), 5 (professional care), 6 (independence) Field work: 2 (internal control), 7 (evidence), 8 (supervision) Reporting: 3 (GAAP), 4 (disclosure), 9 (opinion), 10 (consistency)

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

70.

Revise each statement below so that it more clearly upholds the indicated generally accepted auditing standard. 1) Training: Alexis completed an online course on professional etiquette. 2) Evidence: Allison checked the employment references of an audit client's CEO as part of evaluating the CEO's credentials. 3) Report: Ann used her own words to express a report on the truth of an audit client's financial statements. 4) Independence: Blaine accepted an audit engagement with a firm owned by his motherin-law. 5) Professional care: Brent randomly selected auditors in his firm as part of developing an audit team. 6) Internal control: Crystal used expectancy theory to assess internal control as part of an audit. 7) Supervision: Lindsay, the manager of an audit team, scrutinized the work of all auditors on her team equally, regardless of their experience or the tasks they were completing. 8) Consistency: Louis explained a change between the applications of GAAP in 2008 and 2011. 9) Disclosure: Nicole personally prepared the footnotes for an audit client's financial statements to ensure all disclosures were properly done. 10) GAAP: Ralph determined that a client's financial statements were truthfully and accurately presented in accordance with generally accepted auditing standards.

1) Alexis completed an online course about auditing cash. 2) Allison verified the legitimacy of source documents and account balances as part of performing compliance testing. 3) Ann used standardized language to prepare her report. 4) Blaine declined an audit engagement with a firm owned by his mother-in-law. 5) Brent carefully selected auditors in his firm as part of developing an audit team. 6) Crystal used the COSO framework to assess internal control as part of an audit. 7) Lindsay scrutinized the work of less experienced auditors more carefully than the work of more experienced auditors.

8) Louis explained a change in the application of GAAP between 2010 and 2011. 9) Nicole modeled the current year's disclosures off the previous year's disclosures. 10) Ralph determined that a client's financial statements were fairly presented in accordance with GAAP.

Short Answer Questions

71.

List five kinds of audits you are likely to encounter in your professional career.

Any five of the following: Financial, Operational, Systems, Compliance, Management, Investigative, International

72.

In your own words, explain the ten generally accepted auditing standards discussed in the text.

The ten GAAS are divided into three major groups. The general standards explain that auditors must be adequately trained in auditing, that they must remain independent from their clients in attitude and in fact, and that they must exercise appropriate care in assembling an audit team. The field work standards discuss the necessity of appropriate supervision during the audit, the need to analyze internal controls and the need to compile evidence as the basis for the audit report. The reporting standards discuss the need to apply GAAP, the need to explain any changes in the application of GAAP between years, the need to disclose all necessary material and the need to express an opinion on the statements.

AACSB: Analytical Thinking AICPA: FN Reporting Blooms: Understand Difficulty: 2 Medium Learning Objective: 17-03 Explain 10 generally accepted auditing standards (GAAS) and their role in a financial statement audit. Topic: Generally accepted auditing standards

73.

The chapter described five generic steps in a financial statement audit; it also discussed six other types of audits you may encounter in your professional career. Consider the operational audit. Based on its broad purpose and objectives, explain how you would modify the five generic financial statement audit steps for the audit type you choose.

Assessing management's integrity would still be an important first step; if management lacks integrity, business processes may need closer examination. In addition to reviewing management's credentials, an operational audit may require the auditor to review employees' credentials as well. Third, the operational auditor would need to review all aspects of the business processes—including, but not limited to, internal control. The nature and purpose of compliance testing would be different for an operational audit, focusing not on account balances and the traditional assertions, but on how closely employees follow the business process as designed. Finally, the audit report would not necessarily use any kind of standardized language, but would be tailored to the individual case.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-04 Discuss the basic steps associated with a financial statement audit. Topic: Types of audits

74.

The chapter identified seven types of audits you are likely to encounter in your career. Identify and discuss two similarities and two differences between investigative audits and financial audits.

Similarities: Both audits would require a review of internal controls; both types would require examining evidence in the form of documents, interviews and others. Differences: The goal of a financial audit is to express an opinion on the client's financial statements; the goal of an investigative audit is to determine the likelihood that fraud has occurred.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard Learning Objective: 17-01 Describe the various kinds of audits you might encounter in your accounting career. Topic: Types of audits

75.

The text identified four areas that link AIS with auditing: critical thinking, internal control, business processes and information technology. Consider topics you have studied this term other than those four; choose one, and explain how it connects AIS with auditing.

Systems documentation, particularly flowcharts, are useful in both AIS and auditing. In both cases, a flowchart can be used to help an accounting professional understand a business process.

AACSB: Analytical Thinking AICPA: BB Critical Thinking Blooms: Analyze Difficulty: 3 Hard 17-81 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 17-05 Explain the connection between auditing and accounting information systems. Topic: Accounting information systems and auditing