ACCOUNTING INFORMATION SYSTEMS 14TH EDITION (GLOBAL EDITION) BY MARSHALL ROMNEY, PAUL STEINBART TES by QuentinAxel

ACCOUNTI NG INFORMATION SYSTEMS 14TH EDITION (GLOBAL EDITION) BY MARSHALL ROMNEY, PAUL STEINBART TEST BANK Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 1 Conceptual Foundations of Accounting Information Systems 1 Distinguish data from information, discuss the characteristics of useful information, and explain how to determine the value of information. 1) Which of the following statements below shows the contrast between data and information? A) Data is the primary output of an accounting information system. B) Information is the primary output of an accounting information system. C) Data is more useful in decision making than information. D) Data and information are the same. Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) When a subsystem's goals are inconsistent with the goals of another subsystem or with the system as a whole, it creates A) system inconsistence. B) system conflict. C) goal inconsistence. D) goal conflict. Answer: D Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) When a subsystem achieves its goals while contributing to the organization's overall goal, it is called A) system match. B) system congruence. C) goal congruence. D) goal match. Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) Information is best described as A) raw facts about transactions. B) data that has been organized and processed so that it is meaningful to the user. C) facts that are useful when processed in a timely manner. D) the same thing as data. Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) The value of information can best be determined by A) its usefulness to decision makers. B) its relevance to decision makers. C) the benefits associated with obtaining the information minus the cost of producing it. D) the extent to which it optimizes the value chain. Answer: C Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) An accounting information system (AIS) processes A) data; information B) data; transactions C) information; data D) data; benefits Answer: A Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

to provide users with

7) information reduces uncertainty, improves decision makers' ability to make predictions, or confirms expectations. A) Timely B) Reliable C) Relevant D) Complete Answer: C Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

8) Information that is free from error or bias and accurately represents the events or activities of the organization is A) relevant. B) reliable. C) verifiable. D) timely. Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) Information that does not omit important aspects of the underlying events or activities that it measures is A) complete. B) accessible. C) relevant. D) timely. Answer: A Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 10) Information is when two knowledgeable people independently produce the same information. A) verifiable B) relevant C) reliable D) complete Answer: A Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

11) Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the characteristic of A) relevancy. B) timeliness. C) understandability. D) reliability. Answer: D Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If information can help reduce uncertainty, improves decision making, or confirms or corrects prior expectations, it is representative of the characteristic of A) reliability. B) relevance. C) complete. D) truthful. Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of A) reliability. B) relevance. C) verifiability. D) truthful. Answer: C Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

14) Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the information is free from error or bias, it is representative of the characteristic of A) reliability. B) relevance. C) verifiability. D) truthful. Answer: A Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 15) Inventory information for Sun Corp. is provided in real time by a firm's accounting information system. However, the accuracy of this information is questionable. Many store managers often report stock outs of components that the system indicates are in stock. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

16) Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: F Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to obtain the firm's financial statements that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are not able to complete the audit. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: G Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

18) In 2015, Singh Manufacturing implemented a Web-based information system that allows all employees to access mission-critical information. The intention was to increase production efficiency. Unfortunately, it had the opposite effect, as deliveries fell behind schedule and costs increased. Shaman Gupta, the director of information technology services, asked Ashlee Wells to come in and talk with him about the system. Ashlee is a long-time employee of Singh, and her opinion is valued by her peers and by her supervisor. "So Ashlee, how's it going down there in the shop?" "Not so good, Shaman. Used to be we got a weekly pick list so we knew how to plan production. Now, we got that computer system. Most of us can't figure out how to use it to do our jobs. Is there some way to print out a pick list?" Shaman thought for a while before responding. "Well, Ashlee, to tell you the truth, I'm not so sure how to do it myself, but there must be a way. We'll bring in the consultants that helped us build the system. Maybe they can help." Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: E Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

19) In 2015, Singh Manufacturing implemented a Web-based information system that allows all employees to access mission-critical information. The intention was to increase production efficiency. Unfortunately, it had the opposite effect, as deliveries fell behind schedule and costs increased. Shaman Gupta, the director of information technology services, asked Ashlee Wells to come in and talk with him about the system. Ashlee is a long-time employee of Singh, and her opinion is valued by her peers and by her supervisor. "So Ashlee, how's it going down there in the shop?" "Not so good, Shaman. Used to be we got a weekly pick list so we knew how to plan production. Now, we got that computer system. Most of the time we can't get all of the information that we need. Is there some way to print out a list that has everything that we need?" Shaman thought for a while before responding. "Well, Ashlee, to tell you the truth, I'm not so sure how to do it myself, but there must be a way. We'll bring in the consultants that helped us build the system. Maybe they can help." Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: C Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

20) Wisconsin Dells, Wisconsin, is a popular tourist destination. During the winter months, the population dwindles to a meager few, but when summer comes, the size of the town surges. Hunter Jackson is the town sanitation engineer. When the size of the town surges, so do his responsibilities. Among them is management of the sewage processing volume. In an interview with the local paper, Hunter complained that a report on tourist population that he uses to adjust processing volume refers to data that was collected four days ago and it takes him a week to make adjustments. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: D Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 21) Wisconsin Dells, Wisconsin, is a popular tourist destination. During the winter months, the population dwindles to a meager few, but when summer comes, the size of the town surges. Hunter Jackson is the town sanitation engineer. When the size of the town surges, so do his responsibilities. Among them is management of the sewage processing volume. In an interview with the local paper, Hunter complained that a report on tourist population that he uses to adjust processing volume refers to data that was not always accurate and it is really giving him a hard time to make adjustments. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: B Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

22) A frantic Barney Rubble lost a large sale because he could not access the system to verify the inventory was in stock and ready to be shipped. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: G Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) Message left on voicemail: "Hi Nikki! Just landed at the airport. How about dinner this evening if you're available. Call me!" Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely E) understandable F) verifiable G) accessible Answer: C Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

24) Chopra, Limited, is an Indian company operating in New York state. It offers stylized, boutique public relations services to upscale retailers in quaint New England towns. A major source of revenue is a weekly newsletter that reports on current and projected tourist travel and spending patterns. Preparation of the newsletter requires study and analysis of weather conditions, economic activity, and travel costs. It is available at an annual subscription rate of $299.99. There are currently 190 subscribers. Preparation and distribution of the newsletter costs $12,000 annually. The value of information to subscribers is A) $236.83. B) $44,998.10. C) less than $63.16. D) at least $300.00. Answer: D Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge 25) Chopra, Limited, is an Indian company operating in New York state. It offers stylized, boutique public relations services to upscale retailers in quaint New England towns. A major source of revenue is a weekly newsletter that reports on current and projected tourist travel and spending patterns. Preparation of the newsletter requires study and analysis of weather conditions, economic activity, and travel costs. It is available at an annual subscription rate of $299.99. There are currently 190 subscribers. Preparation and distribution of the newsletter costs $12,000 annually. Chopra has always been able to manage to keep its newsletter operation above their breakeven point. The value of information to Chopra is A) $236.83. B) $44,998.10. C) less than $63.16. D) at least $12,000. Answer: D Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Moderate AACSB: Application of Knowledge

26) Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in A) goal conflict. B) information overload. C) goal congruence. D) decreased value of information. Answer: A Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Challenging AACSB: Application of Knowledge 27) Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 10%, the product innovation is expected to generate ROI of 15%. As a result, awarding bonuses to employees based on ROI resulted in A) goal conflict. B) information overload. C) goal congruence. D) decreased value of information. Answer: C Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Challenging AACSB: Application of Knowledge 28) Which of the following tradeoffs between characteristics of useful information is least objectionable? A) incomplete information received on a timely basis B) irrelevant information received in an understandable format C) unreliable information easily accessible D) verifiable information received in unreadable format Answer: A Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

29) Which of the following is not one of the three basic types of data about a specific sales transaction that should be captured by an Accounting Information System? A) name of the employee who completed the sale B) daily sales quota C) product sold D) date Answer: B Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 30) Define the concept of a system. Answer: A system is a set of two or more components that are somehow interrelated and interact together to achieve a specific goal. Concept: The concept of information Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 31) Define data, information, and how the value of information is determined. Answer: Data: facts that are collected, entered, recorded, stored, and processed by an AIS. Information: data that has been organized and processed and is meaningful to its users. Such information is accessible, relevant, timely, reliable, verifiable, complete, and understandable. Information is of value when the benefits received from using or acting upon it outweigh the cost to produce the information. Concept: Information needs and business processes Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 32) Discuss the concept of a system and the issues of goal conflict and goal congruence. Answer: A system is a set of two or more components that are somehow interrelated and interact together to achieve a specific goal. A system usually consists of smaller components called subsystems. These subsystems have specific and defined functions, which interact with and support the larger system. The concept of systems is key to information technology and AIS. All systems, including the AIS, must work to achieve one or more organizational goals. Goal conflict results when a decision or action of a subsystem is inconsistent with another subsystem or the system (organization) as a whole. Goal congruence results when a subsystem achieves its goals while contributing to the organization's overall goal. Subsystems should maximize organizational goals. Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

33) Discuss the seven characteristics of useful information. Answer: The seven characteristics of useful information are: relevant, reliable, complete, timely, understandable, verifiable and accessible. These characteristics are qualities that information should possess to be useful in a business environment. Briefly stated, in order for information to be useful it must be: 1) relevant, meaning that it reduces uncertainty and adds to the decisionmaking process; 2) reliable information is information that is free from error, and is accurate in its nature; 3) complete information is information that does not omit any important data, facts, or aspects about events or activities; 4) information is timely when it is fully available to enable the decision-making process to proceed; 5) understandable information must be both in an intelligible and useful format; 6) information is considered verifiable if two people, acting independently of each other, produce the same information or the same results. 7) Information is accessible if it is available to users when they need it and in a format they can use. Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 34) Discuss the concept of a system and the issues of goal conflict and goal congruence. Answer: A system is a set of two or more components that are somehow interrelated and interact together to achieve a specific goal. A system usually consists of smaller components called subsystems. These subsystems have specific and defined functions, which interact with and support the larger system. The concept of systems is key to information technology and AIS. All systems, including the AIS, must work to achieve one or more organizational goals. Goal conflict results when a decision or action of a subsystem is inconsistent with another subsystem or the system (organization) as a whole. Goal congruence results when a subsystem achieves its goals while contributing to the organization's overall goal. Subsystems should maximize organizational goals. Concept: The concept of information Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain the decisions an organization makes, the information needed to make them, and the major business processes present in most companies. 1) Paid time-off policies, job descriptions, and procedures manuals are examples of information needed to support key decisions in what business process? A) hire and train employees B) acquire inventory C) sell merchandise D) collect payment from customers Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 14

2) Before a firm can identify the information needed to effectively manage a process, the firm must A) hire an outside consultant. B) understand the process. C) purchase computers and/or workstations. D) obtain internet access. Answer: B Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Identify the piece of information below that is typically needed to acquire a building. A) job descriptions B) vendor performance C) market coverage D) capacity needs Answer: D Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4) Identify the piece of information below that is typically needed to acquire inventory. A) job descriptions B) vendor performance C) market coverage D) capacity needs Answer: B Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 5) Identify the piece of information below that is typically needed to hire and train employees. A) job descriptions B) vendor performance C) market coverage D) capacity needs Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

6) How can query languages be used to help make better decisions? A) They can suggest a course of action. B) They can gather relevant data for decision making. C) They can help the decision maker to interpret results. D) They can model choose among alternative courses of action. Answer: B Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 7) What is a key decision that needs to be made with regards to selling merchandise? A) which banking institution to use B) which employees to hire C) which public accounting firm to employ D) which credit cards to accept Answer: D Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 8) What is a key decision that needs to be made with regards to paying vendors for goods and services? A) which credit cards to accept B) which employees to hire C) which vendors to pay D) how much capital to acquire Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) What is a key decision that needs to be made with regards to borrowing money from lenders? A) the location B) pro forma income statement C) how much capital to acquire D) job descriptions Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

10) One group that relies on both the adequate collection and transformation of data for decisionmaking purposes for an organization is A) management. B) interested outsiders. C) competitors. D) the government. Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) Who of the following is not a stakeholder with whom an accounting information system typically communicates directly? A) The federal government. B) Venture capitalist. C) Company that supplies raw material. D) Company that purchases finished goods for resale to consumers. Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 12) In which transaction cycle would customer sales transaction information be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 13) In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: B Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17

14) In which transaction cycle would information relating to employees benefit be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) In which transaction cycle would information for paying dividends be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: D Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) In which transaction cycle would information for retiring long-term debt be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: D Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

17) In which transaction cycle would information for initiating back orders for out of stock goods be most likely to pass between internal and external accounting information systems? A) the revenue cycle B) the expenditure cycle C) the human resources / payroll cycle D) the financing cycle Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 18) Identify the party below that is not external to the firm. A) customer B) vendor C) government agencies D) CEO Answer: D Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19) Identify the party below that is not internal to the firm. A) customer B) management C) employees D) CEO Answer: A Concept: Information needs and business processes Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 20) Receiving goods from vendors is part of which cycle? A) the revenue cycle B) the financing cycle C) the expenditure cycle D) the payroll cycle Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

21) The is not a transaction cycle. A) general ledger and reporting cycle B) expenditure cycle C) revenue cycle D) human resources cycle Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 22) Identify the false statement below. A) Retail stores do not have a production cycle. B) Financial institutions have installment-loan cycles. C) Every organization should implement every transaction cycle module. D) A service company does not have an inventory system. Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 23) Transaction cycles can be summarized on a high level as "give-get" transactions. An example of "give-get" in the revenue cycle would be A) give cash, get goods. B) give goods, get cash. C) give cash, get labor. D) give cash, get cash. Answer: B Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 24) Groups of related business activities such as the acquisition of merchandise and payment of vendors are called A) transaction cycles. B) economic cycles. C) business events. D) transactions. Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

25) The transaction cycle that includes product design is known as the A) revenue cycle. B) expenditure cycle. C) production cycle. D) financing cycle. Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 26) The transaction cycle approach yields efficiencies when processing of a large number of transactions because A) a large number of transactions within a given cycle can be categorized into a relatively small number of distinct types. B) transaction cycles are easier to computerize. C) the transaction cycle approach represents the natural order of business. D) transaction cycles are easy to understand. Answer: A Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 27) Updating accounts receivable is part of which transaction cycle? A) Human resources/payroll. B) Expenditure. C) Financing. D) Revenue. Answer: D Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 28) Who of the following would not be involved in the expenditure cycle? A) Accounts payable clerk. B) Receiving clerk. C) Cashier. D) Requisition manager. Answer: C Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

29) How are "Give and Take" transactions classified in business today and what impact does this have on AIS? Answer: The concept of "Give and Take" transactions has been used to classify business transactions into "cycles" that have starting points, processes, and end points (or closure). The majority of business transactions can be classified as revenue, expenditure, human resources (payroll), production, and financing cycles. AIS has been modeled after these transaction cycles to achieve its basic functions of collecting and processing data, providing information useful for decision making, and establishing adequate controls. Concept: Information needs and business processes Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 3 Explain how an AIS adds value to an organization, how it affects and is affected by corporate strategy, and its role in a value chain. 1) An accounting information system must be able to perform which of the following tasks? A) collect transaction data B) process transaction data C) provide adequate controls D) all of the above Answer: D Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following is not an example of a common activity in an AIS? A) buy and pay for goods and services B) sell goods and services and collect cash C) summarize and report results to interested parties D) record sales calls for marketing purposes Answer: D Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

3) Which of the following is not one of the components of an AIS? A) internal controls and security measures B) people C) procedures and instructions D) hardware Answer: D Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4) The primary objective of accounting is to A) implement strong internal controls. B) provide useful information to decision makers. C) prepare financial statements. D) ensure the profitability of an organization. Answer: B Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) Many modern accounting software packages offer separate transaction cycle modules. What is the reason for this? A) Every organization does not need to implement all of the available transaction cycle modules. B) Most businesses do not need the revenue cycle module as part of their AIS. C) The nature of a given transaction cycle is the same irrespective of the type of organization. D) A properly designed AIS does not use the concept of separate business transaction cycles to process transactions. Answer: A Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 6) Define an accounting information system. Answer: An AIS is a system that collects, records, stores, and processes data to produce information for decision makers. Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

7) Identify the components of an accounting information system. Answer: A well-designed AIS consists of people, procedures and instructions, data, software, information technology infrastructures, and internal controls and security measures. Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 8) Explain what an AIS is, describe the basic tasks it performs in an organization, and give some examples of the types of accounting transactions it processes. Answer: An AIS consists of six components: people, procedures and instructions, data, software, information technology infrastructures, and internal controls and security measures. The AIS performs three major functions: 1) it collects and stores data about activities and transactions so that the organization's management, employees, and interested outsiders can review what has happened; 2) the AIS processes data (that is, facts that have been collected and stored) into information that is useful for making decisions, and is of value to the organization; and 3) the AIS provides adequate controls designed to safeguard the organization's assets, including its data and information. Common examples of accounting transactions that an AIS helps to process and track are the sales of products to customers, cash collections, cash payments, and the recording and payment of the employees' payroll. Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 9) Why have accounting software packages been designed with separate transaction modules? Answer: Since every organization does not necessarily use all of the transaction cycles in its operations, it is to the advantage of the organization to be able to "pick and choose" from among various software modules that track and record different transaction cycles. For example, a law firm would have no need to implement a production cycle module. Also, the nature of a transaction cycle varies across the broad spectrum of business organizations. Again, a law firm would have a revenue cycle, but it would not involve the purchase, receipt, and payment for products or merchandise; likewise a retail store chain may not sell any consulting services to its customers. Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 10) An accounting information system requires at least one computer. Answer: FALSE Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

11) The American Institute of Certified Public Accountants (AICPA) has recognized the importance of AIS and the major impact information technology has on the area of accounting. To recognize individual CPAs who have met educational and experiential requirements in this area, the group formally created the designation known as A) the Certified Information Auditor. B) the Certified Internal Auditor. C) the Certified Information Technology Professional. D) the Certified Data Processing Professional. Answer: C Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 12) The AIS must include controls to ensure A) safety and availability of data. B) marketing initiatives match corporate goals. C) information produced from data is accurate. D) both A and C Answer: D Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 13) An AIS provides value by A) improving products or services through information that increases quality and reduces costs. B) providing timely and reliable information to decision makers. C) creating new products. D) both A and B Answer: D Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 14) A good example of how an AIS is used to share knowledge within an organization is A) the use of a corporate database to help staff identify the relevant experts who can help with a particular client. B) the use of tablets to access a network for messaging worldwide. C) the monitoring of production equipment to watch for defects. D) the use of point-of-sale data to determine hot-selling items. Answer: A Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 25

15) When the AIS provides information in a timely and accurate manner, it stands as an example of A) improved decision making. B) improving the quality and reducing the costs of products or services. C) improving efficiency. D) all of the above Answer: D Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16) Accounting information plays major roles in managerial decision making by A) identifying situations requiring management action. B) reducing uncertainty. C) providing a basis for choosing among alternative actions. D) all of the above Answer: D Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 17) A well-designed AIS can improve the decision making in an organization. Identify the statement below that describes a situation where an AIS may actually inhibit effective decision making. A) An AIS provides to its users an abundance of information without any filtering or condensing of such information. B) An AIS identifies situations requiring management action. C) An AIS reduces uncertainty, and therefore accounting information can provide a basis for choosing among alternative courses of action. D) An AIS provides information about the results of previous decisions which provides decision makers with feedback that can be used in future decision making. Answer: A Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

18) Which of the following is not an example of how an AIS adds value to an organization? A) All employees at a hospital can access and update patient records from any computer terminal in the hospital. B) A customer service representative can find a customer's account data, purchase history, payment history, and salesperson's name while on the phone with the customer, to resolve issues quickly. C) Suppliers are able to access sales data directly from the point-of-sale system of a retailer and deliver inventory automatically when needed. D) Client tax files are encrypted and made available on the CPA firm's network to any employee with an access code. Answer: A Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 19) Which of the following is not an example of how an AIS adds value to an organization? A) Patient information at a hospital are encrypted and made only available on the hospital's network to the patient with an access code. B) Patient billing information at a hospital are encrypted and made only available on the hospital's network to insurance companies with an access code. C) Patient information at a hospital are encrypted and made only available on the hospital's webpage to anyone with access to a search engine. D) Patient information at a hospital are encrypted and made only available on the hospital's network to healthcare professional with an access code. Answer: C Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 20) What is the CITP designation and why is it important to AIS? Answer: The CITP designation stands for "Certified Information Technology Professional." It is awarded to CPAs who have demonstrated a broad range of knowledge and skill sets in the areas of accounting and information systems and technology. The AICPA (American Institute of CPAs) has acknowledged the importance and close relationship that accounting and information systems share in creating this specialty designation for accounting information system professionals. Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

21) Differentiate between an AIS course and other accounting courses. Answer: Other accounting courses assume the preparation or reporting of accounting information is for external or internal users. However, the AIS course focuses on the flow of accounting information in the organization from a systems perspective. The AIS course traces the origin, processing, storing, and ultimate disposal of information. An AIS course also focuses on business processes, organization structure, information systems, and corporate planning and goals. Concept: Accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 22) How can an AIS add value to the organization? Answer: An AIS can increase the efficiency and effectiveness of the value chain by improving the quality and lowering costs of products or services, improving efficiency of operations, improving decision making, enhancing the sharing of knowledge, improving the efficiency and effectiveness of its supply chain and improving the internal control structure. Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Information Technology 23) How can an AIS become part of the firm's value chain and add value to the business? Answer: The AIS can add value by: helping to improve products and services an organization offers for sale; increasing the quality of products and services; creating greater efficiency by reducing costs and saving time; and improving the overall efficiency of the organization. Decision making is enhanced by the better availability of timely, complete, reliable, verifiable, and relevant information. A firm can enjoy a competitive advantage with better customer ordering, billing, and customer service made possible by an improved AIS. The AIS can also enhance overall communication and use of knowledge in a business by making the knowledge readily available to interested parties. Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Information Technology

24) How can the value of the information produced by an accounting information system be determined? What would a measurement and verification expert think about quantification and verification of such information? Answer: A well-designed AIS improves the efficiency and effectiveness of the value chain by improving the quality and lowering the overall cost of products or services, improving efficiency of operations, improving decision making, and enhancing the sharing of knowledge. These are the benefits of possessing and using information. Drawbacks to possessing and using such information are the costs of obtaining and maintaining such information. These costs include investments in people, processes, and computing and networking hardware and software on an ongoing basis. Costs of the information are quantifiable to some extent. However, some of the benefits of using the information involve numerous estimates and assumptions. As such, the quantification of the benefits of utilizing such information depends on the accuracy of the assumptions. Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Information Technology 25) A change in the AIS that makes information more easily accessible and widely available within an organization is most likely to first influence the A) organizational culture. B) customer base. C) external financial statement users. D) production activity. Answer: A Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 26) In Chapter 1, Figure 1-4 shows the factors that influence the design of AIS. The diagram shows a bi-directional arrow between the organizational culture and the AIS. The reason for this two-way interchange between organizational culture and AIS is A) that the AIS should not influence the values of the organizational culture. B) because the organization's culture influences the AIS, and likewise the AIS influences the organization's culture by controlling the flow of information within the organization. C) due to the transfer of managers between the two corporate elements. D) the AIS impacts the organization's key strategies. Answer: B Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Application of Knowledge

27) Which of the following is a true statement? A) Business strategy directly influences AIS, but not information technology. B) Information technology directly influences organizational culture, but not business strategy. C) Organizational culture directly influences business strategy, but not AIS. D) AIS directly influences information technology, but not business strategy. Answer: A Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 28) Corporate strategy should affect the way a firm deploys an accounting information system. Answer: TRUE Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 29) Identify the primary reason that it is important for a firm to identify the AIS improvements likely to yield the greatest return. A) because business strategy directly influences AIS, but not information technology B) because most organizations have limited resources C) because a firm never wants to waste time addressing issues that are not urgent D) because it is expensive to improve accounting information systems Answer: B Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 30) An AIS that makes information more easily accessible and more widely available is likely to increase pressure for A) centralization and defined procedures. B) centralization and autonomy. C) decentralization and defined procedures. D) decentralization and autonomy. Answer: D Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking

31) Identify how firms use predictive analysis. A) to provide an educated guess regarding what is expected to occur in the near future B) to engage in data warehousing C) to engage in a low-cost strategy D) to design the most effective accounting information system Answer: A Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 32) Identify a recent technological advance that provides an opportunity to gain a competitive advantage. A) CVVP analysis B) discounted cash flows C) predictive analysis D) economic order quantity (EOQ) Answer: C Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 33) It is important that a firm's AIS collect and integrate financial and non-financial information about the organization's activities if the firm uses its AIS to gain a competitive advantage. Answer: TRUE Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 34) When properly deployed, accounting information systems can provide firms with a competitive advantage. Answer: TRUE Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

35) The process of creating value for customers is the result of nine activities that form a A) value chain. B) capitalist operation. C) profitable business. D) information system. Answer: A Concept: Value chain Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 36) The value chain concept is composed of two types of activities known as A) primary and support. B) primary and secondary. C) support and value. D) technology and support. Answer: A Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 37) Which of the following is a primary activity in the value chain? A) infrastructure B) technology C) purchasing D) marketing and sales Answer: D Concept: Value chain Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 38) Arranging delivery of products to customers constitutes A) shipping B) inbound logistics C) outbound logistics D) delivery Answer: C Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

in value chain analysis.

39) are examples of activities that constitute inbound logistics. A) Activities that transform inputs into final products or services B) Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells C) Activities that provide post-sale support to customers D) Activities that help customers to buy the organization's products or services Answer: B Concept: Value chain Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 40) A value chain typically consists of five primary activities that can directly provide value to customers. The activities that help customers buy the organization's products or services represent A) inbound logistics. B) outbound logistics. C) marketing and sales. D) operations. Answer: C Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 41) A value chain typically consists of five primary activities that can directly provide value to customers. The activities that help distribute finished products or services to customers represent A) inbound logistics. B) outbound logistics. C) marketing and sales. D) operations. Answer: B Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

42) A value chain typically consists of five primary activities that can directly provide value to customers. The activities that help to transform inputs into final products or services represent A) inbound logistics. B) outbound logistics. C) marketing and sales. D) operations. Answer: D Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 43) A value chain typically consists of five primary activities that can directly provide value to customers. The activities that help to provide post-sale support to customers represent A) service. B) outbound logistics. C) marketing and sales. D) operations. Answer: A Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 44) One activity within the value chain is research and development. This activity can be identified as a A) firm infrastructure activity. B) human resources activity. C) technology activity. D) purchasing activity. Answer: C Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

45) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Mary, who manages the carving process. Jane is the newest employee. She collects the coconuts. Joe takes calls from unhappy customers. Tom tosses finished coconuts into the sea, sending them to the wholesaler. Annie sends letters to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay. Which of the following functions in the value chain is Jane performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: A Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Application of Knowledge 46) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Mary, who manages the carving process. Jane is the newest employee. She collects the coconuts. Joe takes calls from unhappy customers. Tom tosses finished coconuts into the sea, sending them to the wholesaler. Annie sends letters to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay. Which of the following functions in the value chain is Mary performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: B Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Application of Knowledge

47) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Mary, who manages the carving process. Jane is the newest employee. She collects the coconuts. Joe takes calls from unhappy customers. Tom tosses finished coconuts into the sea, sending them to the wholesaler. Annie sends letters to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay. Which of the following functions in the value chain is Tom performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: C Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Application of Knowledge 48) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Mary, who manages the carving process. Jane is the newest employee. She collects the coconuts. Joe takes calls from unhappy customers. Tom tosses finished coconuts into the sea, sending them to the wholesaler. Annie sends letters to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay. Which of the following functions in the value chain is Annie performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: D Concept: Value chain Objective: Learning Objective 3 Difficulty: Easy AACSB: Application of Knowledge

49) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Mary, who manages the carving process. Jane is the newest employee. She collects the coconuts. Joe takes calls from unhappy customers. Tom tosses finished coconuts into the sea, sending them to the wholesaler. Annie sends letters to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay. Which of the following functions in the value chain is Joe performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: E Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Application of Knowledge 50) What is the purpose behind the five primary activities in the value chain? Answer: The goal of the five primary activities in the value chain is to facilitate the business in providing value to its customers. The five primary activities allow the business to create, market, and deliver its products and services to its customers, as well as providing postsale support. Concept: Value chain Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 51) How can a well-designed AIS improve the efficiency and effectiveness of a company's value chain? Answer: The AIS can be designed to allow customers direct access to a company's inventory and sales order entry systems. This allows the customer to do more of the work that traditionally has been done by sales, marketing, and administration personnel. This allows for faster ordering, and cuts the company's labor costs. It may also have the effect of allowing the customer more control in a purchase transaction that may bring more satisfaction and value to the customer. Concept: The value of accounting information systems Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

52) Discuss the components of a supply chain. Answer: The supply chain shows how an organization interacts with suppliers, distributors, and customers to provide value in the products it sells. The supply chain depicts the creation and sale of a product—the chain is somewhat different when a service is involved. The supply chain has five components: raw materials; manufacturer; distributor; retailer; and the consumer. Raw materials come from any number of suppliers, which in turn become part of a manufacturing process, which produces a product. The business then provides the product to distributors, who in turn sell the product to retail businesses. The product is ultimately purchased and used by consumers (who may be individuals or businesses). It is important to realize that AIS can greatly impact the traditional supply chain by creating a more efficient and timely environment in which a business can operate. More efficient operations are more effective, which in turn lowers costs, and add greater value and create improved customer satisfaction. Concept: Value chain Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 2 Overview of Transaction Processing and Enterprise Resource Planning Systems 1 Describe the data processing cycle used to process transactions, including how data is input, stored, and processed and how information is output. 1) Which of the following commonly initiates the data input process? A) a business activity B) automatic batch processing C) an accounting department source document D) a trial balance query Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) A typical source document could be A) some type of paper document. B) a computer data entry screen. C) the company's financial statements. D) both A and B Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is not considered a source document? A) A copy of the company's financial statements. B) A copy of the company's shipping document. C) A copy of the company's sales journal. D) A copy of the company's ledger. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) Which step below is not considered to be part of the data processing cycle? A) data input B) feedback from external sources C) data storage D) data processing Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) John Pablo works in the accounting department of a multinational manufacturing company. His job includes updating accounts receivable based on sales orders and remittance advices. His responsibilities are part of the company's A) revenue cycle. B) expenditure cycle. C) financing cycle. D) production cycle. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6) John Pablo works in the accounting department of a multinational manufacturing company. His job includes updating accounts payable based on purchase orders and checks. His responsibilities are part of the company's A) revenue cycle. B) expenditure cycle. C) financing cycle. D) production cycle. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

7) Many small businesses choose to outsource their payroll activities to firms that specialize in providing payroll services. Dolores Yu operates a payroll processing business in Calabasas, California. When she sends bills out to her clients, her work is part of her firm's A) revenue cycle. B) expenditure cycle. C) financing cycle. D) production cycle. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 8) A delivery of inventory from a vendor, with whom a credit line is already established, would be initially recorded in which type of accounting record and as part of what transaction cycle? A) purchases journal; expenditure cycle B) general journal; expenditure cycle C) general ledger; expenditure cycle D) cash disbursements journal; production cycle Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 9) Making payments to a vendor, with whom a credit line is already established, would be initially recorded in which type of accounting record and as part of what transaction cycle? A) purchases journal; expenditure cycle B) general journal; expenditure cycle C) general ledger; expenditure cycle D) cash disbursements journal; expenditure cycle Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 10) Describe the basic cycles and business activities for a typical merchandising company. Answer: Revenue cycle — deliver inventory to customers and collect cash. Expenditure cycle — receive goods and services from vendors and pay cash. Human resources cycle — track hours worked by employees and record withholding data. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

11) Identify the four parts of the transaction processing cycle. A) data input, data storage, data processing, information output B) data input, data recall, data processing, information output C) data input, data recall, data transmission, information output D) data input, data recall, data transmission, data storage Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) What is the most frequent revenue cycle transaction? A) purchase of inventory B) receipt of cash C) sale to customer D) billing Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) The existence of relevant data guarantees the data are useful. Answer: FALSE Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 14) Identify the item below that is not one of the four different types of data processing activities. A) creating B) reading C) using D) deleting Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

15) What is the final step in the data processing cycle? A) output B) storage C) processing D) input Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) What is the first step in the data processing cycle? A) output B) storage C) processing D) input Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) The general ledger A) summarizes the information on the trial balance. B) is posted in total to the general journal. C) only includes balance sheet accounts. D) summarizes the transactions in journals. Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 18) For a retail business, a delivery of inventory, from a vendor (with whom there is an established credit relationship) would be initially recorded in which type of accounting record as part of which transaction cycle? A) purchases journal; expenditure cycle B) general journal; expenditure cycle C) general ledger; expenditure cycle D) cash disbursements journal; production cycle Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

19) Data must be collected about three facets of each business activity. What are they? A) the business activity, the resources it affects, the people who participate B) the business activity, the transactions it creates, the impact on the financial statements C) the inputs, outputs and processes used D) who is involved, what was sold, how much was paid Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 20) Issuing a purchase order is part of which transaction cycle? A) the revenue cycle B) the expenditure cycle C) the human resources cycle D) the production cycle Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 21) The collection of employee time sheets is part of which transaction cycle? A) the revenue cycle B) the production cycle C) the human resources cycle D) the expenditure cycle Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 22) The collection of customer payment is part of which transaction cycle? A) the revenue cycle B) the production cycle C) the human resources cycle D) the expenditure cycle Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

23) Common source documents for the revenue cycle include all of the following except A) sales order. B) receiving report. C) delivery ticket. D) credit memo. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 24) Which of the following documents would be found in the expenditure cycle? A) delivery ticket B) time card C) credit memo D) purchase order Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 25) Documents that are sent to customers or suppliers and then sent back to the company in the course of a business transaction are known as A) turnaround documents. B) source documents. C) input documents. D) transaction documents. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 26) What is a turnaround document? Provide at least one example of a turnaround document. Answer: Turnaround documents are company output sent to an external party, who often adds data to the document, and then are returned to the company as an input document. Students answer may vary based on the examples they provide. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

27) Which of the following is an example of source data automation? A) a utility bill B) POS (point-of-sale) scanners in retail stores C) a bill of lading D) a subsidiary ledger Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 28) Pre-numbering of shipping documents helps to verify that A) documents have been used in order. B) company policies were followed. C) all transactions have been recorded. D) source data automation was used to capture data. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 29) Source documents generally help to improve accuracy in transaction processing because A) they specify which information to collect. B) logically related data can be grouped in the same area of the document. C) they provide directions and steps for completing the form. D) All of the above are correct. Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 30) In transaction processing, generally which activity comes first? A) recording data in a journal B) posting items to special journals C) capturing data on source documents D) recording data in a general ledger Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

31) Which of the following statements is true? A) Batch processing ensures that stored information is always current. B) Batch input is more accurate than on-line data entry. C) On-line batch processing is a combination of real-time and batch processing. D) Batch processing is not frequently used. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 32) The data processing method used by FedEx to track packages is an example of A) real-time processing. B) batch processing. C) online batch processing. D) real-time batch processing. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 33) Street Smarts is a retailer located in Naperville, Illinois. During the peak tourist season, it has average daily cash and credit card sales in excess of $10,000. What is the best way for Street Smarts to ensure that sales data entry is efficient and accurate? A) well-designed paper forms B) source data automation C) turnaround documents D) sequentially numbered sales invoices Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

34) In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate? A) well-designed paper forms B) source data automation C) turnaround documents D) sequentially numbered bills Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 35) Build Smarts is a supplier of building materials to more than 150 builders in the state of Illinois. What is the best way for Build Smarts to ensure that all sales are recorded? A) well-designed paper forms B) source data automation C) turnaround documents D) sequentially numbered sales invoices Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 36) Data processing includes all of the following except A) verifying subsidiary ledger balances. B) changing customer addresses. C) removing inventory items no longer offered. D) adding the name of a new vendor. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

37) The Cape Fear Rocket Club heads out to the dunes of Cape Fear, Oregon every August to pierce the sky with their fiery projectiles. An enterprising seller of t-shirts has devised a series of designs that capture the spirit of the event in silk-screened splendor. His employees can be found on many of the major intersections selling his products out of the backs of pickup trucks. What is the best way for this business to ensure that sales data entry is efficient and accurate? A) well-designed paper forms B) source data automation C) turnaround documents D) sequentially numbered forms Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 38) Which of the following statements about data processing methods is true? A) Online real-time processing does not store data in a temporary file. B) Batch processing cannot be used to update a master file. C) Control totals are used to verify accurate processing in both batch and online batch processing. D) Online real-time processing is only possible with source data automation. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 39) What is the purpose of source documents? What controls are embedded in source documents? Give two examples of source documents. Answer: The primary purpose of source documents is to record data about business activities. Source documents standardize data collection procedures for an organization and provide better control and accuracy. Source documents are generally pre-numbered, which helps to verify that all transactions have been recorded and there is no missing document; if a document is missing, then which one(s) can be determined. Proper design of source documents ensures which information to collect, preprints standard information such as addresses, and provides directions for completing the form. Examples include: invoices, timecards, sales orders, and purchase orders. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking

40) Describe the methods used to collect data about business activities. Describe design and control considerations for each of the data collection methods. Answer: Data about business activities can be collected with source documents, either on paper or electronic, turnaround documents, and source data automation. Source documents define what data to collect about an activity, group logically related data close together, provide instructions on how to complete the document, include fields for approvals, and use preprinted standard data. Paper documents should be sequentially prenumbered to allow verification that all documents have been recorded. Electronic source documents should also utilize pull-down menus, drop-down boxes, default values, preformatting, auto sequential numbering, and prompting for complete data entry. Turnaround documents often begin as output documents that are then sent to external users for further completion. Turnaround documents should utilize most of the same design and control considerations as source documents, but should include data in machine-readable form, such as bar codes or optical character recognition. Source data automation utilizes technology to capture data in machine-readable form at the time and place the business activity occurs. Source data automation technology includes point-of-sale terminals, bar codes, RFID tags, and electronic data interchange. An especially important control consideration for source data automation is a way to indicate authorization of the activity. Concept: Transaction processing Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 41) Source data automation refers to A) using devices to capture transaction data in machine-readable form at the time the transaction is initiated. B) using the internet as the operating platform of an accounting information system. C) using an accounting information system to electronically bill customers. D) using an accounting information system to automate a previously manual transaction process. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

42) What is the second step in the data processing cycle? A) Input. B) Output. C) Storage. D) Processing. Answer: D Concept: Transaction processing Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 43) A purchase requisition is a common source document used to facilitate which business activity? A) customer sale B) receipt of goods C) inventory purchase D) purchase request Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 44) Identify the statement below that is not true with regards to the accounts receivable subsidiary ledger. A) Every credit sale is entered individually into the subsidiary ledger. B) Debits and credits in the subsidiary ledger must always equal. C) The subsidiary ledgers play an important role in maintaining the accuracy of the data stored in the AIS. D) The total of the subsidiary ledgers must equal the control account. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 45) Which of the following is not usually a consideration when designing a coding system? A) government coding regulations B) standardization C) future expansion needs D) ease of reporting Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13

46) Which of the following statements regarding special journals is not true? A) The balances in a special journal must always reconcile to the general ledger. B) Special journals are used to record large numbers of repetitive transactions. C) Special journals are periodically summarized and posted to the general ledger. D) Special journals provide a specialized format for recording similar transactions. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 47) A change in an employee's hourly pay would be recorded in A) the payroll master file. B) a payroll transaction file. C) the employee master file. D) the employee transaction file. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 48) When the sum of all entries in the subsidiary ledger equals the balance in the corresponding general ledger account, it is assumed that A) the recording processes were accurate. B) all source documents were recorded. C) adjusting entries are not required. D) no errors exist in the subsidiary ledger. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 49) The general ledger account that corresponds to a subsidiary ledger account is known as a(n) A) dependent account. B) control account. C) credit account. D) attribute account. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

50) The type of journal that records large numbers of repetitive transactions such as sales, cash receipts, and cash disbursements is A) a general journal. B) a subsidiary journal. C) a specialized journal. D) a detailed transaction journal. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 51) Pre-numbered shipping documents and pre-numbered invoices are examples of A) sequence codes. B) block codes. C) group codes. D) mnemonic codes. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 52) A chart of accounts is an example of (select all that apply) A) sequence codes. B) block codes. C) group codes. D) mnemonic codes. Answer: B, C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 53) Product items are often coded with (select all that apply) A) sequence codes. B) block codes. C) group codes. D) mnemonic codes. Answer: C, D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

54) Product code WSH500D08 is an example of A) sequence codes. B) block codes. C) group codes. D) mnemonic codes. Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 55) Identify the statement below that is false with regards to effective coding practices. A) Codes should allow for growth. B) Codes should be consistent with intended use. C) Codes should be customized for each division of an organization. D) Codes should be as simple as possible. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 56) All of the following are guidelines for developing a good coding system except A) be consistent with its intended use. B) be flexible to allow for growth. C) be as sophisticated as possible to promote usage. D) be consistent with the company's organization structure. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 57) To be effective, the chart of accounts must A) not use alpha-numeric characters. B) contain sufficient detail. C) utilize only one coding technique. D) begin with account 001. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

58) The chart of accounts of a fast-food restaurant would probably include A) a list of vendors. B) a list of financial statement accounts. C) a list of customers. D) a list of employees. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 59) The efficiency of recording numerous business transactions can be best improved by the use of A) prenumbered source documents. B) specialized journals. C) posting references. D) subsidiary ledgers. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 60) A general journal A) would be used to record monthly depreciation entries. B) simplifies the process of recording large numbers of repetitive transactions. C) records all detailed data for any general ledger account that has individual sub-accounts. D) contains summary-level data for every account of the organization. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 61) The general ledger A) is used to record infrequent or non-routine transactions. B) simplifies the process of recording large numbers of repetitive transactions. C) records all detailed data for any general ledger account that has individual sub-accounts. D) contains summary-level data for every account of the organization. Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

62) A subsidiary ledger A) is used to record infrequent or non-routine transactions. B) simplifies the process of recording large numbers of repetitive transactions. C) records all detailed data for any general ledger account that has individual sub-accounts. D) contains summary-level data for every account of the organization. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 63) A specialized journal A) is used to record infrequent or non-routine transactions. B) simplifies the process of recording large numbers of repetitive transactions. C) records all detailed data for any general ledger account that has individual sub-accounts. D) contains summary-level data for every account of the organization. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 64) Which statement below is true with regards to an audit trail? A) An audit trail begins with the general journal. B) An audit trail provides the means to check the accuracy and validity of ledger postings. C) An audit trail is a summary of recorded transactions. D) An audit trail is automatically created in every computer-based information system. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 65) Which of the following statements about a master file is false? A) A master file is conceptually similar to a ledger in a manual AIS. B) A master file's individual records are rarely, if ever, changed. C) A master file exists across fiscal periods. D) A master file stores cumulative information. Answer: B Concept: Transaction processing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

66) Which of the following is conceptually similar to a journal in a manual AIS? A) database B) master file C) record D) transaction file Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 67) Catarina Boards is a skateboard retailer located in Pueblo, New Mexico. Catarina Boards is a sole proprietorship that stocks an inventory of between 30 and 50 different skateboards. Inventory is updated in real time by the AIS. If Catarina wishes to keep detailed information about the purchase price of each skateboard in a place outside of the general ledger, it might use a A) relational ledger. B) transaction file. C) master file. D) specific ledger. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 68) Catarina Boards is a skateboard retailer located in Pueblo, New Mexico. Catarina Boards is a sole proprietorship that stocks an inventory of between 30 and 50 different skateboards. Inventory is updated in real time by the AIS. If Catarina wishes to keep a cumulative information about its company', it might use a A) relational ledger. B) transaction file. C) master file. D) specific ledger. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking

69) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n) A) entity. B) attribute. C) field. D) record. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 70) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the data about each Japanese fan represents a(n) A) entity. B) attribute. C) field. D) record. Answer: D Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 71) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the Japanese fans (as a whole) represent a(n) A) entity. B) attribute. C) field. D) record. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

72) Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the data about each Japanese fan's price is stored in a(n) A) entity. B) attribute. C) field. D) record. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 73) Which of the following statement is true about master file? A) Individual master file records are permanent. B) Individual master file records may change frequently. C) Individual master file records are sometime being referred to as date value. D) Individual master file records are sometime being referred to as entity. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 74) The coding technique most likely used for sales orders is A) block code. B) group code. C) sequence code. D) data code. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 75) A specialized journal would be most likely to be used to enter A) sales transactions. B) monthly depreciation adjustments. C) annual closing entries. D) stock issuance transactions. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 21

76) Changing a customer's credit limit would be recorded where? A) Customer master file. B) Customer transaction file. C) Special journal. D) Customer update file. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 77) Which of the following statements is not correct? A) The audit trail is intended to verify the validity and accuracy of transaction recording. B) The audit trail consists of records stored sequentially in an audit file. C) The audit trail provides the means for locating and examining source documents. D) The audit trail is created with document numbers and posting references. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 78) Data about which of the following facets of a business activity is most likely to be recorded in a transaction file? A) business activity B) resources affected by the business activity C) people who participate in the business activity D) place the business activity occurs Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 79) Data about all of the following facets of a business activity are most likely to be recorded in a master file except the A) business activity. B) resources affected by the business activity. C) people who participate in the business activity. D) place the business activity occurs. Answer: A Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking

80) When printed on paper, data output is referred to as A) reports. B) hard copy. C) soft copy. D) financials. Answer: B Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 81) When displayed on a monitor, data output is referred to as A) reports. B) hard copy. C) soft copy. D) financials. Answer: C Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 82) Describe an audit trail. Answer: An audit trail provides a means to check the accuracy and validity of postings to the ledger. The posting references and document numbers help provide the audit trail. An audit trail exists when company transactions can be traced through the AIS from where it originated to where they end up on the financial statements. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 83) Explain how data is organized and stored in an AIS. Answer: The smallest unit of data is known as a data value. A data value is physically stored in a space called a field. Any number of fields can be grouped together to form a record. Related records are grouped together to form a file. Files are then combined to form a database. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

84) Describe guidelines to follow for a well-designed coding system. Answer: First, the code should be consistent with its intended use. Second, the code should allow for growth in the number of items to be coded. The coding system should be as simple as possible. The coding system should be consistent with the company's organizational structure and it should be consistent across the different divisions of an organization. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 85) Describe the relationship between the general and subsidiary ledgers. Answer: The general ledger contains summary-level information about every asset, liability, equity, revenue, and expense account in an organization. The balances in general ledger accounts form the starting point for preparation of financial statements and various other financial reports. A subsidiary ledger account provides support for any general ledger account for which individual subaccounts (for example, accounts receivable, accounts payable, inventory, and fixed assets) are required. The subsidiary ledger records and maintains the detail-level information by having a separate record for each customer, vendor, inventory item, or fixed asset. The sum of the subsidiary ledger balances should equal the balance in the general ledger account. A general ledger account that corresponds to a subsidiary ledger account is known as a control account. Concept: Transaction processing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 2 Discuss how organizations use enterprise resource planning (ERP) systems to process transactions and provide information 1) Which statement below regarding the AIS is false? A) The AIS must be able to provide managers with detailed and operational information about the organization's performance. B) Both traditional financial measures and operational data are required for proper and complete evaluation of performance. C) The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data. D) Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports. Answer: D Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

2) The quality assurance department at a large manufacturing business enters data into the AIS that is used to produce a weekly report that summarizes the proportion of defective units in each product line. This is an example of A) internal financial information. B) internal nonfinancial information. C) external financial information. D) external nonfinancial information. Answer: B Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 3) Traditionally, accounting information systems have been used to collect, process, store and report non-financial information. Answer: FALSE Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 4) The existence of multiple systems which provide information can result in all of the following except A) redundancies. B) discrepancies. C) integration issues. D) efficiency. Answer: D Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 5) A properly configured enterprise resource planning (ERP) system uses a decentralized database to share information across business processes and coordinate activities. Answer: FALSE Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

6) Which of the following is an example of an ERP system? A) Alexis uses a computerized information system to keep track of all the financial data generated by her bakery. She is considering opening a new bakery on the east side of town. B) Betty has a system that keeps track of the accounts payable and receivable for her plumbing business. At the end of the year, the system helps her to prepare her taxes in just two hours. C) Charlie keeps records of all his business records in a shoe box. Each week he enters all of the data into spreadsheets that automatically generate purchase orders, based on predetermined inventory reorder points. Production quotas for the coming week are also automatically generated based on customer orders. D) Doug is a freelance photographer. He keeps records of all expenses and revenues on his cell phone and then e-mails them to himself every month. The files are stored on his personal computer and backed up to CD quarterly. Answer: C Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 7) Which of the following is an example of an ERP system? A) Sam uses a computerized information system to keep track of all the financial data generated by her restaurant. B) Jim has a system that keeps track of the cash receipts and cash disbursements of his mowing business. At the end of each month, the system helps him to prepare a monthly profit and loss statement. C) Jane is a freelance photographer. She keeps records of all expenses and revenues on her cell phone app and the files are uploaded to the cloud on a regular basis.. D) Claire keeps records of all her business records in an Excel file. Each week she enters all of the data into a system that automatically generates purchase orders, based on predetermined inventory reorder points. Production quotas for the coming week are also automatically generated based on customer orders. Answer: D Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 8) In an ERP system, the module used to record data about transactions in the revenue cycle is called A) order to cash. B) purchase to pay. C) financial. D) customer relationship management. Answer: A Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 26

9) Implementation of an ERP system requires increased focus on all except which of the following controls? A) segregation of duties between custody, authorization, and recording B) data entry controls on validity and accuracy C) controls over access to data D) appropriate disposal of hard copy reports Answer: D Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 10) Implementation of an ERP system requires effective segregation of responsibility for A) recording, risk assessment, and control procedures. B) authorization, monitoring, and risk assessment. C) recording and monitoring of organizational assets. D) authorization, recording, and custody of organizational assets. Answer: D Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

11) Describe four advantages and four disadvantages of implementing an ERP system at a multinational corporation. Answer: Advantages Integrating information breaks down barriers between departments and streamlines the flow of information. Data input is captured or keyed only once. Management gains greater visibility into every area of the enterprise and has improved monitoring capabilities. Better access control is established by consolidating multiple permissions and security models into a single data access structure. Standardization of procedures and reports across business units. Customer service improves as employees can quickly access data. Increased productivity of employees. Disadvantages ERP systems are very costly. Implementation is time consuming. Changes to business processes are sometimes required, in order to minimize the customization needed. Complexity of the system. Employees may be resistant to implement and use an ERP system and change business processes. Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Information Technology 12) ERP stands for A) enterprise resource planning. B) enterprise resource program. C) enterprise reporting program. D) none of the above Answer: A Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

13) In an ERP system, the module used to record data about transactions in the disbursement cycle is called A) order to cash. B) purchase to pay. C) financial. D) customer relationship management. Answer: B Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 14) In an ERP system, the module used to record data about transactions in the production cycle is called A) order to cash. B) purchase to pay. C) manufacturing. D) logistics. Answer: C Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 15) In an ERP system, the module used to record marketing data is called A) marketing. B) advertising. C) customer relationship management. D) customer service. Answer: C Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) All of the following are disadvantages of an ERP system except A) an ERP provides an integrated view of the organization's data. B) ERP software and hardware can cost midsized companies between $10 million and $20 million dollars. C) ERPs frequently cause organizations to change their business processes to standardized ones. D) ERPs are relatively complex. Answer: A Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 29

17) All of the following are advantages of an ERP system except A) in an ERP, data input is captured or keyed once. B) ERPs permit management to gain greater visibility into every area of the enterprise. C) it takes considerable experience and training to use an ERP system effectively. D) ERPs permit manufacturing plants to receive new orders in real time. Answer: C Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 18) All of the following are reasons that implementing a new ERP may fail except A) employees may resist using the ERP system. B) ERPs can take years to fully implement. C) employees may refuse to share sensitive information with different departments. D) ERPs may require procedures and reports to be standardized across business units. Answer: D Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 19) It is relatively easy to train employees to learn how to use an ERP system. Answer: FALSE Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 20) All of the following are ERP vendors except A) Dell. B) SAP. C) Oracle. D) Microsoft. Answer: A Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

21) One way ERP vendors help to make the configuration process easier for their customers is to A) encourage their customers to use decentralized databases. B) train their customers to use an existing system and build interfaces between it and their ERP system. C) develop built-in configuration tools to address most of their customers' needs for system changes. D) All of the above. Answer: C Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 22) An ERP system might facilitate the purchase of direct materials by all of the following except A) selecting the best supplier by comparing bids. B) preparing a purchase order when inventory falls to reorder point. C) routing a purchase order to a purchasing agent for approval. D) communicating a purchase order to a supplier. Answer: A Concept: Enterprise resource planning (ERP) systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 3 Systems Documentation Techniques 1 Prepare and use data flow diagrams to understand, evaluate, and document information systems. 1) Graphical representations of information are often supplemented by A) narrative descriptions. B) relevant e-mail communications. C) logic charts. D) oral descriptions from management. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) All of the following are guidelines for preparing data flow diagrams except A) show the most detail in the highest-level DFD. B) include all storage files, even if they are only temporary. C) uniquely name all data flows. D) sequentially number process bubbles. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3) The Sarbanes-Oxley Act requires independent auditors to A) create flowcharts to document business processes. B) understand a client's system of internal controls. C) establish effective internal controls. D) prepare and understand all types of system documentation. Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) The passage of the Sarbanes Oxley Act A) made documentation skills even more important. B) requires public companies to prepare an annual internal control report. C) mandates that auditors must be able to prepare, evaluate and read documentation tools such as flowcharts. D) All of the above. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Which of the following is not a true statement? A) Documentation tools save an organization both time and money. B) Documentation tools are used extensively in the systems development process. C) Data flow diagrams and flowcharts are the two most frequently used systems development documentation tools. D) Data flow diagrams and flowcharts are difficult to prepare and revise using software packages. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6) A data flow diagram A) is a graphical description of the source and destination of data that shows how data flow within an organization. B) is a graphical description of the flow of documents and information between departments or areas of responsibility. C) is a graphical description of the relationship among the input, processing, and output in an information system. D) is a graphical description of the sequence of logical operations that a computer performs as it executes a program. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

7) In a DFD, a "data sink" is also known as a A) data store. B) transformation process. C) data flow. D) data destination. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 8) In a DFD, a "bubbles" is also known as a A) data store. B) transformation process. C) data flow. D) data destination. Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) In preparing a DFD, when data are transformed through a process, the symbol used should be A) a circle. B) an arrow. C) a square. D) two horizontal lines. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 10) In general, a data destination will be shown by A) an arrow pointing away. B) an arrow pointing in. C) arrows pointing both ways. D) no arrows, only two horizontal lines. Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

11) In a data flow diagram of the customer payment process, "update receivables" will appear above or in A) a square. B) a circle. C) two horizontal lines. D) none of the above Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) In a data flow diagram of the customer payment process, "Customer" will appear above or in A) a square. B) a circle. C) two horizontal lines. D) none of the above Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) In a data flow diagram of the customer payment process, "Customer payment" will appear above or in A) a square. B) a circle. C) two horizontal lines. D) an arrow. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 14) Most processes on a DFD can be identified by A) data in-flows only. B) data out-flows only. C) data flows both into or out of a process. D) always being followed by a data store. Answer: C Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

15) More than one arrow is needed between symbols on a DFD if A) data elements always flow together. B) data elements flow at different times. C) data elements flow to different locations. D) there is no guideline on use of single or multiple arrows. Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) A DFD created at the highest-level or summary view is referred to as a A) process diagram. B) overview diagram. C) content diagram. D) context diagram. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 17) In a payroll processing DFD, the "prepare reports" activity will be represented by the "employee payroll file" will be represented by , and the "management" will be represented by . A) a circle; two horizontal lines; a square. B) a circle; two horizontal lines; two horizontal lines. C) a rectangle; a square; a circle. D) a square; two horizontal lines; a circle. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Application of Knowledge

18) In a customer payment processing DFD, the "update receivables" activity will be represented by , the "accounts receivable file" will be represented by , and the "credit manager" will be represented by . A) a square; two horizontal lines; a circle. B) a rectangle; a square; a circle. C) a circle; two horizontal lines; two horizontal lines. D) a circle; two horizontal lines; a square. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Application of Knowledge 5

19) Preimer Life Company is a life insurance company that collects, stores, prepares and provides customerized life insurance policy to customers in the Midwest. When a customer's information is received, it is recorded in a database and a ticket is provided to the policy underwriter . When the life insurance policy is issued, the database is updated so that it always reflects the correct amount of life insurance coverage and the length of the policy available to the customers. In a data flow diagram, which type of symbol would be used to represent policy underwriters? A) B)

C) D) Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Application of Knowledge

20) Preimer Life Company is a life insurance company that collects, stores, prepares and provides customerized life insurance policy to customers in the Midwest. When a customer's information is received, it is recorded in a database and a ticket is provided to the policy underwriter . When the life insurance policy is issued, the database is updated so that it always reflects the correct amount of life insurance coverage and the length of the policy available to the customers. In a data flow diagram, which type of symbol would be used to represent the system processing customer's information? A) B)

C) D) Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge

21) Preimer Life Company is a life insurance company that collects, stores, prepares and provides customerized life insurance policy to customers in the Midwest. When a customer's information is received, it is recorded in a database and a ticket is provided to the policy underwriter . When the life insurance policy is issued, the database is updated so that it always reflects the correct amount of life insurance coverage and the length of the policy available to the customers. In a data flow diagram, which type of symbol would be used to represent the storage location of data in the system? A) B)

C) D) Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge

22) Preimer Life Company is a life insurance company that collects, stores, prepares and provides customerized life insurance policy to customers in the Midwest. When a customer's information is received, it is recorded in a database and a ticket is provided to the policy underwriter . When the life insurance policy is issued, the database is updated so that it always reflects the correct amount of life insurance coverage and the length of the policy available to the customers. In a data flow diagram, which type of symbol would be used to represent the process of updating customers' life insurance records in the system? A) B)

C) D) Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge

23) Preimer Life Company is a life insurance company that collects, stores, prepares and provides customerized life insurance policy to customers in the Midwest. When a customer's information is received, it is recorded in a database and a ticket is provided to the policy underwriter . When the life insurance policy is issued, the database is updated so that it always reflects the correct amount of life insurance coverage and the length of the policy available to the customers. In a data flow diagram, which type of symbol would be used to represent the flow of data provided by the customers into the system? A) B)

C) D) Answer: C Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge 24) Terrell and Monique Anderson run an antique store in their hometown of Dayton, Ohio. To find items to sell in their shop, they travel around the United States and Europe buying unique artifacts. Within an hour of making a purchase, they use their smartphone to take a picture of the item and post a short tweet about the item on Twitter. Then, they ship the item back to Dayton for sale in their shop. Which symbol should be used to represent Twitter in a context diagram of this process? A) B)

C) D) Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Application of Knowledge 10

25) Terrell and Monique Anderson run an antique store in their hometown of Dayton, Ohio. To find items to sell in their shop, they travel around the United States and Europe buying unique artifacts. Within an hour of making a purchase, they use their smartphone to take a picture of the item and post a short tweet about the item on Twitter. Which symbol should be used to represent the preparation of data for their tweet in a context diagram of this process? A) B)

C) D) Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Application of Knowledge 26) Terrell and Monique Anderson run an antique store in their hometown of Dayton, Ohio. To find items to sell in their shop, they travel around the United States and Europe buying unique artifacts. Within an hour of making a purchase, they use their smartphone to take a picture of the item and post a short tweet about the item on Twitter. Which symbol should be used to represent the transfer of data to Twitter in a context diagram of this process? A) B)

C) D) Answer: C Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge

27) Terrell and Monique Anderson run an antique store in their hometown of Dayton, Ohio. To find items to sell in their shop, they travel around the United States and Europe buying unique artifacts. Within an hour of making a purchase, they use their smartphone to take a picture of the item and post a short tweet about the item on Twitter. Which symbol should be used to represent the remote server that stores the tweets (i.e., the Twitter posts) data? A) B)

C) D) Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge 28) Chas Mulligan has been hired by Yardley Security as an assistant to the internal auditor. He has been asked to document the existing accounting information system, and focus on the activities and flow of data between activities. He decides to begin with a summary description of the sources and uses of data in the organization and how they are processed by the system. The documentation tool that he should employ for this purpose is a A) data flow diagram. B) document flowchart. C) system flowchart. D) program flowchart. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

29) A well-planned and drawn level 0 data flow diagram for the expenditure cycle would show which of the following processes? A) 1.0 Order Goods; 2.0 Receive and Store Goods; 3.0 Pay for Goods. B) 1.0 Order Goods; 1.1 Receive and Store Goods; 1.2 Pay for Goods. C) 0.1 Order Goods; 0.2 Receive and Store Goods; 0.3 Pay for Goods. D) 0.1 Order Goods; 0.12 Receive and Store Goods; 0.13 Pay for Goods. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 30) A well-planned and drawn level 0 data flow diagram for the payroll cycle would show which of the following processes? A) 0.1 Update employee/payroll file; 0.2 Pay employee; 0.3 Prepare Reports; 0.4 Pay taxes; 0.5 Update general ledger. B) 0.1 Update employee/payroll file; 0.12 Pay employee; 0.13 Prepare Reports; 0.14 Pay taxes; 0.15 Update general ledger. C) 1.0 Update employee/payroll file; 1.2 Pay employee; 1.3 Prepare Reports; 1.4 Pay taxes; 1.5 Update general ledger. D) 1.0 Update employee/payroll file; 2.0 Pay employee; 3.0 Prepare Reports; 4.0 Pay taxes; 5.0 Update general ledger. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 31) Data flow diagrams depict A) processes, but not who is performing the processes. B) processes, but not the data that flows between processes. C) who is performing processes, but not how they perform the process. D) who is performing processes, but not the data that flows between processes. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking

32) Which is the correct label for the blank transformation process circle in the data flow diagram below?

A) 1.2 Check Credit B) 1.2 Enter Order in Sales Journal C) 1.2 Does Customer Have Credit? D) 1.2 Salesperson Approves Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

33) In the data flow diagram below, inventory is a

A) data store. B) data source. C) data flow. D) data source and destination. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 34) Discuss the ways in which information professionals interact with documentation tools and the various levels of understanding necessary. Answer: At a minimum, a professional should be able to read documentation. A professional may also be called upon to evaluate internal control system documentation in order to identify control strengths and weaknesses or recommend improvements. A professional may be engaged to prepare documentation, which requires the greatest amount of skill and understanding of a particular system. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 15

35) Explain two reasons why it is important to have a working knowledge of DFDs and flowcharting. Answer: First, SOX requires auditors to evaluate internal control systems. Data flow diagrams and flowcharts are the two most frequently used development and documentation tools used in practice. Second, since systems development is extremely complex, DFDs and flowcharts are tools that are used to create order from chaos and complexity. Third, documentation tools and concepts are covered on the CPA exam. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 36) What does the Sarbanes-Oxley Act require that is relevant to documentation tools? Answer: The Sarbanes-Oxley Act requires that independent auditors understand the automated and manual procedures an entity uses. One of the best ways to gain this understanding is to use the flowcharts to document the internal control system, as weaknesses and strengths are more easily spotted from such graphic portrayals. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 37) Describe a situation in which data flow should be shown with two data flow lines instead of one. Answer: A data flow may consist of one or more pieces of datum. The determining factor is whether the data elements always flow together at the same time. For example, "customer payment" has both payment and remittance data. Since these elements always flow together, only one data flow line is required. However, data flows between the customer and the payment processes have customer inquiries and cash receipts; these data items do not always flow together at the same time. In such a case, two data flow lines will be shown. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 38) Describe the different levels of DFDs. Answer: The highest-level or summary view DFD, which shows major inputs/outputs and a single process is called a context diagram. The DFD itself shows inputs, major processes, and outputs; each process in the DFD can be "exploded" or shown in greater level of detail with the sub-processes and related data flows. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

39) How is a DFD different from a flowchart? Answer: The purpose of a DFD is to diagram the origins, flow, transformation, storage, and destination of data. The purpose a flowchart is to present a graphical description of the flow of documents, relationships among input, processing, and output, or the sequence of logical operations in an information system or program. A DFD is limited to basic symbols and lines, and focuses on the flow and use of data. A flowchart will generally be more complex, and more focused on the managerial, AIS, or IS aspects of the organization. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 40) Explain the relevance of the Sarbanes Oxley Act to the documentation tools presented in this chapter. Answer: The Sarbanes Oxley Act of 2002 requires executives of public companies to document and evaluate internal controls. External auditors must evaluate management's assessment of internal control and attest to its accuracy. Therefore, company executives and the auditors must document and test the internal controls — documentation tools, such as flowcharts, are used to do this. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 41) Discuss the idea of a data flow. Answer: A data flow is a graphic representation of the flow of data between processes, data stores, and data sources and destinations. A data flow is really a form of communication. When the analyst draws a curved or straight line with an arrow at one end, what is represented is a form of communication among the other elements of the data flow process. Consider for example a data source being depicted by a box. The box represents a data source. Data then is sent from the source to a circle, which represents a transformation process. The source of data sends the flow to the transformation process, which will process the data and somehow use the data or turn it into useful information. Note that data flows can represent one or more pieces of datum. Because data flows may have more than one data element, the analyst must determine whether to show one or more lines. Good DFDs and data flow lines in such diagrams eliminate the need for users and analysts to "infer" what type of information is flowing. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

42) What is the value of using a context diagram when working with DFDs? Answer: In order to create a useful DFD, the analyst must determine system boundaries—what is to be included or excluded from the system. A context diagram will help to achieve this goal, since it is a good way to depict the boundaries of the system. The analyst first creates a context diagram by placing a circle in the middle of the diagram. The circle represents the system under consideration. On either side of the circle, boxes are created which represent outside entities the system interacts with directly. Data flow lines are drawn to show the direction of the flow of data. After this pictorial representation has been completed, the analyst can then better assess the boundaries of the system and amount of interaction between the system and outside entities. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 43) Identify five important guidelines for drawing a DFD. Select one from your list and describe why it could be the most important one to consider when preparing a DFD. Support your choice with an example. Answer: Understand the system. Ignore certain aspects of the system (such as control processes and control actions). Determine system boundaries. Develop a context diagram. Identify data flows. Group data flows. Identify transformation processes. Group transformation processes. Identify all files or data stores. Identify all data sources and destinations. All DFD elements are named. Subdivide the DFD. Give each process a sequential number. Repeat the process. Prepare a final copy. (Student answers will vary depending on the items chosen and the quality of their argument. The text provides various items that could be used to answer this question.) Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

44) Following is a context diagram for a current Payroll Processing System. a) Identify the data sources and destinations, data flows, and transformation process marked by question marks. b) What would you need to do to explode this diagram?

Answer: 1 - Human resources, 2 - Time cards, 3 - Payroll processing system, 4 - Employee paychecks or pay-stubs, 5- Payroll report, 6 - Government agencies, 7- Banks. To explode this diagram, additional information is needed to identify detailed procedures within the payroll processing activity as well as additional inputs and outputs. It would be useful to obtain a comprehensive narrative of the payroll processing procedures for review and identification of these items. If there is no narrative available, interviews are another source of information. Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 45) The Sarbanes-Oxley Act requires auditors to create flowcharts to document business processes. Answer: FALSE Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

46) In the data flow diagram below, Shipping is a

A) data store. B) data flow. C) data source. D) data destination. Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

47) In the data flow diagram below, which process happens first?

A) Respond to customer inquiries B) Take order C) Check inventory availability D) Approve order Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

48) In the data flow diagram below, a customer order must be approved before the company checks to make sure the inventory is available.

Answer: TRUE Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 49) In a data flow diagram of the vendor payment process, what symbol would most appropriately reflect an update of the payables account? A) a square B) a circle C) two horizontal lines D) none of the above Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

50) In a data flow diagram of the vendor payment process, "Vendor" will appear above or in A) a square. B) a circle. C) two horizontal lines. D) none of the above Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 51) In a data flow diagram, a triangle represents A) an internal control. B) document filing. C) on page connection. D) document processing. Answer: A Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 52) In a data flow diagram that depicts a company's internal controls, where is each internal control typically explained in detail? A) in an annotation on the same page as the internal control B) inside the symbol used to represent the internal control C) on a table that accompanies the internal control data flow diagram D) Internal controls are not typically explained in detail in an internal control data flow diagram. Answer: C Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 53) Which documentation technique would not depict the type of storage medium used (such as a flash drive or a hard drive) to physically store data? A) system flowchart B) data flow diagram C) business process diagram D) internal control flowchart Answer: B Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

54) In a data flow diagram of the order shipping process, what symbol would most appropriately denote a "Bill of Lading" (a form of shipping document) used in the process? A) a square B) a circle C) two horizontal lines D) an arrow Answer: D Concept: Data flow diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

2 Prepare and use flowcharts to understand, evaluate, and document information systems. 1) The correct label for Shape 1 in the flowchart below is

A) Purchase Order 3 B) Purchase Requisition 1 C) Accounts Payable Trial Balance D) Purchase Order 2 Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

2) The correct label for Shape 2 in the flowchart below is

A) 1 B) Purchase Requisition 1 C) Receiving Report 1 D) 2 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

3) The correct label for Shape 3 in the flowchart below is

A) Purchase Order 1. B) Purchase Requisition 1. C) Receiving Report 1. D) 4. Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

4) The correct shape for the triangle labeled "Supplier" in the flowchart below should be a

A) magnetic tape. B) terminal. C) manual process. D) off-page connector. Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

5) When preparing a document flowchart, the names of organizational departments or job functions should appear in the A) column headings. B) right-hand margin. C) written narrative accompanying the flowchart. D) title of the flowchart. Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6) Flowchart symbols A) are divided into four categories. B) are unique to the organization creating the flowchart. C) are normally drawn using a flowcharting template. D) eliminate the need for narrative descriptions or explanations. Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 7) Which is a true statement regarding the use of the manual processing symbol in a flowchart? A) If a document is moved from one column to another, show the document only in the last column. B) Each manual processing symbol should have an input and an output. C) Do not connect two documents when moving from one column to another. D) Use a manual processing symbol to indicate a document being filed. Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 8) Which is a true statement regarding a document flowchart? A) A document flowchart illustrates the sequence of logical operations performed by a computer. B) A document flowchart is particularly useful in analyzing the adequacy of internal control procedures. C) A document flowchart is more useful than a data flow diagram. D) A document flowchart is not normally used in evaluating internal control procedures. Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 29

Use the chart below to answer the following questions regarding flow chart symbols.

9) Which symbol would be used in a flowchart to represent a computer process? A) #1 B) #2 C) #5 D) #3 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) Which symbol would be used in a flowchart to represent a decision? A) #10 B) #15 C) #9 D) #6 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) Which symbol would be used in a flowchart to represent an invoice sent to a customer? A) #2 B) #6 C) #1 D) #3 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 30

12) Which symbol would be used in a flowchart to represent a general ledger? A) #2 B) #1 C) #6 D) #11 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 13) Which symbol would be used in a flowchart to represent a manual process? A) #5 B) #6 C) #10 D) #8 Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 14) Which symbol would be used in a flowchart to represent a connection to another part of the flowchart on the same page? A) #4 B) #13 C) #14 D) #9 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 15) Which symbol would be used in a flowchart to represent a connection to another part of the flowchart on a different page? A) #4 B) #9 C) #14 D) #15 Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

16) Which symbol would be used in a flowchart to represent a file of paper documents? A) #7 B) #8 C) #9 D) #15 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 17) Which symbol would be used in a flowchart to represent a general ledger master file kept on magnetic disk? A) #2 B) #11 C) #7 D) #8 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 18) Which symbol would be used in a flowchart to represent customer credit request sent by a sales person to the credit manager? A) #1 B) #2 C) #5 D) #8 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 19) Which symbol would be used in a flowchart to represent the display of a report on a computer screen? A) #7 B) #8 C) #3 D) #11 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 32

20) Which symbol would be used in a flowchart to represent the addition of information about a step represented in another symbol on the flowchart? A) #12 B) #13 C) #11 D) #15 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 21) Which symbol would be used in a flowchart to represent a payroll master file kept on magnetic tape? A) #4 B) #7 C) #8 D) #11 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 22) Which symbol would be used in a flowchart to represent a beginning, an ending, or a connection to another procedure? A) #13 B) #14 C) #15 D) #16 Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 23) Which symbol would be used in a flowchart to represent a flow of data or documents? A) #12 B) #13 C) #11 D) #15 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 33

24) Which symbol would be used in a flowchart to represent a communication link? A) #12 B) #13 C) #11 D) #15 Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 25) In a document flowchart of a manual customer payment processing system, "update customer file" will be shown by a(n) symbol, and "update account receivable" will be shown by a(n) symbol. A) input; output B) input; manual operation C) manual operation; output D) manual operation; manual operation Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 26) A flowchart that depicts the relationships among the input, processing, and output of an AIS is A) an internal control flowchart. B) a document flowchart. C) a system flowchart. D) a program flowchart. Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 27) In a program flowchart, branching to alternative paths is represented by A) a terminal. B) data/information flow. C) computer operation. D) decision diamond. Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 34

28) Nancy Kempf has been hired by Andersen Manufacturing as a staff accountant in the internal audit department. She has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements to internal controls. She decides to begin with a description of the information stored in paper records, their sources, and their destinations. The documentation tool that he should employ for this purpose is a A) data flow diagram. B) document flowchart. C) system flowchart. D) program flowchart. Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 29) Nancy Kempf has been hired by Andersen Manufacturing as a staff accountant in the internal audit department. She has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements. She decides to begin by meeting with the information technology staff in order to develop an understanding of the computer programs used by the system. The documentation tool that he should employ for this purpose is a A) data flow diagram. B) document flowchart. C) system flowchart. D) program flowchart. Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Reflective Thinking 30) Nancy Kempf has been hired by Andersen Manufacturing as a staff accountant in the internal audit department. She has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements. She decides to begin by meeting with the information technology staff in order to develop an understanding of the overall operation of the AIS, including data entry, storage, and output. The documentation tool that he should employ for this purpose is a A) data flow diagram. B) document flowchart. C) system flowchart. D) program flowchart. Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 35

31) An invoice is prepared from the sales file and the shipping file, both of which are stored on a hard drive. Which one of the following diagrams represents this activity? A)

Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

32) A customer's check is received and sent to the accounting office for processing. The customer's account receivable file, stored on a hard drive, is updated. Which one of the following diagrams represents this activity? A)

Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

33) A business simulation game that is used by colleges and universities all over the world has students submit decisions over the Internet. Decisions are stored online, processed on the server, and then the results are stored online. They are then downloaded by students in preparation for the next round. Which one of the following diagrams represents this activity? A)

Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

34) A report is generated from data stored on a hard drive. Which one of the following diagrams represents this activity? A)

Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 35) An employee receives a reimbursement check prepared in the company's disbursement process. Which one of the following diagrams represents this activity? A)

Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 39

36) Due to a power outage, the sales clerk manually prepares a sale receipt to her customer. Which one of the following diagrams represents this activity? A)

Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 37) Which of the following is not true about program flowcharts? A) Program flowcharts are a high-level overview of all business processes. B) Program flowcharts document the processing logic of computer programs. C) A program flowchart will exist for every computer process symbol on a system flowchart. D) Program flowcharts increase computer programmer productivity. Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 38) Describe a system flowchart. Describe a program flowchart. How are the two interrelated? Answer: Systems flowcharts depict the relationships among the input, processing, and output of an AIS. The program flowchart illustrates the sequence of logical operations performed by a computer in executing a program. System flowcharts identify processing areas but do not show how the processing is done. The detailed logic used by the computer to perform the processing is shown on a separate program flowchart. Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

39) Identify five important guidelines for drawing a flowchart. Select one from your list and describe why it could be the most important one to consider when preparing a flowchart. Support your choice with an example. Answer: Use interviews, questionnaires, or narrative descriptions to understand the system before flowcharting it. Identify the different entities to be flowcharted such as departments, job functions, or external parties. Also identify documents and information flows along with the activities or processes performed on the data. Organize the flowchart using columns when several entities are involved in the process. Focus on the normal operations and include all relevant procedures and processes. Flowcharts should flow from top to bottom and from left to right. The origin and disposition of documents should be clearly identified by a clear beginning and end in the flowcharts. Use standard flowchart symbols. Multiple documents should be identified by numbers shown in the top right-hand corner of the document symbol. Documents do not directly connect with each other, except when moving from one column to another. Use on-page and off-page connectors to organize flowcharts. Use arrowheads to direct the flow of documents. Clearly label the pages, such as 1 of 3, 2 of 3, and 3 of 3. Documents or reports should be first shown in the column in which they originate and then moved to other columns. Use computer processing symbols to show movement of data in and out of the computer system. Filing operations can be directly shown with one line, no manual processing symbol required. Flowcharting is an iterative process. The first attempt should be a rough draft that is refined with each successive pass. Do not clutter flowcharts; redesign the flowchart as necessary. Review the flowchart for accuracy. On the final copy of the flowchart, the name of the flowchart, date, and the preparer's name should be shown. (Student answers will vary depending on the items chosen and the quality of their argument. The text provides various items that could be used to answer this question.) Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

40) Identify the mistake(s) in each flowchart segment.

Answer: a. Figure a - the sort symbol should be a manual operation symbol. b. Figure b - the file update symbol should be a computer operation symbol, and the arrow from transaction file should flow into file update. c. Figure c - the arrows should point from left to right and a computer operation symbol is needed between the source data and the master file symbols. d. Figure d - the symbol for Endorsed should be a manual operation symbol, and endorsed checks are sent to the bank, so the file symbol should be replaced with a terminal symbol. Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking

Use the chart below to answer the following questions regarding flow chart symbols.

41) Which symbol would be used in a flowchart to represent the symbol for a file? A) #9 B) #5 C) #6 D) #15 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 42) Which symbol would be used in a flowchart to represent manually prepared control totals? A) #9 B) #10 C) #4 D) #7 Answer: C Concept: Data flow diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 43) Which symbol would be used in a flowchart to represent a purchase order? A) #2 B) #1 C) #5 D) #15 Answer: B Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 43

44) Which symbol would be used in a flowchart to note that every sales order contains the customer name, address, product number, quantity ordered, item cost, and credit terms? A) #5 B) #8 C) #11 D) #16 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 45) Which symbol would be used in a flowchart to indicate a wireless connection between a laptop and the mainframe? A) #13 B) #12 C) #11 D) #14 Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 46) Which symbol would be used in a flowchart to indicate flight information was displayed to customers via a large electronic screen in the airport terminal? A) #1 B) #2 C) #3 D) #4 Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 47) Which symbol would be used in a flowchart to indicate the process started with the accounting department? A) #1 B) #10 C) #12 D) #16 Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 44

48) Carly Jackson is a staff auditor for a public accounting firm. She has been asked to document the client's existing accounting information system so the engagement team can assess the client's adequacy of controls around financial reporting. She decides to begin by creating a flowchart to describe, analyze, and evaluate internal controls. What documentation tool should she use for this purpose? A) internal control flowchart B) document flowchart C) system flowchart D) dataflow diagram Answer: A Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 49) Carly Jackson is a staff auditor for a public accounting firm. She has been asked to document the client's existing accounting information system so the engagement team can assess the client's adequacy of controls around financial reporting. She decides to begin by examining the client's key software applications, examining a flowchart that illustrates the sequence of logical operations performed by the system in executing the application. To do this, Carly should ask the client for what type of flowchart? A) internal control flowchart B) document flowchart C) system flowchart D) program flowchart Answer: D Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 50) To create a good business process flowchart, one should emphasize and put less emphasis on . A) meeting with top management; meeting with staff employees B) following rigid rules on how to prepare a business process flowchart; clearly communicating the activities involved in the process C) clearly communicating the activities involved in the process; following rigid rules on how to prepare a business process flowchart D) meeting with staff employees; meeting with top management Answer: C Concept: Flowcharts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking

3 Prepare and use business process diagrams to understand, evaluate, and document information systems. 1) What is a Business Process Diagram (BPD)? Answer: A Business Process Diagram (BPD) is a visual way to describe the different steps or activities in a business process. Concept: Business process diagrams Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) A Business Process Diagram (BPD) provides the reader an easily understood what takes place in a business process. A) narrative B) decision flow C) pictorial view D) data flow Answer: C Concept: Business process diagrams Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

3) In order to maintain uniformity and enhance comparability, there are a fixed number of symbols that can be used in drawing a Business Process Diagram (BPD). Answer: FALSE Concept: Business process diagrams Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) Identify the important steps for drawing a Business Process Diagram (BPD). Select one step from your list and why it could be the most important one to consider when preparing a BPD. Support your choice with an example. Answer: The important steps for drawing a BPD include: identifying and understanding the business processes, ignoring certain items, deciding on how much detail to include, organizing the diagram, entering each business process on the diagram, drawing a rough sketch of the BPD, and drawing a final copy of the BPD. (Student answers will vary depending on the items chosen and the quality of their argument. The text provides various items that could be used to answer this question.) Concept: Business process diagrams Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 4 Relational Databases 1 Explain the importance and advantages of databases, as well as the difference between database systems and file-based legacy systems. 1) Using a file-oriented approach to data and information, data is maintained in A) a centralized database. B) many interconnected files. C) many separate files. D) a decentralized database. Answer: C Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) File-oriented approaches create problems for organizations because of A) multiple transaction files. B) a lack of sophisticated file maintenance software. C) multiple users. D) multiple master files. Answer: D Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3) Which statement is true regarding file systems? A) Transaction files are similar to ledgers in a manual AIS. B) Multiple master files create problems with data consistency. C) Transaction files are permanent. D) Individual records are never deleted in a master file. Answer: B Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) All of the following are benefits of the database approach except A) data integration and sharing. B) decentralized management of data. C) minimal data redundancy. D) cross-functional analysis and reporting. Answer: B Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Which is probably the most immediate and significant effect of database technology on accounting? A) Replacement of the double entry-system. B) Change in the nature of financial reporting. C) Elimination of traditional records such as journals and ledgers. D) Quicker access to and greater use of accounting information in decision-making. Answer: D Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6) Emma Kolb is a system analyst at a manufacturing company located in the Midwest. She has been asked to analyze the company's accounting information system and to recommend costeffective improvements. After noting that the production and sales departments use database systems that are entirely separated, she recommends that they be combined. Implementation of her recommendation would benefit the company by contributing to data A) independence. B) integration. C) redundancy. D) qualifications. Answer: B Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking

7) Emma Kolb is a system analyst at a manufacturing company located in the Midwest. She has been asked to analyze the company's accounting information system and to recommend costeffective improvements. After noting that the same production files have been saved and stored independently on several databases, she recommends that they be stored only once. Implementation of her recommendation would benefit the company by contributing to A) data independence. B) data integration. C) reduce data redundancy. D) increase data sharing. Answer: C Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking 8) Emma Kolb is a system analyst at a manufacturing company located in the Midwest. She has been asked to analyze the company's accounting information system and to recommend costeffective improvements. After noting that the several key managers do not have access to the production and sales information, she recommends that they should be uploaded to the company's internal network and be made available for search. Implementation of her recommendation would benefit the company by contributing to A) data independence. B) data integration. C) reduce data redundancy. D) increase data sharing. Answer: D Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking 9) Merlin Frodo has been doing custom piercings and tattoos for over thirty years. His home and place of business is a garage in the harbor district of Seattle, Washington. He keeps meticulous records of every job he has ever completed. These have been entered into a computerized accounting information system that his accountant refers to as a "data warehouse." Merlin is considering adding scarification to his service offerings and has asked his accountant to identify past customers who might be likely candidates for this service. Merlin wants his accountant to engage in A) customer auditing. B) customer resource management. C) data mining. D) enterprise resource planning. Answer: C Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 3

10) Mara Kay is a system analyst for a national department store. She was tasked to identify previously unknown relationships in the company's sales data that can be used in future promotions. What technique would Mara most likely use? A) Customer auditing B) Customer resource management C) Data exploring D) Data mining Answer: D Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 11) Describe a major advantage of database systems over file-oriented transaction processing systems. Answer: Database systems separate logical and physical views. This separation is referred to as program-data independence. Such separation facilitates developing new applications because programmers can concentrate on coding the application logic (what the program will do) and do not need to focus on how and where the various data items are stored or accessed. In the fileoriented transaction systems, programmers need to know physical location and layout of records which adds another layer of complexity to programming. Concept: Databases and files Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking 12) Explain the difference between file-oriented transaction processing systems and relational database systems. Discuss the advantages and disadvantages of each system. Answer: In file-oriented approaches, different users (or departments, units, etc.) maintain their own data and use different application programs. This results in a significant increase in number of master files stored by an organization. The various disadvantages of file-oriented organization include data redundancy, data inconsistencies, lack of data integration, a large number of data files, substantial program-data dependence, lack of compatibility, and lack of data sharing. The database approach views data as an organizational resource that should be used and managed for the entire organization. The program that manages and controls the data and the interfaces between data and application programs is called the database management system (DBMS). The various advantages of database approach include the following: minimal data redundancy, fewer data inconsistencies, data integration, data sharing, reporting flexibility, central management of data, cross-functional analysis, and data independence. Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

13) Describe what you think will be the main impact of database technology in your career. Answer: Answers to this question could cover a wide range. Most likely the following items will be discussed or mentioned: — the probable demise of the double-entry system as the need for such redundancy is much less in a database system. — financial reporting may become more of accessing a database of corporate data in the format desired by the user than relying on financial reports prepared by accountants. — accountants will no longer need to be the filter for accounting data as users will be able to do this themselves, thus the accountants may become more decision makers and managers. — the whole notion of internal controls will become more important in the future if the accountants' role changes in relation to financial reporting. Concept: Databases and files Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 14) Databases were originally developed to address which problem? A) to replace the double entry-system B) to address the proliferation of master files C) to increase the speed that an organization could process transactions D) to decrease the costs associated with manual accounting systems Answer: B Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 15) A data warehouse A) is primarily used for analysis rather than transaction processing. B) stores transaction processing records in hard copy. C) replaces traditional transaction processing databases. D) increases the speed of transaction processing. Answer: A Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

16) The use of a data warehouse in strategic decision making is often referred to as A) business intelligence. B) managerial accounting. C) data analysis. D) analytical modeling. Answer: A Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) The technique of using queries to investigate hypothesized relationships among data is called A) business intelligence. B) online analytical processing. C) data analysis. D) data mining. Answer: B Concept: Databases and files Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain database systems, including logical and physical views, schemas, the data dictionary, and DBMS languages. 1) The physical view of a database system refers to A) how a user or programmer conceptually organizes and understands the data. B) how the DBMS accesses data for a certain application program. C) how and where the data are physically arranged and stored. D) how master files store data values used by more than one application program. Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 2) What is the difference in logical view and physical view? Answer: The logical view is how the user or programmer conceptually organizes and understands the data, such as data organized in a table. The physical view, on the other hand, refers to how and where the data are physically arranged and stored in the computer system. Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

3) The logical view of a database system refers to A) how a user or programmer conceptually organizes and understands the data. B) how the DBMS accesses data for a certain application program. C) how and where the data are physically arranged and stored. D) how master files store data values used by more than one application program. Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4) The document that shows the items stored in a file, including the order and length of the data fields and the type of data stored is called A) a data layout. B) a logical layout. C) a physical layout. D) a record layout. Answer: D Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 5) What acts as an interface between the database and the various application programs? A) data warehouse B) database administrator C) database system D) database management system Answer: D Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6) The combination of the database, the DBMS, and the application programs that access the database through the DBMS is referred to as the A) data warehouse. B) database administrator. C) database system. D) database management system. Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

7) The is responsible for the database. A) database master B) database manager C) database administrator D) data coordinator Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 8) The handles the link between the way data are physically stored and each user's logical view of that data. A) database management software (DBMS) B) database manager C) data warehouse D) data dictionary Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 9) The logical structure of a database is described by the A) data dictionary. B) schema. C) database management system. D) context diagram. Answer: B Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) The schema that provides an organization-wide view of the entire database is known as the A) external-level schema. B) internal-level schema. C) conceptual-level schema. D) logical view of the database. Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

11) A set of individual user views of the database is called the A) conceptual-level schema. B) internal-level schema. C) external-level schema. D) meta-schema. Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 12) A low-level view of the database that describes how the data are actually stored and accessed is the A) conceptual-level schema. B) subschema. C) internal-level schema. D) external-level schema. Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 13) Record layouts, definitions, addresses, and indexes will be stored at the schema. A) external B) conceptual C) internal D) meta Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 14) The contains information about the structure of the database. A) data definition language B) data dictionary C) data warehouse D) database management system Answer: B Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

level

15) Which of the following would not be found in a data dictionary entry for a data item? A) records containing a specific data item B) physical location of the data C) source of the data item D) field type Answer: B Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) The data dictionary usually is maintained A) automatically by the DBMS. B) by the database administrator. C) by the database programmers. D) by top management. Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 17) Reports produced using the data dictionary could include all of the following except a list of A) programs where a data item is used. B) synonyms for the data items in a particular file. C) outputs where a data element is used. D) the schemas included in a database. Answer: D Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 18) Data dictionary can be used as part of the audit trail. Answer: TRUE Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

19) Which statement below concerning the database management system (DBMS) is false? A) The DBMS automatically creates application software for users, based on data dictionary parameters. B) The DBMS automatically maintains the data dictionary. C) Users' requests for information are transmitted to the DBMS through application software. D) The DBMS uses special languages to perform specific functions. Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 20) Which would not generally be considered a data dictionary output report? A) a list of cash balances in the organization's bank accounts B) a list of all programs in which a data element is used C) a list of all synonyms for the data elements in a particular file D) a list of all data elements used by a particular user Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 21) Creating an empty table in a relational database requires use of the that table requires the use of . A) DDL; DML B) DQL; SQL C) DDL; DQL D) DML; DDA Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

, and populating

22) Describe the differences between the data definition language (DDL), data manipulation language (DML), and the data query language (DQL). Answer: The data definition language (DDL) builds the data dictionary, creates the database, describes logical views for each user, and specifies record or field security constraints. The data manipulation language (DML) changes database content, including data element creations, updates, insertions, and deletions. The data query language (DQL) is a high-level, English-like language that contains powerful, easy-to-use commands that enable users to retrieve, sort, order, and display data. Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 11

23) When the human resources manager wants to gather data about salary and start date by employees and by departments, the manager would use which language? A) Data Manipulation Language B) Data Query Language C) Data Report Language D) Data Definition Language Answer: B Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 24) When the human resources manager wants to add a new employee to the sales department, the manager would use which language? A) Data Manipulation Language B) Data Query Language C) Data Report Language D) Data Definition Language Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 25) When the human resources manager wants to build a data dictionary, the manager would use which language? A) Data Manipulation Language B) Data Query Language C) Data Report Language D) Data Definition Language Answer: D Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

26) If a national sales tax were implemented, which language would be used to add a new field in the sales table to track the sales tax due? A) Data Definition Language B) Data Manipulation Language C) Data Query Language D) Data Update Language Answer: A Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 27) is a feature in many database systems that simplifies the creation of reports by allowing users to specify the data elements desired and the format of the output. A) Report printer B) Report creator C) Report generator D) Report writer Answer: D Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 28) A is an abstract representation of a database's contents. A) schema B) logical data model C) physical view D) data dictionary Answer: B Concept: Database systems Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

29) Mary Lamb is an insurance sales representative. Her company has provided her with a laptop computer that uses wireless connectivity to access the accounting information system from virtually anywhere in the country. She, and other sales reps, have access to view customer and insurance product information. All sales reps also have access that allows them to enter and cancel customer orders. The permissions for Mary define a in the company's database management system. A) conceptual-level schema B) subschema C) data dictionary D) physical view Answer: B Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 30) Mary Lamb is an insurance sales representative. Her company has provided her with a laptop computer that uses wireless connectivity to access the accounting information system from virtually anywhere in the country. She has access to view customer and insurance product information. She also has access that allows her to enter and cancel customer orders. The permissions for Mary (and other sales reps) define a in the company's database management system. A) conceptual-level schema B) data dictionary C) external-level schema D) physical view Answer: C Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 31) Describe the different schemas involved in a database structure. What is the role of accountants in development of schemas? Answer: A schema describes the logical structure of a database. There are three levels of schemas. First, the conceptual-level schema is an organization-wide view of the entire database listing all data elements and relationships between them. Second, an external-level schema is a set of individual user views of portions of the database, each of which is referred to as a subschema. Finally, an internal-level schema provides a low-level view of the database which includes descriptions about pointers, indexes, record lengths, etc. Accountants are primarily involved in the development of conceptual- and external-level schemas; however, database knowledgeable accountants may participate in developing an internal -level schema. Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 14

32) Describe a data dictionary. Answer: A data dictionary is a means by which information about the structure of a database is maintained. For each data element stored in the database, there is a corresponding record in the data dictionary that describes it. The DBMS usually maintains the data dictionary. Inputs to the dictionary include various new data, changed data, and deleted data. Output from the data dictionary may include a variety of reports useful to programmers, database designers, and other users of the information system. Accountants have a very good understanding of the data elements that exist in a business organization, so when an organization is developing a database, accountants should be allowed to participate in the development of the data dictionary. Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 33) Discuss the ways in which a well-designed DBMS will facilitate the three basic functions of creating, changing, and querying data. Answer: A DBMS will use data definition, data manipulation, and data query languages in order to perform the three basic, essential data functions. Data definition is achieved using DDL (data definition language); data manipulation is achieved using DML (data manipulation language) which includes operations such as updating, inserting, and deleting portions of the database. DQL (data query language) is used to retrieve, sort, order, and present subsets of data in response to user queries. A DBMS will probably also include a report writer, which is a language that simplifies report creation. Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 34) List the four DBMS "languages" and describe who uses each and for what purpose. Answer: DDL is the data definition language used by the DBA (database administrator) to create, initialize, describe logical views, and specify security limits. The DML is the data manipulation used by application programmers who embed these action commands into applications to access data in the database. The DQL is the data query language used by IT professionals and users to interrogate the database by retrieving and presenting data in novel ways often on an ad hoc basis. The report writer is a language used by IT professionals and users that simplifies report creation so reports can be created according to user-specified format. Concept: Database systems Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

35) Describe the information that is contained in the data dictionary. Answer: The data dictionary contains information about the structure of the database. For each data element stored in the database, the data dictionary contains all the descriptive information about it, such as its name, description, where it is recorded, its source, field length, type of field, programs it is used in, outputs that contain it, and authorized users. Concept: Database systems Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3 Describe what a relational database is, how it organizes data, and how to create a set of wellstructured relational database tables. 1) in a well-structured relational database. A) Every table must be related to all other tables B) One table must be related to at least one other table C) Every table must be related to at least one other table D) One table must be related to all other tables Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 2) A row in a table that contains data about a specific item in a database table is call A) a data model. B) an attribute. C) a tuple. D) a relational record. Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) An attribute in a table that serves as a unique identifier in another table and is used to link the two tables is a A) foreign key. B) primary key. C) relational key. D) linkage key. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16

4) The problem of changes being incorrectly recorded in a database is known as A) an update anomaly. B) an insert anomaly. C) a delete anomaly. D) a memory anomaly. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) The occurs when more than one occurrence of a specific data item in a database exists. A) inconsistency anomaly B) insert anomaly C) delete anomaly D) update anomaly Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) Inability to add new data to a database without violating the basic integrity of the database is referred to as the A) update anomaly. B) insert anomaly. C) integrity anomaly. D) delete anomaly. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) A relational database in which vendor data is not maintained independently of purchase order data will most likely result in A) an update anomaly. B) an insert anomaly. C) a delete anomaly. D) an integrity anomaly. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 17

8) The problem of losing desired information from a database when an unwanted record is purged from the database is referred to as the anomaly. A) purge B) erase C) delete D) integrity Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9) Identify one potential outcome of the delete anomaly. A) inconsistent data B) inability to add new data C) unintentional loss of data D) none of the above Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) Identify one potential outcome of the insert anomaly. A) inconsistent data B) inability to add new data C) unintentional loss of data D) none of the above Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) Identify one potential outcome of the update anomaly. A) inconsistent data B) inability to add new data C) unintentional loss of data D) none of the above Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

12) The update anomaly in non-normalized database tables A) occurs because of data redundancy. B) restricts addition of new fields or attributes. C) results in records that cannot be updated. D) is usually easily detected by users. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Describe the difference between update anomaly, insert anomaly, and delete anomaly. Provide an example for each of the anomaly. Answer: Update anomaly is an improper database organization where a non-primary key item is stored multiple times; updating the item in one location and not the others causes data inconsistencies. Insert anomaly is an improper database organization that results in the inability to add records to a database. Delete anomaly is an improper organization of a database that results in the loss of all information about an entity when a row is deleted. Students' answers will vary depending on the examples that they use for each of the anomaly. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 14) Identify one potential drawback in the design and implementation of database systems for accounting. A) Double-entry accounting relies on redundancy as part of the accounting process, but welldesigned database systems reduce and attempt to eliminate redundancy. B) Relational DBMS query languages will allow financial reports to be prepared to cover whatever time periods managers want to examine. C) Relational DBMS provide the capability of integrating financial and operational data. D) Relational DBMS can accommodate multiple views of the same underlying data; therefore, tables storing information about assets can include data about both historical and replacement costs. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

15) Abby Burke has created custom statues made out of scrap metal for over ten years. Abby has kept detailed records of every statue she has ever created. For every sale, she obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. Her unique style has recently attracted the attention of several celebrities. Ready to take her business to the next level, Abby has hired you to construct an accounting information system, which she wants modeled after her paper records. As you look over her records, you realize that sometimes the same customer is recorded by a slightly different name. For example, Mike Mulligan bought a horse statue, M. Mulligan bought a bear statue, and Mike M. all seem to be the same person. This is an example of what type of problem in the existing records? A) entity integrity B) referential integrity C) update anomaly D) insert anomaly Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 16) Abby Burke has created custom statues made out of scrap metal for over ten years. Abby has kept detailed records of every statue she has ever created. For every sale, she obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. Her unique style has recently attracted the attention of several celebrities. Ready to take her business to the next level, Abby has hired you to construct an accounting information system, which she wants modeled after her paper records. As you look over her records, you realize that some customers bought multiple statues at the same time. For example, Yasmeen Ghuari bought a Tin Man Status, a flying horseman statue, and a terrier statue. You realize that in these cases, a single written record will have to be translated into multiple sales records. This is an example of what type of problem in the existing records? A) entity integrity B) referential integrity C) update anomaly D) insert anomaly Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

17) Abby Burke has created custom statues made out of scrap metal for over ten years. Abby has kept detailed records of every statue she has ever created. For every sale, she obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. Her unique style has recently attracted the attention of several celebrities. Ready to take her business to the next level, Abby has hired you to construct an accounting information system, which she wants modeled after her paper records. As you look over her records, you notice that some customer last names have different first names in different records. For example, R. Framington Farnsworth, Bob Farnsworth, and Sam Farnsworth all seem to be the same person. You explain to Abby that every customer must be identified by a unique customer number in the AIS. You are referring to the A) entity integrity rule. B) referential integrity rule. C) update anomaly. D) insert anomaly. Answer: A Concept: Relational databases Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 18) Explain the types of attributes that tables possess in a relational database. Answer: Primary key — the attribute, or combination of attributes, that uniquely identify a specific row in a table. Foreign key — an attribute appearing in one table that is a primary key in another table. Nonkey attributes found in tables — For example, an inventory table may contain information about the description, quantity on hand, and list price of each item a company sells. Concept: Relational databases Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 19) Explain the two advantages semantic data modeling has over normalization when designing a relational database. Answer: Semantic data modeling takes advantage of a system designer's knowledge about the business policies and practices of an organization. This is of great benefit in the design of transaction processing databases. Also, since the database model is created around the policies and practices of an organization, communications with the future database users is facilitated. The result is that the system will more closely meet the needs of the intended users. Concept: Relational databases Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

20) Discuss redundancy as it applies to database design. Answer: Redundancy has been called an enemy of relational databases. There are several problems that may occur when redundant data is stored in a database. First, the database becomes larger than it needs to be, since duplicate facts are being stored within it. Second, a situation may occur where only one instance of redundant data is updated or purged. The result is that the accuracy and integrity of the database suffers, since users may be relying on such inaccurate or incorrect redundant data. Redundancy can also make file maintenance unnecessarily time consuming and error-prone when human intervention is required. The problems discussed above have been identified as anomalies of a relational database. There are three specific anomalies connected with redundancy: the update anomaly, the insert anomaly, and the delete anomaly. A well-designed relational database will attempt to reduce or eliminate the number of instances of redundant data. The best way to achieve such a goal is proper design of the database for the needs of a specific organization. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 21) Explain the relational database data model. Answer: A data model is an abstract representation of the contents of a database. The majority of new DMBS use what is called the relational data model, developed by Dr. E. F. Codd in 1970. Using this model, everything in the database is stored in the form of tables, known as relations. Keep in mind that this is the conceptual- and external-level schemas (which describes the logical structure of a database), not the actual physical structure of the database itself. In the concept of relations, both rows and columns comprise the database tables. Each row in a relation (table) is called a tuple. Tuples contain data about a specific occurrence of the type of entity represented by that table. For example, in a sales table, each tuple may contain all of the information about a specific customer. Each column in a relation contains information about one specific attribute of that entity. Using the sales example again, the columns in such a table may represent specific characteristics about each sales transaction. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22) What are the basic requirements when logically designing a relational database model? Answer: Every row in every table must have a unique key known as a primary key. Tables may also have a key known as a foreign key; such a key will have a value corresponding to the primary key in another table. Each column in a table must be single-valued (the same data type) and describes an attribute of the entity identified by the primary key; neither column nor row order is significant in the relational model. Keep in mind that the relational model is a logical model, and the physical model may have a different structure to it to facilitate the storage and access to data. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22

23) How do users retrieve data stored in a database? A) by viewing the appropriate data tables B) by executing a query C) by performing a search D) by specifying the primary keys Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 24) In a well-structured relational database, A) foreign keys cannot be null. B) there must be at least two foreign keys. C) every column in a row must be single valued. D) one table must be related to all other tables. Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 25) Which of the following is false regarding a well-structured relational database? A) A foreign key cannot be null. B) A primary key cannot be null. C) Every column in a row must be single valued. D) All nonkey attributes in a table must describe a characteristic of the object identified by the primary key. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 26) Describe the reason why it is acceptable to have null foreign key, but it is unacceptable to have a null primary key. Use the concept of entity integrity rule and referential integrity rule in your answer. Answer: A primary key cannot uniquely identify a row in a table if it is null (blank). A nonnull primary key ensures that every row in a table represents something and that it can be identified. This is referred to as the entity integrity rule. Foreign keys link rows in one table to rows in another table. This constraint, called the referential integrity rule, ensures database consistency. Foreign keys can contain null values. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 23

27) In a relational database, requiring that every record in a table have a unique identifier is called the A) entity integrity rule. B) referential integrity rule. C) unique primary key rule. D) foreign key rule. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 28) The database requirement that foreign keys must be null or have a value corresponding to the value of a primary key in another table is formally called the A) entity integrity rule. B) referential integrity rule. C) unique primary key rule. D) foreign key rule. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 29) In a well-structured database, the constraint that ensures the consistency of the data is known as the A) entity integrity rule. B) referential integrity rule. C) unique primary key rule. D) foreign key rule. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

30) Identify the statement below that is false with regards to basic requirements of a relational database model. A) Primary keys can be null. B) Foreign keys, if not null, must have values that correspond to the value of a primary key in another table. C) All non-key attributes in a table should describe a characteristic about the object identified by the primary key. D) Every column in a row must be single-valued. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 31) Identify the aspect of a well-structured database that is incorrect. A) Data is consistent. B) Redundancy is minimized and controlled. C) All data is stored in one table or relation. D) The primary key of any row in a relation cannot be null. Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 32) In the database design approach known as normalization, the first assumption made about data is A) there is no redundancy in the data. B) the delete anomaly will not apply since all customer records will be maintained indefinitely. C) everything is initially stored in one large table. D) the data will not be maintained in 3NF tables. Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

33) The database design method in which a designer uses knowledge about business processes to create a diagram of the elements to be included in the database is called A) normalization. B) decentralization. C) geometric data modeling. D) semantic data modeling. Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 34) Which of the statements below is incorrect? A) Semantic data modeling facilitates the efficient design of databases. B) Semantic data modeling facilitates communicating with the intended users of the system. C) Semantic data modeling allows a database designer to use knowledge about business processes to design the database. D) Semantic data modeling follows the rules of normalization in the design of a database. Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 35) A fully normalized database is called A) first normal form (1NF). B) second normal form (2NF). C) third normal form (3NF). D) forth normal form (4NF). Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

36) Pat Owen is chair of the National Grizzly Society, which maintains a database of all grizzly bears within the United States. One table will store the name, birth date, and other characteristics of all of the grizzly bears that have been registered. Each grizzly bear is uniquely identified by a registration number. A second table will contain data that link each grizzly bear to its male and female parents by means of their registration numbers. The primary key in the first table is A) name. B) birth date. C) the primary key in the second table. D) a foreign key in the second table. Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 37) Pat Owen is chair of the National Grizzly Society, which maintains a database of all grizzly bears within the United States. One table will store the name, birth date, and other characteristics of all of the grizzly bears that have been registered. Each grizzly bear is uniquely identified by a registration number. A second table will contain data that link each grizzly bear to its male and female parents by means of their registration numbers. The primary key in the second table is A) name. B) birth date. C) the same as the primary key in the first table. D) a combination of primary keys in the first table. Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 38) Pat Owen is chair of the National Grizzly Society, which maintains a database of all grizzly bears within the United States. One table will store the name, birth date, and other characteristics of all of the grizzly bears that have been registered. Each grizzly bear is uniquely identified by a registration number. A second table will contain data that link each grizzly bear to its male and female parents by means of their registration numbers. The entities described by the second table are A) grizzly bears. B) parental relationships. C) registration numbers. D) names. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

39) Tom Wilson is chairman of the Rare Car Club, where he maintains a database of registered rare cars and their history. One table will store the model, make, vehicle identification number, and other characteristics of all of the registered rare cars. Each rare car is uniquely identified by a registration number. A second table will contain data that link each rare car to its most recent estimated fair market value by means of their registration numbers. The entities described by the first table are A) rare cars. B) estimated fair market value. C) registration numbers. D) vehicle identification numbers. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 40) Tom Wilson is chairman of the Rare Car Club, where he maintains a database of registered rare cars and their history. One table will store the model, make, vehicle identification number, and other characteristics of all of the registered rare cars. Each rare car is uniquely identified by a registration number. A second table will contain data that link each rare car to its most recent estimated fair market value by means of their registration numbers. The primary key in the first table is A) vehicle identification number. B) registration number. C) model. D) make. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

41) Abby Burke has created custom statues made out of scrap metal for over ten years. Abby has kept detailed records of every statue she has ever created. For every sale, she obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. Her unique style has recently attracted the attention of several celebrities. Ready to take her business to the next level, Abby has hired you to construct an accounting information system, which she wants modeled after her paper records. You begin development of the relational database that will form the core of the AIS by envisioning the record stored in a single table with a column that represents each attribute. You then begin to break this table down into smaller tables. This process is called A) integration. B) optimization. C) minimization. D) normalization. Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Reflective Thinking 42) Helen Fume is a recruiter with The Ladders in Nome, Alaska. The Ladders success is largely attributable to its accounting information system. When a client is hired by an employer, Helen creates a record that identifies the employment relationship. Helen follows up on placements by surveying both employers and clients about the employment experience and then entering the results into the AIS. Clients are uniquely identified by social security number. In records that contain client survey data, the social security number is likely to be A) the primary key. B) a foreign key. C) combined with other data fields to form a primary key. D) null. Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

43) Which of the following would not be one of the well-structured tables in a well-designed relational database used to generate this sales invoice?

A) Customer Order B) Customer C) Sales D) Sales Order Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking

44) Which of the following would not be true about the well-structured tables in a well-designed relational database used to generate this sales invoice?

A) Quantity would be generated from the Sales table. B) 34567 would be a primary key in the Sales table. C) Unit Price would be generated from the Inventory table. D) Hardware City is an example of a non-key data value in the Customer table. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking

45) Seacrest Bedding is changing from a file-oriented system to a relational database system. Identify and design at least three tables that would be needed to capture data for a sales transaction. Each table should include a primary key, three non-key attributes, and foreign keys as necessary. Make up data values for two records within each table. Answer: Customer table; ID (primary key), name, street address, city, state, zip code, phone number, credit limit, salesperson ID (foreign key) Salesperson table; ID (primary key), name, street address, city, state, zip code, phone number, hire date, commission rate, base salary Sales table; sales invoice number (primary key), date, amount, sales tax, shipping charge, shipping method, customer ID (foreign key), salesperson ID (foreign key) Inventory table; item ID (primary key), description, size, color, warehouse location, list price, quantity on hand Sales-Inventory table; sales invoice number and item ID (concatenated primary key), quantity sold, sales price, extended amount Students should also make up data values for two separate records for each table. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Application of Knowledge 46) Kitchen World is changing its inventory system from a file-oriented system to a relational database system. Identify and design at least three tables that would be needed to capture data for Kitchen World's inventory. Each table should include a primary key, three non-key attributes, and foreign keys as necessary. Make up data values for two records within each table. Answer: Inventory table; item ID (primary key), description, size, color, warehouse location, quantity on hand Price table; ID (primary key), list price, discount, item ID (foreign key) Sales table; sales invoice number (primary key), date, amount, sales tax, shipping charge, shipping method Sales-Inventory table; sales invoice number and item ID (concatenated primary key), quantity sold, sales price, extended amount Students should also make up data values for two separate records for each table. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Application of Knowledge

47) Which of the following elements link rows in one table to rows in another table? A) Primary keys B) Foreign keys C) Semantic keys D) Link keys Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 48) Suppose a relational database contained two linked tables. Which of the following items is not necessarily present in the database? A) Two primary keys B) Two foreign keys C) At least one column D) One foreign key Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 49) Suppose a relational database contained two linked tables. Assuming the organization wants the database to be normalized, which of the following items represents a problem to normalization? A) The database contains only one primary key. B) The database contains two foreign keys. C) The database contains two primary keys. D) The database contains only one foreign key. Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 50) What are the two ways to query a database using Microsoft Access? Answer: The two ways to query a database using Microsoft Access is by using either (1) the Design view or (2) the Wizard. Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

51) Which one of the following results corresponds to the query below?

Answer: C Concept: Relational databases Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking

52) Which one of the following results corresponds to the query below?

Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

53) Which one of the following results corresponds to the query below?

Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

54) Using the database depicted above, "Date" is best described as A) a primary key. B) a foreign key. C) a non-key attribute. D) an attribute. Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 55) Using the database depicted above, how many primary keys are in the database? A) 0 B) 3 C) 4 D) 5 Answer: C Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 56) Using the database depicted above, how many foreign keys are in the database? A) 0 B) 3 C) 4 D) 5 Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

57) Using the database depicted above, "Item #" is best described as A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 58) Using the database depicted above, "Unit Price" is best described as A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 59) Using the database depicted above, in the Sales table, "Customer #" is best described as A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: A Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 60) In the Customer table above, "Customer #" is best described as A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: D Concept: Relational databases Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking

61) In the Inventory table above, "Item number" is best described as A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: B Concept: Relational databases Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 5 Computer Fraud 1 Explain the threats faced by modern information systems. 1) Perhaps the most striking fact about natural disasters in relation to AIS controls is that A) many companies in one location can be seriously affected at one time by a disaster. B) losses are absolutely unpreventable. C) there are a large number of major disasters every year. D) disaster planning has largely been ignored in the literature. Answer: A Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following is the greatest risk to information systems and causes the greatest dollar losses? A) Human errors and omissions B) Physical threats such as natural disasters C) Dishonest employees D) Computer crime Answer: A Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) Identify the threat below that is not one of the four types of threats faced by accounting information systems. A) Natural and political disasters B) Software errors and equipment malfunctions C) Unintentional acts D) System design inefficiency Answer: D Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Easy AACSB: Application of Knowledge

4) A power outage is an example of a(n) threat. A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) intentional acts (computer crimes) Answer: B Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5) Sabotage is an example of a(n) threat. A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) intentional acts (computer crimes) Answer: D Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) Systems that do not meet company need is an example of a(n) A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) intentional acts (computer crimes) Answer: C Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) Terrorists are an example of a(n) threat. A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) intentional acts (computer crimes) Answer: A Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

threat.

8) Undetected data transmission errors are an example of a(n) A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) intentional acts (computer crimes) Answer: B Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

threat.

9) Excessive heat is an example of a(n) threat. A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) intentional acts (computer crimes) Answer: A Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) What was the first known cyber-attack intended to harm a real-world physical target? A) Sasser B) Stuxnet C) Michelangelo D) Doomsday Answer: B Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 11) What agency did the United States create to use cyber weapons and to defend against cyber attacks? A) U.S. Cyber Command B) Department of Network Security C) Department of Cyber Defense D) Department of Technology Strategy Answer: A Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking

12) Which type of threat poses the greatest risk to information systems? A) Software errors and equipment malfunctions B) Unintentional acts C) Intentional acts (computer crimes) D) Natural and political disasters Answer: B Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) A disgruntled employee in Australia hacked into a sewage system, causing a quarter of a million gallons of raw sewage to flood a hotel and a park. Answer: TRUE Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 14) A 16 year old hacker was able to access the systems of U.S. Missile Command and accidently launched a small nuclear missile, which fortunately, failed to detonate. Answer: FALSE Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 15) At Facebook, an automated system for verifying configuration value errors backfired, causing every single client to try to fix accurate data it perceived as invalid. Since the fix involved querying a cluster of databases, that cluster was quickly overwhelmed by hundreds of thousands of queries a second. The resultant crash took the Facebook system offline for two-anda-half hours. Answer: TRUE Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) The activist hacker group called Anonymous played Santa Claus one Christmas, indicating they were "granting wishes to people who are less fortunate than most." They were inundated with requests for iPads, iPhones, pizzas, and hundreds of other things. They hacked into banks and sent over $1 million worth of virtual credit cards to people. Answer: TRUE Concept: Threats to accounting information systems Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 4

2 Define fraud and describe both the different types of fraud and the auditor's responsibility to detect fraud. 1) Lauren wants to open a floral shop in a downtown business district. She doesn't have funds enough to purchase inventory and pay six months' rent up front. Lauren approaches a good friend, Jamie, to discuss the possibility of Jamie investing funds and becoming a 25% partner in the business. After a lengthy discussion, Jamie agrees to invest. Eight months later, Jamie discovered that Lauren has not be honest with her regarding some aspects of the business financial operation. In order for Jamie to sue Lauren for fraud, all the following must be true except A) Jamie's decision to invest was primarily based on Lauren's assertion that she had prior floral retail experience. B) Jamie has suffered a substantial loss in her investment because of Lauren's deception. C) Jamie trusted and relied on Lauren's representation of the business financial operation. D) Jamie found Lauren dishonest because she does not always reconcile the business cash account on a timely basis. Answer: D Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 2) What characteristics must be presented for an act to be considered fraudulent? Give an example to support your answer. Answer: A false statement, representation, or disclosure; a material fact, which is something that induces a person to act; an intent to deceive; a justifiable reliance; that is, the person relies on the misrepresentation to take an action; and an injury or loss suffered by the victim. Students' response may vary depending on the example that they provide. Concept: Fraud Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 3) Fraud perpetrators are often referred to as A) bad actors. B) blue-collar criminals. C) white-collar criminals. D) outlaws. Answer: C Concept: Fraud Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

4) "Cooking the books" is typically accomplished by all the following except A) overstating inventory. B) accelerating recognition of revenue. C) inflating accounts payable. D) delaying recording of expenses. Answer: C Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 5) SAS No. 99 requires that auditors A) plan audits based on an analysis of fraud risk. B) detect all material fraud. C) alert the Securities and Exchange Commission of any fraud detected. D) take all of the above actions. Answer: A Concept: Fraud Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 6) What is the primary difference between fraud and errors in financial statement reporting? A) The level of management involved B) The intent to deceive C) The materiality of the misstatement D) The type of transaction effected Answer: B Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) The two most common types of fraud impacting financial statements are A) corruption and fraudulent financial reporting. B) misappropriation of assets and embezzlement. C) fraudulent financial reporting and e-commerce fraud. D) fraudulent financial reporting and misappropriation of assets. Answer: D Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

8) Intentional or reckless conduct that results in materially misleading financial statements is called A) financial fraud. B) misstatement fraud. C) fraudulent financial reporting. D) audit failure fraud. Answer: C Concept: Fraud Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 9) Which of the following is not an example of one of the basic types of fraud? A) While straightening the store at the end of the day, a shoe store employee finds and keeps an expensive pair of sunglasses left by a customer. B) An executive devised and implemented a plan to accelerate revenue recognition on a longterm contract, which will allow the company to forestall filing for bankruptcy. The executive does not own any stock, stock options or grants, and will not receive a bonus or perk because of the overstated revenue. C) A purchasing agent places a large order at higher-than-normal unit prices with a vendor that gave the agent tickets to several football games. D) A salesperson approves a large sales discount on an order from a company owned partially by the salesperson's sister. Answer: A Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 10) Describe two kinds of fraud. Answer: Misappropriation of assets, or theft, by a person or group for personal financial gain is usually committed by employees. Fraudulent financial reporting is intentional or reckless conduct that results in materially misleading financial statements. Concept: Fraud Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

11) Which of the following is not an example of misappropriation of assets? A) A warehouse employee takes home two units of electronic entertainment inventory each week without authorization. B) The chief financial officer of the company falsely adds $20 million to the accounts receivable and revenue accounts. C) The president of the company utilizes the organization's cash to add a floor to her 15,000 square foot house. D) The treasurer of the company makes an unauthorized wire transfer from the organization's bank to a personal account in Grand Cayman. Answer: B Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 12) Describe some of the most frequent fraudulent financial reporting schemes. Answer: The most frequent fraudulent financial reporting schemes involve fictitiously inflating revenues, holding the books open (recognizing revenues before they are earned), closing the books early (delaying current expenses to a later period), overstating inventories or fixed assets, and concealing losses and liabilities. Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 13) Describe ways that the Treadway Commission has recommended to reduce fraudulent financial reporting. Answer: The Treadway Commission recommended four actions to reduce fraudulent financial reporting: (1) Establish an organizational environment that contributes to the integrity of the financial reporting process. (2) Identify and understand the factors that lead to fraudulent financial reporting. (3) Assess the risk of fraudulent financial reporting within the company. (4.) Design and implement internal controls to provide reasonable assurance of preventing fraudulent financial reporting. Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

14) Asset misappropriation is likely than fraudulent financial reporting. The amounts involved in asset misappropriation are much than fraudulent financial reporting. A) less; more B) less; less C) more; less D) more, more Answer: C Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) Misappropriation of assets is a fraudulent act that involves A) dishonest conduct by those in power. B) misrepresenting facts to promote an investment. C) using computer technology to perpetrate a crime. D) theft of company property. Answer: D Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) Explain the impact of SAS No. 99 on auditors' responsibilities. Answer: SAS No. 99, effective December 2002, requires that auditors explicitly consider fraud risks when planning and performing an audit. Auditors must understand types and characteristics of fraud. Audit teams must review clients' financial statements for areas susceptible to fraud and communicate with each other during planning of the audit. Auditors must ask management and audit committee members about any past or current instances of fraud. Since many frauds involve revenue recognition, auditors must exercise special care and testing in examining revenue accounts. Audit procedures and testing must be tailored in response to fraud risk assessment. Auditors must evaluate the risk of management override of controls and any other indications of fraud occurrences. All audit procedures, testing and findings must be documented and communicated to management and the audit committee. Auditors must evaluate and recognize the impact of technology on fraud risks, as well as opportunities technology may provide to design fraud-auditing procedures. Concept: Fraud Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

3 Discuss who perpetrates fraud and why it occurs, including the pressures, opportunities, and rationalizations that are present in most frauds. 1) Fraud perpetrators do not typically A) attempt to return or pay back stolen amounts soon after the initial theft, but find they are unable to make full restitution. B) use trickery or lies to gain the confidence and trust of others at the organization they defraud. C) become bolder and more greedy the longer the theft remains undetected. D) begin to rely on stolen amounts as part of their income. Answer: A Concept: Fraud perpetrators Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Researchers found significant differences between white-collar criminals and the public. Answer: FALSE Concept: Fraud perpetrators Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) Most fraud perpetrators have previous criminal record; they were dishonest and disrespected members of their community. Answer: FALSE Concept: Fraud perpetrators Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) Lapping is best described as the process of A) applying cash receipts to a different customer's account in an attempt to conceal previous thefts of cash receipts. B) inflating bank balances by transferring money among different bank accounts. C) stealing small amounts of cash, many times over a period of time. D) increasing expenses to conceal that an asset was stolen. Answer: A Concept: Fraud Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

5) Which of the following is not an example of the fraud triangle characteristic concerned with rationalization? A) Revenge against the company B) Intent to repay "borrowed" funds in the future C) Sense of entitlement as compensation for receiving a lower than average raise D) Belief that the company won't suffer because an insurance company will reimburse losses Answer: A Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 6) Insiders are frequently the ones who commit fraud because A) they are more dishonest than outsiders. B) they need money more than outsiders. C) they are less likely to get caught than outsiders. D) they know more about the system and its weaknesses than outsiders. Answer: D Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) Which of the following is not a management characteristic that increases pressure to commit fraudulent financial reporting? A) Close relationship with the current audit engagement partner and manager B) Pay for performance incentives based on short-term performance measures C) High management and employee turnover D) Highly optimistic earnings projections Answer: A Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) Researchers have compared the psychological and demographic characteristics of white-collar criminals, violent criminals, and the general public. They found that A) few differences exist between white-collar criminals and the general public. B) white-collar criminals eventually become violent criminals. C) most white-collar criminals invest their illegal income rather than spend it. D) most white-collar criminals are older and not technologically proficient. Answer: A Concept: Fraud perpetrators Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11

9) Identify the opportunity below that could enable an employee to commit fraud. A) An employee's spouse loses her job. B) The company does not have a clear policies and procedures for the employee to follow. C) The employee is experiencing financial hardship. D) An employee is upset that he was passed over for a promotion. Answer: B Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following is a financial pressure that could cause an employee to commit fraud? A) A feeling of not being valued. B) Having a grumbling and drug addiction. C) Having a close association with suppliers and customers. D) Having an anger management issue. Answer: B Concept: The concept of information Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) Which of the following fraudulent acts generally takes most time and effort? A) Lapping accounts receivable. B) Selling stolen inventory to get cash. C) Stealing inventory from the warehouse. D) Creating false journal entries to overstate revenue. Answer: A Concept: Fraud Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 12) In many cases of fraud, the A) concealment; theft B) theft; concealment C) conversion; theft D) conversion; concealment Answer: A Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

takes more time and effort than the

13) Which of the following is the best way to hide theft of assets? A) Only steal an immaterial amount of assets. B) Conversion of stolen assets into cash. C) Stealing cash from customer A and then using customer B's balance to pay customer A's accounts receivable. D) Charging the stolen asset to an expense account. Answer: D Concept: Fraud Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 14) Which fraud scheme involves stealing customer receipts and applying subsequent customer cash payments to cover the theft? A) kiting B) laundering C) lapping D) bogus expense Answer: C Concept: Fraud Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 15) One fraudulent scheme covers up a theft by creating cash through the transfer of money between banks. This is known as A) lapping. B) misappropriation of assets. C) kiting. D) concealment. Answer: C Concept: Fraud Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16) Which of the following is not one of the components of the fraud triangle? A) Incentive B) Rationalization C) Susceptibility D) Opportunity Answer: C Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 13

17) Which characteristic of the fraud triangle often stems from a lack of internal controls within an organization? A) Pressure B) Opportunity C) Rationalization D) Concealment Answer: B Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 18) Which characteristic of the fraud triangle often stems from the belief that "the rules do not apply to me" within an organization? A) Pressure B) Opportunity C) Rationalization D) Concealment Answer: C Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 19) Which situation below makes it easy for someone to commit a fraud? A) Placing excessive trust in key employees. B) Inadequate staffing within the organization. C) Unclear company policies. D) All of the above situations make it easy for someone to commit a fraud. Answer: D Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 20) What is the most prevalent opportunity within most companies to commit fraud? A) Lack of internal controls designed by management. B) Failure by management to enforce the internal controls. C) Weaknesses in the design of internal controls. D) Management's belief that most employees would not commit fraud. Answer: B Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

21) This component of the fraud triangle explains the incentive or motivation for someone to commit fraud. A) Pressure B) Rationalization C) Concealment D) Opportunity Answer: A Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 22) The most efficient way to conceal asset misappropriation is to A) understate a stolen inventory item an asset account. B) charge a stolen inventory item to an expense account. C) not talk about the theft with anyone in the company. D) record fictitious payments to vendors. Answer: B Concept: The fraud triangle Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 23) What are some of the distinguishing characteristics of fraud perpetrators? Answer: Some distinguishing characteristics of fraud perpetrators are: they tend to spend their illegal income to support their lifestyle; once they begin it becomes harder to stop and they become bolder as each incident happens; once they start to rely on the ill-gotten gains, they become more greedy and sometimes careless and overconfident. In the case of computer criminals, they are often young and have substantial computer knowledge. About two-thirds are men and likely to be an employee of the firm from which they steal. Many are unhappy or disgruntled with their employer because they feel unappreciated and underpaid. Most have no previous criminal record. Concept: Fraud perpetrators Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4 Define computer fraud and discuss the different computer fraud classifications. 1) Which of the following is least likely to result in computer fraud? A) Releasing data to unauthorized users. B) Allowing computer users to test software upgrades. C) Allowing computer operators full access to the computer room. D) Storing backup tapes in a location where they can be quickly accessed. Answer: C Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 2) How does the U.S. Justice Department define computer fraud? A) As any crime in which a computer is used. B) As any act in which cash is stolen using a computer. C) As an illegal act in which a computer is an integral part of the crime. D) As an illegal act in which knowledge of computer technology is essential. Answer: D Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 3) Why is computer fraud often much more difficult to detect than other types of fraud? A) Because fraud can be committed in only seconds, leaving little-to-no evidence. B) Because most perpetrators do not spend their illegal income immediately, concealing key evidence. C) Because most computer criminals are older and more cunning than perpetrators of other types of fraud. D) Because perpetrators usually only steal immaterial amounts of money at a time, requiring a long period of time to pass before discovery Answer: A Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

4) Why is computer fraud often more difficult to detect than other types of fraud? A) Rarely is cash stolen in computer fraud. B) The fraud may leave little or no evidence it ever happened. C) Computers provide more opportunities for fraud. D) Computer fraud perpetrators are just more clever than other types of criminals. Answer: B Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) Computer systems are particularly vulnerable to computer fraud because A) perpetrators can steal, destroy, or alter massive amount of data in very little time, often leaving little evidence. B) computer fraud can be much more difficult to detect than other types of fraud. C) computer programs need to be modified illegally only once for them to operate improperly for as long as they are in use. D) all of the above. Answer: D Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 6) Why do many computer fraud cases go unreported and unprosecuted? A) Many companies believe the adverse publicity would result in copycat fraud and a loss of customer confidence, which could cost more than the fraud itself. B) It is difficult to calculate total losses when information is stolen, websites are defaced, and viruses shut down entire computer systems. C) Because of lack of funding and skilled staff, law enforcement investigates only 1 in 15 computer crimes. D) All of the above Answer: D Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

7) The fraud that requires the least computer knowledge or skill involves A) altering or falsifying source data. B) unauthorized use of computers. C) tampering with or copying software. D) forging documents like paychecks. Answer: A Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 8) The simplest and most common way to commit a computer fraud is to A) alter computer input. B) alter computer output. C) modify the processing. D) corrupt the database. Answer: A Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 9) Downloading a master list of customers and selling it to a competitor is an example of A) data fraud. B) output theft. C) download fraud. D) fraudulent financial reporting. Answer: A Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

10) Which of the following is an example of processor fraud? A) A man used desktop publishing to prepare bills for office supplies that were never ordered or delivered and mailed them to local companies. The invoices were for less than $300, an amount that often does not require purchase orders or approvals. A high percentage of the companies paid the bills. B) Two accountants without the appropriate access rights hacked into Cisco's stock option system, transferred over $6.3 million of Cisco stock to their brokerage accounts, and sold the stock. They used part of the funds to support an extravagant lifestyle, including a $52,000 Mercedes-Benz, a $44,000 diamond ring, and a $20,000 Rolex watch. C) The office manager of a Wall Street law firm sold information to friends and relatives about prospective mergers and acquisitions found in Word files. They made several million dollars trading the securities. D) A fraud perpetrator scanned a company paycheck, used desktop publishing software to erase the payee and amount, and printed fictitious paychecks. Answer: B Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 11) Which of the following is an example of input fraud? A) A man used desktop publishing to prepare bills for office supplies that were never ordered or delivered and mailed them to local companies. The invoices were for less than $300, an amount that often does not require purchase orders or approvals. A high percentage of the companies paid the bills. B) Two accountants without the appropriate access rights hacked into Cisco’’s stock option system, transferred over $6.3 million of Cisco stock to their brokerage accounts, and sold the stock. They used part of the funds to support an extravagant lifestyle, including a $52,000 Mercedes-Benz, a $44,000 diamond ring, and a $20,000 Rolex watch. C) The office manager of a Wall Street law firm sold information to friends and relatives about prospective mergers and acquisitions found in Word files. They made several million dollars trading the securities. D) A fraud perpetrator scanned a company paycheck, used desktop publishing software to erase the payee and amount, and printed fictitious paychecks. Answer: A Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

12) Which of the following is an example of data fraud? A) A man used desktop publishing to prepare bills for office supplies that were never ordered or delivered and mailed them to local companies. The invoices were for less than $300, an amount that often does not require purchase orders or approvals. A high percentage of the companies paid the bills. B) Two accountants without the appropriate access rights hacked into Cisco’’s stock option system, transferred over $6.3 million of Cisco stock to their brokerage accounts, and sold the stock. They used part of the funds to support an extravagant lifestyle, including a $52,000 Mercedes-Benz, a $44,000 diamond ring, and a $20,000 Rolex watch. C) The office manager of a Wall Street law firm sold information to friends and relatives about prospective mergers and acquisitions found in Word files. They made several million dollars trading the securities. D) A fraud perpetrator scanned a company paycheck, used desktop publishing software to erase the payee and amount, and printed fictitious paychecks. Answer: C Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the following is an example of output fraud? A) A man used desktop publishing to prepare bills for office supplies that were never ordered or delivered and mailed them to local companies. The invoices were for less than $300, an amount that often does not require purchase orders or approvals. A high percentage of the companies paid the bills. B) Two accountants without the appropriate access rights hacked into Cisco’’s stock option system, transferred over $6.3 million of Cisco stock to their brokerage accounts, and sold the stock. They used part of the funds to support an extravagant lifestyle, including a $52,000 Mercedes-Benz, a $44,000 diamond ring, and a $20,000 Rolex watch. C) The office manager of a Wall Street law firm sold information to friends and relatives about prospective mergers and acquisitions found in Word files. They made several million dollars trading the securities. D) A fraud perpetrator scanned a company paycheck, used desktop publishing software to erase the payee and amount, and printed fictitious paychecks. Answer: D Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

14) Discuss the reasons for the rapid increase of computer fraud. Answer: Not everyone agrees on what constitutes computer fraud and some people may commit computer fraud unwittingly and not be aware of it. Many computer frauds go undetected. The belief that "it just can't happen to us." Most networks have a low level of security. Many Internet sites provide guidance on how to commit computer crimes. Law enforcement is unable to keep up with the number of computer frauds. Most frauds are not reported. The total dollar value of losses is difficult to calculate. Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 15) Why do fraudulent acts often go unreported and are therefore not prosecuted? Answer: Most fraud cases go unreported and are not prosecuted for several reasons. Many cases of computer fraud are as yet still undetected. As new technology and methods become available to organizations, prior undetected fraud may be revealed in the future. A second reason is that companies are reluctant to report computer fraud and illegal acts simply because of bad publicity—a highly visible case can undermine consumer confidence in an organization such as a financial institution. Also, the fact that a fraud has occurred may indeed encourage others to attempt to commit further acts against the organization. It would seem that unreported fraud creates a false sense of security, as people think systems are more secure than they are in reality. Another reason for not reporting fraudulent acts is the fact that the court system and law enforcement is busy with violent crimes and criminals in its system. There is little time left to go after a crime where no physical harm is present. Also, the court system tends to treat teen hacking and cracking as "acts of childhood" rather than as serious crimes—this leads to many plea bargains when a computer fraud is brought to trial. Another reason is that a computer fraud case is difficult, costly, and time-consuming to investigate and prosecute. Before 1986 no federal law existed governing computer fraud. Law enforcement officials, lawyers, and judges generally lack the computer skills necessary to properly evaluate, investigate, and prosecute computer crimes. Sadly, when all is said and done a successful prosecution and conviction of computer fraud results in a very light sentence. All of these factors contribute to the under reporting and lack of prosecution of computer fraud crimes. Not everyone agrees on what constitutes computer fraud: • Many networks have a low level of security • Many Internet pages give instruction on how to carry out computer crimes • Law enforcement has difficulty keep up with the growing number of computer frauds • The total dollar value of losses from computer fraud is difficult to estimate. Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

16) Explain the various computer fraud classifications using the data processing model. Provide an example for each computer fraud classification. Answer: Computer fraud can be classified into the following categories: data fraud, input fraud, processor fraud, computer instructions fraud, and output fraud. Illegally using, copying, browsing, searching, or harming company data constitutes data fraud. The simplest and most common way to commit a computer fraud is to alter or falsify computer input. Processor fraud includes unauthorized system use, including the theft of computer time and services. Computer instructions fraud includes tampering with company software, copying software illegally, using software in an unauthorized manner, and developing software to carry out an unauthorized activity. Unless properly safeguarded, displayed or printed output can be stolen, copied, or misused. Students answer may vary depending on the examples they used. Concept: Computer fraud Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking 5 Explain how to prevent and detect computer fraud and abuse. 1) Most frauds are detected by A) external auditors. B) hotline tip. C) internal auditors. D) forensic accountants. Answer: B Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following will not reduce the likelihood of an occurrence of fraud? A) Encryption of data and programs. B) Use of forensic accountants. C) Adequate insurance coverage. D) Required vacations and rotation of duties. Answer: C Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

3) The day after Christmas, Jane Olson, Chief Information Officer at American Trading Corporation (ATC), received some bad news. The hard drive use to store the company's system data backups was lost while it was being transported to an offsite storage location. Jane called a meeting of her technical staff to discuss the implications of the loss. Which of the following is most likely to relieve her concerns over the potential cost of the loss? A) ATC has a comprehensive disaster recovery plan. B) The hard drive was encrypted and password protected. C) The shipper has insurance that will reimburse ATC for the cost of the hard drive. D) ATC has a copy of the hard drive onsite, so a new copy for storage offsite can easily be prepared. Answer: B Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 4) is a simple, yet effective, method for catching or preventing many types of employee fraud. A) Requiring all employees to take annual vacations B) Monitoring all employees computer usage activities C) Requiring all employees to take a fraud prevention awareness course D) Explaining that fraud is illegal and will be severely punished to employees Answer: A Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 5) What are the actions recommended by the Treadway Commission to reduce the possibility of fraudulent financial reporting? Answer: Establish an organizational environment that contributes to the integrity of the financial reporting process. Identify and understand the factors that lead to fraudulent financial reporting. Assess the risk of fraudulent financial reporting within the company. Design and implement internal controls to provide reasonable assurance that the fraudulent financial reporting is prevented. Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

6) Describe at least four ways a company can make fraud less likely to occur. Answer: A company can decrease fraud by: good hiring and firing practices; good management of unhappy employees; training in fraud awareness; manage and track computer licenses; implement signed confidentiality agreements; maintain visible security; educate the workforce in ethics and the penalties for illegal acts. Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 7) Describe four ways companies can reduce losses from fraud. Answer: Maintain adequate insurance. Keep a current backup copy of all program and data files in a secure off-site location. Develop a contingency plan for fraud occurrences and other disasters that might occur. Use special software designed to monitor system activity and help companies recover from frauds and malicious actions. Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 8) A teller at a savings and loan drive-through accepted a cash payment from customer #1 for an auto loan. The teller appeared to process the payment, but told the customer the printer was jammed and she can't print a receipt. The customer accepted the excuse and drove away. The teller pocketed the cash and wrote down customer #1's loan number and payment amount for future reconciling. A couple of days before customer #1's monthly statement was printed, the teller recorded a cash payment from customer #2 as if it were made by customer #1. The teller pocketed the difference between the two payments. The teller continued to steal and misapply customer payments for the next two years without detection. Identify the type of fraud scheme described. Describe five controls you would implement to address the fraud risk, and label each control as preventive or detective. Answer: The fraud appears to be misappropriation of assets that is being concealed with a lapping scheme. Controls would include: 1. rotation of duties (primarily detective) 2. mandatory vacations (primarily detective) 3. surveillance with cameras (primarily detective) 4. staggered statement printing schedules, unknown to tellers (detective) 5. sequentially prenumbered, duplicate receipts (detective) 6. segregation of duties between cash handling and recording (preventive) 7. encourage customers to utilize on-line banking for loan payments and to frequently check balances (detective) Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

9) At the beginning of this chapter, you were presented with a situation regarding Jason Scott. Jason is an internal auditor for Northwest Industries, a forest products company. On March 31, he reviewed his completed tax return and noticed that the federal income tax withholding on his final paycheck was $5 more than the amount indicated on his W-2 form.He used the W-2 amount to complete his tax return and made a note to ask the payroll department what happened to the other $5. The next day, Jason was swamped, and he dismissed the $5 difference as immaterial. On April 16, a coworker grumbled that the company had taken $5 more from his check than he was given credit for on his W-2. When Jason realized he was not the only one with the $5 discrepancy, he investigated and found that all 1,500 employees had the same $5 discrepancy. He also discovered that the W-2 of Don Hawkins, the payroll programmer, had thousands of dollars more in withholdings reported to the Internal Revenue Service (IRS) than had been withheld from his paycheck. Identify the type of fraud scheme may have happened as described. Describe controls you would implement to address the fraud risk, and label each control as preventive or detective. Answer: The fraud appears to be involved computer fraud. Possible controls would include: 1. rotation of duties (primarily detective) 2. mandatory vacations (primarily detective) 3. surveillance (primarily detective) 4. segregation of duties between cash handling and recording (preventive) Students' answer would vary depending on the type of fraud scheme they identify. Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 10) Which of the following is not a way to make fraud less likely to occur? A) Adopt an organizational structure that minimizes the likelihood of fraud. B) Create an organizational culture that stresses integrity and commitment to ethical values. C) Create an audit trail so individual transactions can be traced. D) Effectively supervise employees. Answer: C Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 11) Which of the following is not a way to reduce fraud losses? A) Conduct periodic external and internal audits. B) Maintain adequate insurance. C) Use software to monitor system activity. D) Store backup copies of program and data files. Answer: A Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 25

12) Which of the following is not a way to improve fraud detection? A) Install fraud detection software. B) Implement a fraud hotline. C) Employ a computer security officer. D) Implement computer-based controls over input, processing, storage, and output activities. Answer: D Concept: Fraud prevention Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 6 Computer Fraud and Abuse Techniques 1 Compare and contrast computer attack and abuse tactics. 1) consists of the unauthorized copying of company data. A) Phishing B) Masquerading C) Data leakage D) Eavesdropping Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) Individuals who use telephone lines to commit fraud and other illegal acts are typically called A) phreakers. B) crackers. C) phishers. D) hackers. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) A hacker who changed the voice mail greeting of a company to say that it is offering free products by asking customers to dial a different phone number to claim their gifts is engaging in A) diddling. B) phreaking C) phishing. D) hacking. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) What is a denial of service attack? A) It is an attack when the perpetrator is inserting malicious query in input such that it is passed to and executed by an application program. B) It is an attack when the perpetrator is inputting so much data that the input buffer overflows. The overflow contains code that takes control of the company's computer. C) It is an attack when the perpetrator uses software to guess company's addresses, send employees blank e-mails, and add unreturned messages to spammer e-mail list. D) It is an attacked when the perpetrator sends hundreds of messages from randomly generated false addresses, overloading an Internet service provider's e-mail server. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5) What is a dictionary attack? A) It is an attack when the perpetrator is inserting malicious query in input such that it is passed to and executed by an application program. B) It is an attack when the perpetrator is inputting so much data that the input buffer overflows. The overflow contains code that takes control of the company's computer. C) It is an attack when the perpetrator uses software to guess company's addresses, send employees blank e-mails, and add unreturned messages to spammer e-mail list. D) It is an attacked when the perpetrator sends hundreds of messages from randomly generated false addresses, overloading an Internet service provider's e-mail server. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) What is a buffer overflow attack? A) It is an attack when the perpetrator is inserting malicious query in input such that it is passed to and executed by an application program. B) It is an attack when the perpetrator is inputting so much data that the input buffer overflows. The overflow contains code that takes control of the company's computer. C) It is an attack when the perpetrator uses software to guess company's addresses, send employees blank e-mails, and add unreturned messages to spammer e-mail list. D) It is an attacked when the perpetrator sends hundreds of messages from randomly generated false addresses, overloading an Internet service provider's e-mail server. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

7) What is a SQL injection attack? A) It is an attack when the perpetrator is inserting malicious query in input such that it is passed to and executed by an application program. B) It is an attack when the perpetrator is inputting so much data that the input buffer overflows. The overflow contains code that takes control of the company's computer. C) It is an attack when the perpetrator uses software to guess company's addresses, send employees blank e-mails, and add unreturned messages to spammer e-mail list. D) It is an attacked when the perpetrator sends hundreds of messages from randomly generated false addresses, overloading an Internet service provider's e-mail server. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 8) Gaining control of somebody's computer without their knowledge and using it to carry out illicit activities is known as A) hacking. B) spamming. C) posing. D) hijacking. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) Creating a seemingly legitimate business, collecting personal data while making a sale, and never delivering items sold is known as A) hacking. B) spamming. C) posing. D) hijacking. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

10) Sending an unsolicited message to many people at the same time is known as A) hacking. B) spamming. C) posing. D) hijacking. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 11) Unauthorized access, modification, or use of an electronic device or some element of a computer system is known as A) hacking. B) spamming. C) posing. D) hijacking. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) Tapping into a communications line and then entering the system by accompanying a legitimate user without their knowledge is called A) superzapping. B) tabnapping. C) pretexting. D) piggybacking. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) Using special software to bypass system controls and perform illegal acts is called A) superzapping. B) tabnapping. C) pretexting. D) piggybacking. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 4

14) Secretly changing an already open browser tab using JavaScript is called A) superzapping. B) tabnapping. C) pretexting. D) piggybacking. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 15) Acting under false pretenses to gain confidential information is called A) superzapping. B) tabnapping. C) pretexting. D) piggybacking. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) Which of the following is not a method of identity theft? A) Scavenging B) Phishing C) Shoulder surfing D) Phreaking Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 17) The deceptive method by which a perpetrator gains access to the system by pretending to be an authorized user is called A) masquerading. B) bluebugging. C) eavesdropping. D) podslurping. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

18) Taking control of a phone to make calls, send text messages, listen to calls, or read text messages is called A) masquerading. B) bluebugging. C) eavesdropping. D) podslurping. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 19) Listening to private voice or data transmissions is called A) masquerading. B) bluebugging. C) eavesdropping. D) podslurping. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 20) Using a small device with storage capacity (iPod, Flash drive) to download unauthorized data from a computer is called A) masquerading. B) bluebugging. C) eavesdropping. D) podslurping. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 21) The unauthorized access to, or use of, a computer system is known as A) pharming. B) cyber-bullying. C) hacking. D) vishing. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6

22) Redirecting traffic to a spoofed website to obtain confidential information is known as A) pharming. B) cyber-bullying. C) hacking. D) vishing. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) Voice phishing, in which e-mail recipients are asked to call a phone number that asks them to divulge confidential data is known as A) pharming. B) cyber-bullying. C) hacking. D) vishing. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 24) Using computer technology to harm another person is known as A) pharming. B) cyber-bullying. C) hacking. D) vishing. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 25) A fraud technique that slices off tiny amounts from many projects is called the technique. A) Trojan horse B) man-in-the-middle C) salami D) trap door Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

26) A fraud technique that uses a back door into a system that bypasses normal system controls is called the technique. A) Trojan horse B) man-in-the-middle C) salami D) trap door Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 27) A fraud technique that uses unauthorized codes in an authorized and properly functioning program is called the technique. A) Trojan horse B) man-in-the-middle C) salami D) trap door Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 28) A fraud technique that allows a hacker to place himself or herself between a client and a host to intercept network traffic is called the technique. A) Trojan horse B) man-in-the-middle C) salami D) trap door Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

29) Data diddling is A) verifying credit card validity; buying and selling stolen credit cards. B) inserting a sleeve into an ATM so that it will not eject the victim's card, pretending to help the victim as a means of obtaining his PIN, and using the card and PIN to drain the account. C) a technique that tricks a person into disclosing confidential information. D) changing data before, during, or after it is entered into the system in order to delete, alter, or add key system data. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 30) Social engineering is A) verifying credit card validity; buying and selling stolen credit cards. B) inserting a sleeve into an ATM so that it will not eject the victim's card, pretending to help the victim as a means of obtaining his PIN, and using the card and PIN to drain the account. C) a technique that tricks a person into disclosing confidential information. D) changing data before, during, or after it is entered into the system in order to delete, alter, or add key system data. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 31) Lebanese looping is A) verifying credit card validity; buying and selling stolen credit cards. B) inserting a sleeve into an ATM so that it will not eject the victim's card, pretending to help the victim as a means of obtaining his PIN, and using the card and PIN to drain the account. C) a technique that tricks a person into disclosing confidential information. D) changing data before, during, or after it is entered into the system in order to delete, alter, or add key system data. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

32) Carding is A) verifying credit card validity; buying and selling stolen credit cards. B) inserting a sleeve into an ATM so that it will not eject the victim's card, pretending to help the victim as a means of obtaining his PIN, and using the card and PIN to drain the account. C) a technique that tricks a person into disclosing confidential information. D) changing data before, during, or after it is entered into the system in order to delete, alter, or add key system data. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 33) In the 1960s, techniques were developed that allowed individuals to fool the phone system into providing free access to long distance phone calls. The people who use these methods are referred to as A) phreakers. B) hackers. C) hijackers. D) superzappers. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 34) During a routine audit, a review of cash receipts and related accounting entries revealed discrepancies. Upon further analysis, it was found that figures had been entered correctly and then subsequently changed, with the difference diverted to a fictitious customer account. This is an example of A) kiting. B) data diddling. C) data leakage. D) phreaking. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

35) LOLer was chatting online with l33ter. "I can't believe how lame some people are! :) I can get into any system by checking out the company website to see how user names are defined and who is on the employee directory. Then, all it takes is brute force to find the password." LOLer is a , and the fraud he is describing is . A) hacker; social engineering B) phreaker; dumpster diving C) hacker; password cracking D) phreaker; the salami technique Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 36) After graduating from college, Rob Johnson experienced some difficulty in finding full-time employment. He free-lanced during the summer as a writer and then started a blog in the fall. Shortly thereafter he was contacted by SitePromoter Incorporated, who offered to pay him to promote their clients in his blog. He set up several more blogs for this purpose and is now generating a reasonable level of income. He is engaged in A) splogging. B) Bluesnarfing. C) vishing. D) typosquatting. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 37) After graduating from college, Rob Johnson experienced some difficulty in finding full-time employment. Trying to make ends meet, Rob used all of his saving to buy a significant number of shares in small, low-priced, thinly traded penny stocks. He then uses spam e-mails and blog postings to disseminate overly optimistic information about the company in hope to drives up the company's stock price. He is waiting to sell his shares to investors and pocket a profit. He is engaged in A) internet pump-and-dump. B) Bluesnarfing. C) vishing. D) typosquatting. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

38) Computers that are part of a botnet and are controlled by a bot herder are referred to as A) sniffers. B) zombies. C) botsquats. D) evil twins. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 39) Inspecting information packets as they travel across computer networks are referred to as A) sniffers. B) zombies. C) botsquats. D) evil twins. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 40) A wireless network with the same name as another wireless access point is referred to as A) sniffers. B) zombies. C) botsquats. D) evil twins. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 41) Ashley Baker has been the webmaster for Berryhill Finance only ten days when Berryhill's website was flooded with access attempts. Ashley shut down the site and only opened it to Web addresses which she specifically identified as legitimate. As a result, many of Berryhill's customers were unable to obtain loans, causing Berryhill to lose a significant amount of business. Berryhill Finance suffered from a A) denial-of-service attack. B) zero-day attack. C) phreaking attack. D) cyber-extortion attack. Answer: A Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12

42) Ashley Baker has been the webmaster for Berryhill Finance only ten days when Berryhill's website was scheduled for a routine security patch update. Unbeknown to Ashley, cybercrooks found out the timing of the patch update and launched attacks right before Berryhill's update from a remote location miles away. As a result of the attack, Berryhill lost a significant amount of clients' private information. Berryhill Finance suffered from a A) hacking attack. B) zero-day attack. C) identity theft attack. D) cyber-extortion attack. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 43) Ashley Baker has been the webmaster for Berryhill Finance only ten days when she received an e-mail that threatened to shut down Berryhill's website unless Ashley wired payment to an overseas account. Ashley was concerned that Berryhill Finance would suffer huge losses if its website went down, so she wired money to the appropriate account. The author of the e-mail successfully committed A) a denial-of-service attack. B) Internet terrorism. C) hacking. D) cyber-extortion. Answer: D Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 44) Ashley Baker works in the information technology department of Core Company. On Monday morning, she arrived at work, scanned her identity card, and entered her access code. At that moment, a man in a delivery uniform came up behind Ashley with a bunch of boxes. Although Ashley held the door for the delivery man, she later wondered if the man was engaged in A) pretexting. B) piggybacking. C) posing. D) spoofing. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

45) Describe at least six computer attacks and abuse techniques. Answer: Round-down technique — rounded off amounts from calculations and the fraction deposited in perpetrator's account. Salami technique — small amounts sliced off and stolen from many projects over a period of time. Software piracy — unauthorized copying of software, probably the most committed computer crime. Data diddling — changing data in an unauthorized way. Data leakage — unauthorized copying of data files. Piggybacking — latching onto a legitimate user in data communications. Masquerading or Impersonation — the perpetrator gains access to the system by pretending to be an authorized user. Hacking — unauthorized access and use of a computer system. E-mail threats — threatening legal action and asking for money via e-mail. E-mail forgery — removing message headers, using such anonymous e-mail for criminal activity. Denial of service attack — sending hundreds of e-mail messages from false addresses until the attacked server shuts down. Internet terrorism — crackers using the Internet to disrupt electronic commerce and communication lines. Internet misinformation — using the Internet to spread false or misleading information. War dialing — searching for an idle modem by dialing thousands of telephones and intruding systems through idle modems. Spamming — e-mailing the same message to everyone on one or more Usenet groups. Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 46) Zeus is an example of a A) virus. B) worm. C) Trojan horse. D) war dialing. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

47) Recall that students used Facebook and VKontakte to identify Russian money laundering mules. What fraud case did these students help foil? A) Zeus B) Trident Breach C) Nigerian Banking D) InfraGard Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 48) On the weekends, Mary Andersen climbs into her Toyota Camry and drives around the city of Las Vegas looking for unprotected wireless networks to exploit. Mary is most likely engaging in A) snarfing. B) Wi-pilfering. C) war driving. D) data slurping. Answer: C Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 49) Offering a free website, then charging the phone bills of the individuals who signed up for the free website is known as A) snarfing. B) web cramming. C) podpounding. D) e-scraping. Answer: B Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 50) Describe the various form of spoofing. Select one type of spoofing and search for an actual case about the spoofing. Discuss what has happened and provide recommendations as to how the spoofing could have been prevented. Answer: Types of spoofing include: e-mail spoofing, caller ID spoofing, IP address spoofing, address resolution protocol (ARP) spoofing, SMS spoofing, web-page spoofing, and DNS spoofing. Students' answers would vary depending on the type of spoofing they chose to discuss. Concept: Computer attacks and abuse Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 15

2 Explain how social engineering techniques are used to gain physical or logical access to computer resources. 1) Mircea Vasilescu maintains an online brokerage account. In early March, Mircea received an e-mail from the firm that explained that there had been a computer error and asked Mircea to call a phone number to verify his customer information. When Mircea called the number, a recording asked that he enter the code from the e-mail, his account number, and his social security number. After he did so, he was told that he would be connected with a customer service representative, but the connection was terminated. He contacted the brokerage company and was informed that they had not sent the e-mail. Mircea was a victim of A) Bluesnarfing. B) vishing. C) splogging. D) typosquatting. Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) When a computer criminal gains access to a system by searching through discarded records, this is referred to as A) data diddling. B) dumpster diving. C) eavesdropping. D) data squatting. Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) Jerry Schneider was able to amass operating manuals and enough technical data to steal $1 million of electronic equipment by A) scavenging. B) skimming. C) Internet auction fraud. D) cyber extortion. Answer: A Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

4) Illegally obtaining and using confidential information about a person for economic gain is known as A) eavesdropping. B) identity theft. C) packet sniffing. D) piggybacking. Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) Which method of fraud is physical in its nature rather than electronic? A) cracking B) hacking C) eavesdropping D) scavenging Answer: D Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6) Which of the following is the easiest method for a computer criminal to steal output without ever being on the premises? A) dumpster diving B) use of a Trojan horse C) using a telescope to peer at paper reports D) electronic eavesdropping on computer monitors Answer: D Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

7) Hunter Carr is an accountant with AcctSmart. The firm has a very strict policy of requiring all users to change their passwords every sixty days. In early March, Hunter received an e-mail claiming that there had been an error updating his password and it provided Hunter with a link to a website with instructions for re-updating his password. Something about the e-mail made Hunter suspicious, so he called AcctSmart's information technology department and found that the e-mail was fictitious. The e-mail was an example of A) social engineering. B) piggybacking. C) spamming. D) phishing. Answer: D Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 8) It was late on a Friday afternoon when Chloe Pike got a call at the help desk for Taggart Corp. A man with an edge of panic in his voice was on the phone. "I'm really in a bind and I sure hope that you can help me." He identified himself as Joe Andrew from the accounting department of Taggart Corp. He told Chloe that he had to work on a report that was due on Monday morning and that he had forgotten to bring a written copy of his new password home with him. Chloe knew that Taggart's new password policy required that passwords be at least fifteen characters long, must contain letters and numbers, and must be changed every sixty days, had created problems for many users. Consequently, Chloe provided the password to Joe. The caller turned out not to be Joe Andrew, and Chloe was a victim of A) phreaking. B) war dialing. C) identity theft. D) social engineering. Answer: D Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

9) Jim Cooper decided to do some Christmas shopping online. He visited Amazon.com, found a perfect gift for his daughter, and placed his order. It was only later when he noticed that the website's URL that he had placed the order was actually Amazom.com and not Amazon.com. Jim was a victim of A) Bluesnarfing. B) splogging. C) vishing. D) typosquatting. Answer: D Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) Maureen Boyd was arrested in Kansas City for running an online business that specialized in buying and reselling stolen credit card information. Maureen was charged with A) typosquatting. B) carding. C) pharming. D) phishing. Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) Which of the following is not an example of social engineering? A) Developing phony websites with names and URL addresses very similar to legitimate websites in order to obtain confidential information. B) Setting up a computer that allows the user to use a next door neighbor's unsecured wireless network C) Using e-mail to request others into revealing their user IDs and passwords. D) Obtaining another person's credit card number without consent. Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

12) Describe at least four social engineering techniques. Provide an example for one of the techniques. Answer: Piggybacking — latching onto a legitimate user in data communications. Masquerading or Impersonation — the perpetrator gains access to the system by pretending to be an authorized user. Social engineering — a perpetrator tricks an employee into giving him the information he needs to get into the system. Identity theft — illegally assuming someone else's identity, usually with the social security number. Pretexting — using an invented scenario to increase the likelihood the victim will give away information. Posing — fraudsters try to collect personal information by pretending to be legitimate business colleagues. Phishing — sending e-mail, pretending to be a legitimate business colleague, requesting user ID or password or other confidential data. Vishing — pretending to be a legitimate business colleague and attempting to get a victim to provide confidential information over the phone. Carding — using stolen credit card information. Pharming — redirecting website traffic to a spoofed website. Typosquatting — setting up websites with names similar to real websites. Scavenging — gaining access to confidential data by searching corporate records in dumpsters or computer storage. Shoulder surfing — looking over a person's shoulder in a public place to see PIN or passwords. Skimming — manually swiping a credit card through a handheld card reader and storing the data for future use. Eavesdropping — observation of private communications by wiretapping or other surveillance techniques. E-mail forgery — removing message headers, using such anonymous e-mail for criminal activity. Student's answers may vary depending on the example they use. Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 13) What is social engineering? Provide an example. Answer: Social engineering refers to techniques or psychological tricks used to get people to comply with the perpetrator's wishes in order to gain physical or logical access to a building, computer, server, or network. Generally, social engineering is used in computer abuse to access a system to obtain confidential data. Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

14) Which of the following is not a human trait social engineers take advantage of to entice people to reveal information they should keep confidential? A) Compassion B) Sloth C) Sex Appeal D) Authority Answer: D Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) Which of the following websites likely poses the most fraud and security risk? A) Your school's website B) A file sharing website C) A social media website D) Your personal website Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) Identify theft has always been a federal crime. Answer: FALSE Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17) Pretexting is best described as a social engineering technique that uses A) text messages to gain sensitive information. B) an invented scenario to gain sensitive information. C) threat of physical force to gain sensitive information. D) impersonation of somebody you know to gain sensitive information. Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

18) On a Friday evening you use a bar's ATM to withdraw $50 from your bank account. However, as you complete your withdrawal, your card gets jammed in the ATM machine. The individual waiting in line behind you approaches you and suggests re-entering your PIN number. You do. However, your card remains jammed. You leave the bar to call your bank to report the incident. However, after you left the individual who offered to help you removed a sleeve he inserted in the ATM to jam your card. He now has your ATM card and PIN number. You just fell victim to a fraud. A) tabnapping B) Lebanese looping C) phishing D) pharming Answer: B Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19) Someone knocked on your door on a Friday afternoon. When you answered the door, a man dressed in a city official uniform approached you and introduced himself to you. The man said, "Hi, I am Andrew from the city public work department. We are updating our system and would like to obtain just a few piece of information from you." He proceeded to ask you several questions and obtained your driver license information and the last 4 digits of your social security number. As the man left your front porch, you saw that he was getting into his car which does not bear the city official logo. You later called the city public work department and found that they have no knowledge of a worker named Andrew and that they did not send anyone out to collect your information. You just fell victim to a fraud. A) pretexting B) pharming C) phishing D) posing Answer: A Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 20) Describe ways to help minimize social engineering. Answer: Never let people follow you into a restricted building. Never log in for someone else on a computer, especially if you have administrative access. Never give sensitive information over the phone or through e-mail. Never share passwords or user IDs. Be cautious of anyone you do not know who is trying to gain access through you. Concept: Social engineering Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

3 Describe the different types of malware used to harm computers. 1) A part of a program that remains idle until a specified date or event activates it to cause havoc is called a A) virus. B) logic bomb. C) trap door. D) data diddle. Answer: B Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Executable code that attaches itself to software, replicates itself, and spreads to other systems or files. When triggered, it makes unauthorized alterations to the way a system operates, which is called a A) virus. B) logic bomb. C) trap door. D) data diddle. Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) A back door into a system that bypasses normal system controls is called a A) virus. B) logic bomb. C) trap door. D) data diddle. Answer: C Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

4) Changing data before or during entry into a computer system to delete, alter, add, or incorrectly update data is called a A) virus. B) logic bomb. C) trap door. D) data diddle. Answer: D Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) Spyware is A) software that tells the user if anyone is spying on his computer. B) software that monitors whether spies are looking at the computer. C) software that monitors computing habits and sends the data it gathers to someone else. D) none of the above Answer: C Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) The unauthorized use of special program that bypass regular system controls to perform illegal acts is called A) a Trojan horse. B) a trap door. C) the salami technique. D) superzapping. Answer: D Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) Computer fraud perpetrators that modify programs during systems development, allowing access into the system that bypasses normal system controls are using A) a Trojan horse. B) a trap door. C) the salami technique. D) superzapping. Answer: B Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 24

8) A fraud technique that allows a perpetrator to bypass normal system controls and enter a secured system is called A) superzapping. B) data diddling. C) using a trap door. D) piggybacking. Answer: C Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9) A set of unauthorized computer instructions in an otherwise properly functioning program is known as a A) logic bomb. B) spyware. C) trap door. D) Trojan horse. Answer: D Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 10) A is similar to a hidden in a host program. A) worm; virus B) Trojan horse; worm C) worm; Trojan horse D) virus; worm Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

, except that it is a program rather than a code segment

11) Developers of computer systems often include a user name and password that is hidden in the system, just in case they need to get into the system and correct problems in the future. This is referred to as a A) Trojan horse. B) key logger. C) spoof. D) back door. Answer: D Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 12) Individuals who create new viruses, spyware, and Trojan horses that are used to infect computers are referred to as A) malware owners. B) malware writers. C) botnet owners. D) bad actors. Answer: B Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Individuals who buy the malware are referred to as A) malware owners. B) malware writers. C) botnet owners. D) bad actors. Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 14) Individuals who control an army of malware-infected zombie computers are referred to as A) malware owners. B) malware writers. C) botnet owners. D) bad actors. Answer: C Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 26

15) Woodlane Direct Sales is a telemarketing firm that operates out of Indiana. The turnover rate among employees is quite high. Recently, the information technology manager discovered that an unknown employee had used a Bluetooth-enabled mobile phone to access the firm's database and copied a list of customers from the past three years and their credit card information. Woodlane Direct Sales was a victim of A) bluesnarfing. B) splogging. C) vishing. D) bluetoothing. Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16) Megan has purchased a brand new laptop about three months ago. Recently, she feels that her computer is operating much more slowly and sluggishly than before. Since purchasing the computer, Megan had been accessing the Internet and had installed a variety of free software. The problem is mostly likely to be A) a zero-day attack. B) a virus. C) a spoof. D) a sluggishness infection. Answer: B Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 17) In November of 2005 it was discovered that many of the new CDs distributed by Sony BMG installed software when they were played on a computer. The software was intended to protect the CDs from copying. Unfortunately, it also made the computer vulnerable to attack by malware run over the Internet. The scandal and resulting backlash was very costly. The software installed by the CDs is a A) virus. B) worm. C) rootkit. D) squirrel. Answer: C Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

18) Which of the following would be least effective to reduce exposure to a computer virus? A) Only transfer files between employees with USB flash drives. B) Install and frequently update antivirus software. C) Install all new software on a stand-alone computer until it is tested. D) Do not open e-mail attachments from unknown senders. Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 19) How can a system be protected from viruses? Answer: Install reliable antivirus software that scans for, identifies, and isolates or destroys viruses. Use caution when copying files on to your diskettes from unknown machines. Ensure the latest version of the antivirus program available is used. Scan all incoming e-mails for viruses at the server level. All software should be certified as virus-free before loading it into the system. If you use jump drives, diskettes, or CDs, do not put them in unfamiliar machines as they may become infected. Obtain software and diskettes only from known and trusted sources. Use caution when using or purchasing software or diskettes from unknown sources. Deal with trusted software retailers. Ask whether the software you are purchasing comes with electronic techniques that makes tampering evident. Check new software on an isolated machine with virus detection software before installing on the system. Cold boot to clear and reset the system. When necessary, "cold boot" the machine from a write-protected diskette. Have two backups of all files. Restrict the use of public bulletin boards. Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20) Describe the differences between a worm and a virus. Answer: A computer virus is a segment of executable code that attaches itself to computer software. A virus has two phases: it replicates itself and spreads to other systems or files, and in the attack phase, the virus carries out its mission to destroy files or the system itself. A worm is similar to a virus, except that it is a program rather than a code segment hidden in a host program. A worm can reside in e-mail attachments, which when opened or activated can damage a user's system. Worms can also reproduce themselves by mailing themselves to the addresses found in the recipient's mailing list. Worms do not have long lives, but their lives can be very destructive nonetheless. Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

21) Describe the differences between spyware, scareware, and ransomware. Answer: Spyware is a software that secretly monitors and collects personal information about users and sends it to someone else. The information is gathered by logging keystrokes, monitoring websites visited, and scanning documents on the computer's hard drive. Spyware can also hijack a browser, replacing a computer's home page with a page the spyware creator wants you to visit. Scareware is software that is often malicious, is of little or no benefit, and is sold using scare tactics. That is, it uses fear to motivate some sort of user action. The most common scare tactic is a dire warning that a computer is infected with a virus, spyware, or some other catastrophic problem. When activated, well-written ransomware can lock users out of all their programs and data by encrypting them. However, ransomware is not as common as other malware. Most ransomware is delivered via websites or a spam e-mail that motivates the recipient to open an infected file. Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22) Spyware that pops banner ads on a monitor, then collects information about the users websurfing and spending habits is an example of A) a Trojan horse. B) scareware. C) adware. D) a keylogger. Answer: C Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 23) Ransomware often comes in the form of A) fake antivirus software. B) an e-mail that threatens to kidnap the reader unless a ransom is paid. C) free performance-maximizing software. D) free apps. Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 24) Law enforcement uses key logging software, a form of malware, to detect crime. Answer: TRUE Concept: Malware Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 29

25) Terrorists often use because it is an effective way to transmit information and receive orders. A) steganography B) packet sniffers C) trap doors D) time bombs Answer: A Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 26) Steganography malware uses encryption to increase its effectiveness. Answer: FALSE Concept: Malware Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 7 Control and Accounting Information Systems 1 Explain basic control concepts and explain why computer control and security are important. 1) Why are threats to accounting information systems increasing? A) Many companies have invested significant resources to protect their assets. B) Many companies do not realize that data security is crucial to their survival. C) Many companies believe that protecting information is a vital strategic requirement. D) Computer control problems are often overestimated and overly emphasized by management. Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) Describe the reasons organizations have not adequately protected data. Answer: The reasons organizations have not adequately protected data include: (1) Some companies view the loss of crucial information as a distant, unlikely threat. (2) The control implications of moving from centralized computer systems to Internet-based systems are not fully understood. (3) Many companies do not realize that information is a strategic resource and that protecting it must be a strategic requirement. For example, one company lost millions of dollars because it did not protect data transmissions. A competitor tapped into its phone lines and obtained faxes of new product designs. (4) Productivity and cost pressures motivate management to forgo time-consuming control measures. Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) A control procedure designed so that the employee that records cash received from customers does not also have access to the cash itself is an example of a(n) A) preventive control. B) detective control. C) corrective control. D) authorization control. Answer: A Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

4) Duplicate checking of calculations and preparing bank reconciliations and monthly trial balances are examples of what type of control? A) Preventive control B) Detective control C) Corrective control D) Authorization control Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 5) Maintaining backup copies of files, correcting data entry errors, and resubmitting transactions for subsequent processing are examples of what type of control? A) Preventive control B) Detective control C) Corrective control D) Authorization control Answer: C Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6) Identify the preventive control below. A) Reconciling the bank statement to the cash control account. B) Approving customer credit prior to approving a sales order. C) Maintaining frequent backup records to prevent loss of data. D) Counting inventory on hand and comparing counts to the perpetual inventory records. Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) Identify the detective control below. A) Reconciling the bank statement to the cash control account. B) Approving customer credit prior to approving a sales order. C) Maintaining frequent backup records to prevent loss of data. D) Ensuring that the employee who records cash received from customers does not also have access to the cash itself. Answer: A Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 2

8) Identify the corrective control below. A) Reconciling the bank statement to the cash control account. B) Approving customer credit prior to approving a sales order. C) Maintaining frequent backup records to prevent loss of data. D) Counting inventory on hand and comparing counts to the perpetual inventory records. Answer: C Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 9) According to The Sarbanes-Oxley Act of 2002, the audit committee of the board of directors is directly responsible for A) hiring and firing the external auditors. B) performing tests of the company's internal control structure. C) certifying the accuracy of the company's financial reporting process. D) overseeing day-to-day operations of the internal audit department. Answer: A Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following measures can protect a company from AIS threats? A) Take a proactive approach to eliminate threats. B) Detect threats that do occur. C) Correct and recover from threats that do occur. D) All of the above are proper measures for the accountant to take. Answer: D Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 11) Internal control is often referred to as a(n) , because it permeates an organization's operating activities and is an integral part of management activities. A) event B) activity C) process D) system Answer: C Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

12) Internal controls are often segregated into A) detective controls and preventive controls. B) general controls and application controls. C) process controls and general controls. D) system controls and application controls. Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) Duplicate checking of calculations is an example of a resubmit rejected transactions are an example of a A) corrective; detective B) detective; corrective C) preventive; corrective D) detective; preventive Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

control, and procedures to control.

14) Hiring qualified personnel is an example of a rejected transactions are an example of a A) corrective; detective B) detective; corrective C) preventive; corrective D) detective; preventive Answer: C Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

control, and procedures to resubmit control.

15) Which type of control is associated with making sure an organization's control environment is stable? A) general B) application C) detective D) preventive Answer: A Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 4

16) Which type of control prevents, detects, and corrects transaction errors and fraud? A) general B) application C) detective D) preventive Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 17) The primary purpose of the Foreign Corrupt Practices Act of 1977 was A) to require corporations to maintain a good system of internal control. B) to prevent the bribery of foreign officials by American companies. C) to require the reporting of any material fraud by a business. D) All of the above are required by the act. Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 18) Congress passed this federal law for the purpose of preventing financial statement fraud, to make financial reports more transparent and to strengthen the internal control of public companies. A) Foreign Corrupt Practices Act of 1977 B) The Securities Exchange Act of 1934 C) The Sarbanes-Oxley Act of 2002 D) The Securities Exchange Act of 1933 Answer: C Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 19) Which of the following was not an important change introduced by the Sarbanes-Oxley Act of 2002? A) New roles for audit committees B) New rules for auditors and management C) New rules for internal control requirements D) New rules for information systems development Answer: D Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5

20) A(n) measures company progress by comparing actual performance to planned performance. A) boundary system B) diagnostic control system C) interactive control system D) belief system Answer: B Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 21) A(n) helps top-level managers with high-level activities that demand frequent and regular attention. A) boundary system B) diagnostic control system C) interactive control system D) belief system Answer: C Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 22) A(n) helps employees understand management's vision. It communicates company core values and inspires employees to live by those values. A) boundary system B) diagnostic control system C) interactive control system D) belief system Answer: D Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) A(n) helps employees act ethically. A) boundary system B) diagnostic control system C) interactive control system D) belief system Answer: A Concept: Control concepts Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6

24) Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Lasalle Investment group A) asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process. B) did not mention to auditors that the company had experienced material weaknesses in the company's internal control systems during the past year. C) selected the company's CEO to chair the audit committee. D) hired the manager from the external audit team as company CFO twelve months after the manager had worked on the audit. Answer: D Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 25) The Sarbanes-Oxley Act (SOX) applies to A) all companies with gross annual revenues exceeding $500 million. B) publicly traded companies with gross annual revenues exceeding $500 million. C) all private and public companies incorporated in the United States. D) all publicly traded companies. Answer: D Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 26) Lauren Smith was relaxing after work with a colleague at a local bar. After a few drinks, she began expressing her feelings about her company's new control initiatives. It seems that as a result of controls put in place by the company, she now has to be more creative in solving problems and avoiding actions that might have a negative effect on her company's reputation. The level of control that the company is using in this case is a(n) A) boundary system. B) diagnostic control system. C) interactive control system. D) belief system. Answer: A Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

27) Lauren Smith was relaxing after work with a colleague at a local bar. After a few drinks, she began expressing her feelings about her company's new control initiatives. It seems that as a result of controls put in place by the company, she now has to find ways to help her staff to better understand the company's vision and core values. The level of control that the company is using in this case is a(n) A) boundary system. B) diagnostic control system. C) interactive control system. D) belief system. Answer: D Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 28) Explain why the Foreign Corrupt Practices Act was important to accountants. Answer: The act is important to accountants because it incorporates the language of the AICPA pronouncement on internal controls. The Act mandates that corporations should keep records that accurately and fairly reflect their transactions and assets in reasonable detail. The internal control system of these organizations should be able to provide reasonable assurance that: a) transactions are properly authorized and recorded; b) assets are safeguarded and protected from unauthorized access; and c) recorded asset values are periodically compared with actual assets and any differences are corrected. The act requires corporations to maintain good systems of internal accounting control. Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 29) Describe some of the most important aspects of Sarbanes-Oxley Act (SOX) and discuss why SOX was important to accountants. Answer: Some of the most important aspects of SOX include: (1) The creation of the Public Company Accounting Oversight Board (PCAOB) to control the auditing profession; (2) The added new rules for auditors; (3) The added new roles for audit committees; (3) The added new rules for management, and (4) The added new internal control requirements. SOX applies to publicly held companies and their auditors and was designed to prevent financial statement fraud, make financial reports more transparent, protect investors, strengthen internal controls, and punish executives who perpetrate fraud. SOX was important to accountants because it is the most important business-oriented legislation in the last 80 years. It changed the way boards of directors and management operate and had a dramatic impact on CPAs who audit them. Concept: Control concepts Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

2 Compare and contrast the COBIT, COSO, and ERM control frameworks. 1) Which of the following is not a component of the COSO Enterprise Risk Management Integrated Framework (ERM)? A) Monitoring. B) Ethical culture. C) Risk assessment. D) Control environment. Answer: B Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) The COSO Enterprise Risk Management Integrated Framework stresses that A) risk management activities are an inherent part of all business operations and should be considered during strategy setting. B) effective risk management is comprised of just three interrelated components; internal environment, risk assessment, and control activities. C) risk management is the sole responsibility of top management. D) risk management policies, if enforced, guarantee achievement of corporate objectives. Answer: A Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) Nolwenn Limited has been diligent in ensuring that their operations meet modern control standards. Recently, they have extended their control compliance system by incorporating policies and procedures that require the specification of company objectives, uncertainties associated with objectives, and contingency plans. Nolwenn Limited is transitioning from a to a control framework. A) COSO-Integrated Framework; COBIT B) COBIT; COSO-Integrated Framework C) COBIT; COSO-ERM D) COSO-Integrated Framework; COSO-ERM E) COSO-ERM; COBIT Answer: D Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

4) Discuss the weaknesses in COSO's internal control framework that led to the development of the COSO Enterprise Risk Management framework. Answer: COSO's internal control framework 1. had too narrow a focus. 2. examined controls without first addressing purposes and risks of business processes 3. existing internal control systems often have controls that protect against items that are no longer risks or are no longer important. 4. focusing on controls first has an inherent bias toward past problems and concerns. Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 5) The COSO ERM contains all five of the same COSO-Integrated Framework components. Answer: TRUE Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6) How many principles are there in the 2013 updated COSO - Internal Control Framework? A) 5 B) 8 C) 17 D) 21 Answer: C Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) Why was the original 1992 COSO - Integrated Control framework updated in 2013? A) Congress required COSO to modernize. B) U.S. stock exchanges required more disclosure. C) As an effort to more effectively address technological advancements. D) As an effort to comply with the Information System Audit and Control Association requirements. Answer: C Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

8) Which internal control framework is widely accepted as the authority on internal controls? A) COBIT. B) ISACA framework. C) COSO Integrated Control. D) Sarbanes-Oxley control framework. Answer: C Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) Identify the statement below that is not true of the 2013 COSO Internal Control updated framework. A) It more efficiently deals with control implementation and documentation issues. B) It more effectively deals with control implementation and documentation issues. C) It provides users with more precise guidance. D) It adds many new examples to clarify the framework concepts. Answer: A Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 10) Which of the following is not one of the five principles of COBIT5? A) meeting stakeholder needs B) covering the enterprise end-to-end C) enabling a holistic approach D) improving organization efficiency Answer: D Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 11) The COBIT5 framework primarily relates to A) best practices and effective governance and management of private companies. B) best practices and effective governance and management of public companies. C) best practices and effective governance and management of information technology. D) best practices and effective governance and management of organizational assets. Answer: D Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

12) Applying the COBIT5 framework, governance is the responsibility of A) internal audit. B) external audit. C) management. D) the board of directors. Answer: D Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 13) Applying the COBIT5 framework, monitoring is the responsibility of A) the CEO. B) the CFO. C) the board of directors. D) all of the above Answer: D Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 14) Applying the COBIT5 framework, planning is the responsibility of A) the CEO. B) the CFO. C) the board of directors. D) all of the above Answer: D Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) The purpose of the COSO Enterprise Risk Management framework is A) to improve the organization's risk management process. B) to improve the organization's financial reporting process. C) to improve the organization's manufacturing process. D) to improve the organization's internal audit process. Answer: A Concept: Control frameworks Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

16) Which of the following is not a basic principle of the COSO ERM framework? A) Companies are formed to create value for society. B) Management must decide how much uncertainty it will accept to create value. C) Uncertainty results in risk. D) Uncertainty results in opportunity. Answer: A Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17) The largest differences between the COSO Integrated Control (IC) framework and the COSO Enterprise Risk Management (ERM) framework is A) IC is controls-based, while the ERM is risk-based. B) IC is risk-based, while ERM is controls-based. C) IC is required, while ERM is optional. D) IC is more applicable to international accounting standards, while ERM is more applicable to generally accepted accounting principles. Answer: A Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

18) Describe the five components of the COSO's Internal Control Model. Answer: The five components of the COSO's Internal Control Model are: (1) Control environment. This is the foundation for all other components of internal control. The core of any business is its people their individual attributes, including integrity, discipline, ethical values, and competence—and the environment in which they operate. They are the engine that drives the organization and the foundation on which everything rests. (2) Risk assessment. The organization must identify, analyze, and manage its risks. Managing risk is a dynamic process. Management must consider changes in the external environment and within the business that may be obstacles to its objectives. (3) Control activities. Control policies and procedures help ensure that the actions identified by management to address risks and achieve the organization's objectives are effectively carried out. Control activities are performed at all levels and at various stages within the business process and over technology. (4) Information and communication. Information and communication systems capture and exchange the information needed to conduct, manage, and control the organization's operations. Communication must occur internally and externally to provide information needed to carry out day-to-day internal control activities. All personnel must understand their responsibilities. (5) Monitoring. The entire process must be monitored, and modifications made as necessary so the system can change as conditions warrant. Evaluations ascertain whether each component of internal control is present and functioning. Deficiencies are communicated in a timely manner, with serious matters reported to senior management and the board. Concept: Control concepts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 19) The principle of obtaining or generating relevant, high-quality information to support internal control belongs to which of the COSO's Internal Control Model's component? A) Control environment. B) Risk assessment. C) Control activities. D) Information and communication. Answer: D Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

20) The principle of identifying and assessing changes that could significantly impact the system of internal control belongs to which of the COSO's Internal Control Model's component? A) Control environment. B) Risk assessment. C) Control activities. D) Information and communication. Answer: B Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 21) The principle of selecting and developing controls that might help mitigate risks to an acceptable level belongs to which of the COSO's Internal Control Model's component? A) Control environment. B) Risk assessment. C) Control activities. D) Information and communication. Answer: C Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 22) The principle of holding individuals accountable for their internal control responsibilities in pursuit of objectives belongs to which of the COSO's Internal Control Model's component? A) Control environment. B) Risk assessment. C) Control activities. D) Information and communication. Answer: A Concept: Control concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

3 Describe the major elements in the internal environment of a company. 1) Melissa is a staff accountant for Quality Paper Company, which has strict corporate policies on appropriate use of corporate resources. The first week of March, Melissa saw Kent, the branch manager putting printer paper and toner into his briefcase on his way out the door. This situation best reflects a weakness in which aspect of internal environment, as discussed in the COSO Enterprise Risk Management Framework? A) Integrity and ethical values. B) Risk management philosophy. C) Restrict access to assets. D) Methods of assigning authority and responsibility. Answer: A Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Melissa is a staff accountant for Quality Paper Company suspected that management might have used "creative accounting" to improve company performance. This situation best reflects a weakness in which aspect of internal environment, as discussed in the COSO Enterprise Risk Management Framework? A) Integrity and ethical values. B) Risk management philosophy. C) Restrict access to assets. D) Methods of assigning authority and responsibility. Answer: B Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is not a factor of internal environment according to the COSO Enterprise Risk Management Framework? A) Analyzing past financial performance and reporting. B) Providing sufficient resources to knowledgeable employees to carry out duties. C) Disciplining employees for violations of expected behavior. D) Setting realistic targets for long-term performance. Answer: A Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4) The audit committee of the board of directors A) is usually chaired by the CFO. B) conducts testing of controls on behalf of the external auditors. C) provides a check and balance on management. D) does all of the above. Answer: C Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) The definition of the lines of authority and responsibility and the overall framework for planning, directing, and controlling is laid out by the A) control activities. B) organizational structure. C) budget framework. D) internal environment. Answer: B Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) Reducing management layers, creating self-directed work teams, and emphasizing continuous improvement are all related to which aspect of internal environment? A) Organizational structure. B) Methods of assigning authority and responsibility. C) Management philosophy and operating style. D) Commitment to competence. Answer: A Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 7) Helping employees understand entity goals and objectives and then holding them accountable for achieving them are all related to which aspect of internal environment? A) Organizational structure. B) Methods of assigning authority and responsibility. C) Management philosophy and operating style. D) Commitment to competence. Answer: B Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 17

8) Personnel policies such as background checks, mandatory vacations, and rotation of duties tend to deter A) unintentional errors. B) employee fraud or embezzlement. C) fraud by outsiders. D) disgruntled employees. Answer: B Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9) The SEC, PCAOB, and FASB are best described as external influences that directly affect an organization's A) hiring practices. B) philosophy and operating style. C) internal environment. D) methods of assigning authority. Answer: C Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 10) Which attribute below is not an aspect of the COSO ERM Framework internal environment? A) Enforcing a written code of conduct. B) Holding employees accountable for achieving objectives. C) Restricting access to assets. D) Avoiding unrealistic expectations. Answer: C Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) The amount of risk a company is willing to accept in order to achieve its goals and objectives is A) inherent risk. B) residual risk. C) risk appetite. D) risk assessment. Answer: C Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 18

12) Which of the following is the most effective way in uncovering fraud schemes that require ongoing perpetrator's attention? A) Hiring a forensic specialist. B) Requiring employees to take mandatory vacations. C) Installing security cameras to monitor employees activities. D) Implementing a fraud hotline. Answer: B Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Discuss the internal environment and identify the elements that comprise the internal environment. Answer: The internal environment embraces individuals and the environment in which they operate in an organization. Individual employees are "the engine" that drive the organization and form the foundation upon which everything in the organization rests. Elements of the internal environment are: 1) a commitment to integrity and ethical values; 2) the philosophy and operating style of management; 3) organizational structure; 4) the audit committee of the board of directors; 5) methods of assigning authority and responsibility; 6) human resources policies and practices; and 7) various external influences. Each of these elements influences the internal control structure of the organization. Likewise, these elements should be examined and analyzed in detail when implementing or evaluating a system of internal controls. Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 14) Explain why management's philosophy and operating style are considered to be the most important element of the internal environment. Answer: Management truly sets the tone for the control environment of a business. If top management takes good control seriously and makes this known to everyone in the organization, then employees down the line will tend to do likewise. Management's attitude toward risk taking and the assessment of risk before acting are indications. Willingness to manipulate performance measures or to encourage employees to do likewise is another indication of attitude. Finally, pressure on subordinates to achieve certain results regardless of the methods used can be a very persuasive indicator of problems. Management concerned about control will assess risk and act prudently, manipulation of performance measures will not be tolerated, and ethical behavior will be instilled in and required of employees. Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

15) What are some of the ways to assign authority and responsibility within an organization? Answer: It is incumbent on management to identify specific business objectives and assign such objectives to certain departments and individuals. Management must also hold such departments and individuals responsible and accountable for achieving the assigned business objectives. Ways in which management may assign authority and responsibility is through formal job descriptions, employee training, budgets, operating plans, and scheduling. A formal code of conduct also sets the stage for responsible behavior on the part of employees by defining ethical behavior, acceptable business practices, regulatory requirements, and conflicts of interest. Another useful and important tool is a written policy and procedures manual. Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 16) Why are most fraud not being reported or prosecuted? Answer: Most fraud is not reported or prosecuted for the following reasons: (1) Companies are reluctant to report fraud because it can be a public relations disaster. The disclosure can reveal system vulnerabilities and attract more fraud or hacker attacks. (2) Law enforcement and the courts are busy with violent crimes and have less time and interest for computer crimes in which no physical harm occurs. (3) Fraud is difficult, costly, and time-consuming to investigate and prosecute. (4) Many law enforcement officials, lawyers, and judges lack the computer skills needed to investigate and prosecute computer crimes. (5) Fraud sentences are often light. Concept: COSO's internal environment Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 4 Describe the control objectives companies need to set and how to identify events that affect organizational uncertainty. 1) According to the ERM model, regulations. A) compliance objectives B) operations objectives C) reporting objectives D) strategic objectives Answer: A Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

help the company address all applicable laws and

2) According to the ERM model, mission. A) compliance objectives B) operations objectives C) reporting objectives D) strategic objectives Answer: D Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

help to align high level goals with the company's

3) According to the ERM model, help to deal with the effectiveness and efficiency of company operations, such as performance and profitability goals. A) compliance objectives B) operations objectives C) reporting objectives D) strategic objectives Answer: B Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 4) According to the ERM model, help to ensure the accuracy, completeness and reliability of internal and external company reports. A) compliance objectives B) operations objectives C) reporting objectives D) strategic objectives Answer: C Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) Using the COSO definition of an event, an event represents uncertainty. Answer: TRUE Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

6) Identify the most correct statement with regards to an event. A) An event identified by management will occur. B) An event identified by management may or may not occur. C) An event identified by management may not trigger other events. D) It is easy to determine which events are most likely to occur. Answer: B Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 7) Which of the following is a commonly used technique to identify potential events? A) Using data mining. B) Browsing news articles. C) Hiring a business process consultant. D) None of the above. Answer: A Concept: COSO's control objective Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 8) Describe what is an event using the COSO definition and provide an example. Answer: COSO defines an event as "an incident or occurrence emanating from internal or external sources that affects implementation of strategy or achievement of objectives. Events may have positive or negative impacts or both." A positive event represents an opportunity; a negative event represents a risk. An event represents uncertainty; it may or may not occur. If it does occur, it is hard to know when. Until it occurs, it may be difficult to determine its impact. When it occurs, it may trigger another event. Events may occur individually or concurrently. Management must try to anticipate all possible positive or negative events, determine which are most and least likely to occur, and understand the interrelationship of events. Students' answers may vary depending on the example they use. Concept: COSO's control objective Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

5 Explain how to assess and respond to risk using the Enterprise Risk Management (ERM) model. 1) is not a risk response identified in the COSO Enterprise Risk Management Framework. A) Acceptance B) Avoidance C) Monitoring D) Sharing Answer: C Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 2) Best Friends, Incorporated is a publicly traded company where three BFF's (best friends forever) serve as its key officers. This situation A) violates the Sarbanes-Oxley Act. B) violates the Securities and Exchange Act. C) increases the risk associated with an audit. D) All of the above. Answer: C Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 3) remains after management implements internal control(s). A) Inherent risk B) Residual risk C) Risk appetite D) Risk assessment Answer: B Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

4) is the risk that exists before management takes any steps to mitigate it. A) Inherent risk B) Residual risk C) Risk appetite D) Risk assessment Answer: A Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 5) How is expected loss calculated when performing risk assessment? A) Impact times expected loss. B) Impact times likelihood. C) Inherent risk times likelihood. D) Residual risk times likelihood. Answer: B Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 6) Preventive controls are usually superior to detective controls Answer: TRUE Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 7) The first step of the risk assessment process is generally to A) identify controls to reduce all risk to zero. B) estimate the exposure from negative events. C) identify the threats that the company currently faces. D) estimate the risk probability of negative events occurring. Answer: C Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

8) The second step of the risk assessment process is generally to A) identify controls to reduce all risk to zero. B) estimate the exposure from negative events. C) identify the threats that the company currently faces. D) estimate the risk probability of negative events occurring. Answer: D Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 9) Describe the steps in the development of a company's risk assessment and response strategy. Answer: Steps in the development of a company's risk assessment and response strategy include: (1) Identify the events, or threats, that confront the company. (2) Estimate the impact, or potential loss, from each threat. (3) Identify controls to guard against each threat. (4) Estimate the costs and benefits from instituting controls. (5) Reduce risk by implementing controls to guard against the threat. Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 10) Whitewater Rapids provides canoes to tourists eager to ride Whitewater River's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the impact of this risk without insurance? A) $10 B) $850 C) $100,000 D) $850,000 Answer: D Concept: COSO's risk assessment and risk response Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking

11) Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss without insurance? A) $10 B) $850 C) $100,000 D) $850,000 Answer: B Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 12) Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss with insurance? A) $100 B) $850 C) $100,000 D) $850,000 Answer: A Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 13) Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. Based on cost-benefit analysis, what is the most that the business should pay for the insurance? A) $100 B) $500 C) $750 D) $850 Answer: C Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

14) According to the COSO Enterprise Risk Management Framework, the risk assessment process incorporates all of the following components except A) reporting potential risks to auditors. B) identifying events that could impact the enterprise. C) evaluating the impact of potential events on achievement of objectives. D) establishing objectives for the enterprise. Answer: A Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 15) Describe the four ways that management can use to respond to risk. Provide an example for each of them. Answer: Management can respond to risk in one of four ways: (1) Reduce the likelihood and impact of risk by implementing an effective system of internal controls. (2) Accept the likelihood and impact of the risk. (3) Share risk or transfer it to someone else by buying insurance, outsourcing an activity, or entering into hedging transactions. (4) Avoid risk by not engaging in the activity that produces the risk. This may require the company to sell a division, exit a product line, or not expand as anticipated. Students' answers may vary depending on examples they used. Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 16) As a result of an internal risk assessment, Berryhill Insurance decided it was no longer profitable to provide flood insurance in the southern states. Berryhill apparently chose to the risk of paying flood claims in the southern states. A) reduce B) share C) avoid D) accept Answer: C Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking

17) Upon acquiring a new computer operating system, management at Berryhill worried that computer virus might cripple the company's operation. Management decided to install anti-virus software and to build a firewall for its operating system. Berryhill chose to the risk of being crippled by computer virus. A) reduce B) share C) avoid D) accept Answer: A Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 18) Upon acquiring a new computer operating system, management at Berryhill worried that computer virus might cripple the company's operation. Despite the concern, management did not think that the risk was high enough to justify the purchase of an anti-virus software. Berryhill chose to the risk of being crippled by computer virus. A) reduce B) share C) avoid D) accept Answer: D Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 19) As a result of an internal risk assessment, Berryhill Insurance decided it was no longer profitable to provide flood insurance in the southern states without a general rate increase. Berryhill apparently chose to the risk of paying flood claims in the southern states by raising its insurance rate. A) reduce B) share C) avoid D) accept Answer: B Concept: COSO's risk assessment and risk response Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking

6 Describe control activities commonly used in companies. 1) At a movie theater box office, all tickets are sequentially prenumbered. At the end of each day, the beginning ticket number is subtracted from the ending number to calculate the number of tickets sold. Then, ticket stubs collected at the theater entrance are counted and compared with the number of tickets sold. Which of the following situations does this control detect? A) Some customers presented tickets purchased on a previous day when there wasn't a ticket taker at the theater entrance (so the tickets didn't get torn.) B) A group of kids snuck into the theater through a back door when customers left after a show. C) The box office cashier accidentally gives too much change to a customer. D) The ticket taker admits his friends without tickets. Answer: A Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 2) At a movie theater box office, all tickets are sequentially prenumbered. At the end of each day, the beginning ticket number is subtracted from the ending number to calculate the number of tickets sold. Cash is counted and compared with the number of tickets sold. Which of the following situations does this control detect? A) Some customers presented tickets purchased on a previous day when there wasn't a ticket taker at the theater entrance (so the tickets didn't get torn.) B) A group of kids snuck into the theater through a back door when customers left after a show. C) The box office cashier accidentally gives too much change to a customer. D) The ticket taker admits his friends without tickets. Answer: C Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 3) Independent checks on performance include all the following except A) data input validation checks. B) reconciling hash totals. C) preparing a trial balance report. D) supervisor review of journal entries and supporting documentation. Answer: A Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking

4) One of the key objectives of segregating duties is to A) ensure that no collusion will occur. B) achieve an optimal division of labor for efficient operations. C) make sure that different people handle different transactions. D) make sure that different people handle different parts of the same transaction. Answer: D Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking 5) Effective segregation of accounting duties is achieved when which of the following functions are separated? A) Authorization, recording, and custody. B) Recording, monitoring, and information system. C) Authorization, monitoring, and risk assessment. D) Recording, risk assessment, and control procedures. Answer: A Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking 6) Identify the statement below which is true. A) Requiring two signatures on checks over $20,000 is an example of segregation of duties. B) Although forensic specialists utilize computers, only people can accurately identify fraud. C) Internal auditors, rather than external auditors, can conduct evaluations of effectiveness of Enterprise Risk Management processes. D) Re-adding the total of a batch of invoices and comparing the total with the first total you calculated is an example of an independent check. Answer: C Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Challenging AACSB: Reflective Thinking

7) Of the following examples of fraud, which will be the most difficult to prevent and detect? Assume the company enforces adequate segregation of duties. A) A mail room employee steals a check received from a customer and destroys the documentation. B) The accounts receivable clerk does not record sales invoices for friends or family, so they can receive free goods. C) An employee puts inventory behind the dumpster while unloading a vendor's delivery truck, then picks up the inventory later in the day and puts it in her car. D) A credit manager issues credit cards to himself and a staff accountant in the accounting office, and when the credit card balances are just under $1,000, the staff accountant writes off the accounts as bad debt. The credit manager then issues new cards. Answer: D Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Challenging AACSB: Reflective Thinking 8) Which of the following is a control related to design and use of documents and records? A) Locking blank checks in a drawer or safe. B) Sequentially prenumbering sales invoices. C) Reconciling the bank statement to the general ledger. D) Comparing physical inventory counts with perpetual inventory records. Answer: B Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking 9) Which of the following duties could be performed by the same individual without violating segregation of duties controls? A) Approving accounting software change requests and testing production scheduling software changes. B) Programming new code for accounting software and testing accounting software upgrades. C) Approving software changes and implementing the upgraded software. D) Managing accounts payable function and revising code for accounting software to more efficiently process discount due dates on vendor invoices. Answer: A Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking

10) With a limited work force and a desire to maintain strong internal control, which combination of duties would result in the lowest risk exposure? A) Updating the inventory subsidiary ledgers and recording purchases in the purchases journal. B) Approving a sales return on a customer's account and depositing customers' checks in the bank. C) Updating the general ledger and working in the inventory warehouse. D) Entering payments to vendors in the cash disbursements journal and entering cash received from customers in the cash receipts journal. Answer: D Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 11) A store policy that allows retail clerks to process sales returns for $1,000 or less, with a receipt dated within the past 30 days, is an example of A) general authorization. B) specific authorization. C) special authorization. D) generic authorization. Answer: A Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Reflective Thinking 12) An accounting policy that requires a purchasing manager to sign off on all purchases over $10,000 is an example of A) general authorization. B) specific authorization. C) special authorization. D) generic authorization. Answer: B Concept: COSO's control activities Objective: Learning Objective 7 Difficulty: Easy AACSB: Reflective Thinking

13) A document that shows all projects that must be completed and the related IT needs in order to achieve long-range company goals is known as a A) performance evaluation. B) project development plan. C) data processing schedule. D) strategic master plan. Answer: D Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking 14) A is created to guide and oversee systems development and acquisition. A) performance evaluation B) project development plan C) steering committee D) strategic master plan Answer: C Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking 15) A shows how a project will be completed, including tasks and who will perform them as well as a timeline and cost estimates. A) performance evaluation B) project development plan C) steering committee D) strategic master plan Answer: B Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking

16) The organization chart for Renata Corporation includes a controller and an information processing manager, both of whom report to the vice president of finance. Which of the following would be a control weakness? A) Assigning the programming and operating of the computer system to an independent control group which reports to the controller B) Providing for maintenance of input data controls by an independent control group which reports to the controller C) Periodically rotating assignment of application processing among machine operators, who all report to the information processing manager D) Providing for review and distribution of system-generated reports by an independent control group which reports to the controller Answer: A Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 17) Which of the following is an independent check on performance? A) The Purchasing Agent physically reviews the contents of shipments and compares them with the purchase orders he has placed. B) Production teams perform quality evaluations of the products that they produce. C) The General Manager compares budgeted amounts with expenditure records from all departments. D) Petty cash is disbursed by Fred Haynes. He also maintains records of disbursements, places requests to finance to replace expended funds, and periodically reconciles the petty cash balance. Answer: C Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking 18) Petty cash is disbursed by the Manuela Luisina in the Cashier's Office. Manuela also maintains records of disbursements, places requests to the Finance Department to replace expended funds, and periodically reconciles the petty cash balance. This represents a(n) segregation of duties. A) ideal B) effective C) ineffective D) limited Answer: C Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking

19) Hiring decisions at Maarja's Razors are made by Maimu Maarja, the Director of Human Resources. Pay rates are approved by the Vice President for Operations. At the end of each pay period, supervisors submit time cards to Kasheena, who prepares paycheck requisitions. Paychecks are then distributed through the company's mail room. This represents a(n) segregation of duties. A) partial B) effective C) ineffective D) limited Answer: B Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 20) The Director of Information Technology for the city of Tampa, Florida formed a company to sell computer supplies and software. All purchases made on behalf of the City were made from her company. She was later charged with fraud for overcharging the City, but was not convicted by a jury. The control issue in this case arose because the Director had both and duties. A) custody; authorization B) custody; recording C) recording; authorization D) management; custody Answer: C Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 21) In a system with effective separation of duties, it is difficult for any single employee to embezzle successfully. Answer: TRUE Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Application of Knowledge 22) Detecting fraud where two or more people are in collusion to override controls is less difficult because it is much easier to for one or more fraud perpetrators to reveal the fraud. Answer: FALSE Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Easy AACSB: Application of Knowledge

23) The examination of the relationships between different sets of data is called A) top-level reviews. B) analytical reviews. C) reconciliation of independently maintained records. D) comparison of actual quantities with recorded amounts. Answer: B Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking 24) Describe the differences between general and specific authorization. Answer: Authorizations are often documented by signing, initializing, or entering an authorization code on a transaction document or record. Management may deem that certain transactions are of a routine nature and as such may authorize employees to handle such transactions without special approval. This is known as general authorization. Other transactions may be of such consequence that management grants specific authorization for them to occur. Usually management must approve of such transactions and oversee them to completion, requiring an additional signature required on checks exceeding a given dollar amount. Management should have written policies on both specific and general authorization for all type of transactions. Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking 25) Explain how a company could be the victim of fraud, even if ideal segregation of duties is enforced. Answer: When a system effectively incorporates a separation of duties, it should be difficult for any one employee to defeat the system and commit fraud. Fraud is possible when two or more employees agree to defeat the system for their own dishonest ends. This problem is known as collusion. When two or more employees act together to defeat the internal controls of the system, they may likely succeed. It is more difficult to detect such activity because the employees may have planned to "cover their tracks." This is why independent review of transaction activity by third parties is important to monitor that internal controls are in place and working as designed. Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking

26) Explain how a company could safeguard its assets, records, and data. Answer: A company can safeguard its assets, records, and data by (1) Creating and enforcing appropriate policies and procedures; (2) Maintaining accurate records of all assets; (3) Restricting access to assets; and (4) Protecting records and documents. Concept: COSO's control activities Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 7 Describe how to communicate information and monitor control processes in organizations. 1) Which component of the COSO Enterprise Risk Management Integrated Framework is concerned with understanding how transactions are initiated, data are captured and processed, and information is reported? A) Information and communication. B) Internal environment. C) Event identification. D) Objective setting. Answer: A Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following is not a principle related to information and communicating in the updated COSO Integrated Control framework? A) Communicate relevant internal control matters to external parties. B) Obtain or generate relevant, high-quality information to support internal control. C) Surround internal control processes with information technology that enables discrepancies to be identified. D) Internally communicate the information necessary to support the other components of internal control. Answer: C Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking

3) COSO requires that any internal deficiencies identified through monitoring be reported to whom? A) The external auditor. B) The company's management. C) The board of directors. D) The audit committee. Answer: C Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 4) Which of the following is not a key method of monitoring performance? A) Performing internal control evaluation. B) Implementing a benefit incentive plan. C) Implementing effective supervision. D) Implementing a whistleblower hotline. Answer: B Concept: COSO's communication and monitoring Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytical Thinking 5) To ensure compliance with copyrights and to protect itself from software piracy lawsuits, companies should . A) periodically conduct software audits B) update the operating system frequently C) buy software from legitimate suppliers D) adopt cloud operating platforms Answer: A Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 6) Which type of audits can detect fraud and errors? A) External audits. B) Internal audits. C) Network security audits. D) all of the above Answer: D Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytical Thinking

7) Which of the following is not an example of something monitored by a responsibility accounting system? A) Budgets. B) Quotas. C) Vendor analysis. D) Quality standards Answer: C Concept: COSO's communication and monitoring Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytical Thinking 8) Which type of audit assesses employee compliance with management policies and procedures? A) External audit. B) Internal audit. C) Compliance audit. D) Operational audit. Answer: B Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 9) Which of the following factors is not a reason forensic investigators are increasingly used in accounting? A) The Sarbanes-Oxley Act. B) New accounting rules. C) Audit fee increases. D) Pressure from boards of directors. Answer: C Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 10) A neural network is a software program that has A) the ability to read text. B) the ability to learn. C) the capability to extract information from an individual's brain. D) the capability to inject information into an individual's brain. Answer: B Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 39

11) Describe the three principles that apply to the information and communication process. Answer: The following three principles apply to the information and communication process: (1) Obtain or generate relevant, high-quality information to support internal control. (2) Internally communicate the information, including objectives and responsibilities, necessary to support the other components of internal control. (3)Communicate relevant internal control matters to external parties. Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 12) SOX suggested the fraud hotline as a mechanism for employees to report fraud and abuse. Answer: FALSE Concept: COSO's communication and monitoring Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 8 Controls for Information Security 1 Explain how security and the other four principles in the Trust Services Framework affect systems reliability. 1) The Trust Services Framework reliability principle that states that users must be able to enter, update, and retrieve data during agreed-upon times is known as A) availability. B) security. C) maintainability. D) integrity. Answer: A Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) According to the Trust Services Framework, the reliability principle of integrity is achieved when the system produces data that A) is available for operation and use at times set forth by agreement. B) is protected against unauthorized physical and logical access. C) can be maintained as required without affecting system availability, security, and integrity. D) is complete, accurate, and valid. Answer: D Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) According to the Trust Services Framework, the reliability principle of availability is achieved when the system produces data that A) is available for operation and use at times set forth by agreement. B) is protected against unauthorized physical and logical access. C) can be maintained as required without affecting system availability, security, and integrity. D) is complete, accurate, and valid. Answer: A Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) According to the Trust Services Framework, the confidentiality principle of integrity is achieved when the system produces data that A) is available for operation and use at times set forth by agreement. B) is protected against unauthorized physical and logical access. C) can be maintained as required without affecting system availability, security, and integrity. D) is complete, accurate, and valid. Answer: B Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Kuzman Jovan called a meeting of the top management at Jovan Capital Management. Number one on the agenda was computer system security. "The risk of security breach incidents has become unacceptable," he said, and turned to the Chief Information Officer. "What do you intend to do?" Which of the following is the best answer? A) Evaluate and modify the system using COBOL. B) Evaluate and modify the system using the CTC checklist. C) Evaluate and modify the system using the Trust Services framework D) Evaluate and modify the system using the COSO Internal Control Framework. Answer: C Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) Which of the following is not one of the essential criteria for successfully implementing each of the principles that contribute to systems reliability, as discussed in the Trust Services Framework? A) Developing and documenting policies. B) Effectively communicating policies to all outsiders. C) Designing and employing appropriate control procedures to implement policies. D) Monitoring the system and taking corrective action to maintain compliance with policies. Answer: B Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

7) Identify a party below who was involved with developing the Trust Services Framework. A) FASB B) COSO C) AICPA D) PCAOB Answer: C Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 8) Information security procedures protect information integrity by A) preventing fictitious transactions. B) reducing the system cost. C) making the system more efficient. D) making it impossible for unauthorized users to access the system. Answer: A Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 9) The Trust Services Framework reliability principle that states sensitive information be protected from unauthorized disclosure is known as A) availability. B) security. C) confidentiality. D) integrity. Answer: C Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) The Trust Services Framework reliability principle that states personal information should be protected from unauthorized disclosure is known as A) availability. B) security. C) privacy. D) integrity. Answer: C Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

11) The Trust Services Framework reliability principle that states access to the system and its data should be controlled and restricted to legitimate users is known as A) availability. B) security. C) privacy. D) integrity. Answer: B Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) The Trust Services Framework reliability principle that states access to the system and its data should be accessible to meet operational and contractual obligations to legitimate users is known as A) availability. B) security. C) privacy. D) integrity. Answer: A Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) Describe the five principles of the Trust Services Framework. Select one of the principles and discuss the why it is important to an organization. Answer: The Trust Services Framework organizes IT-related controls into five principles that jointly contribute to systems reliability. (1) Security-access (both physical and logical) to the system and its data is controlled and restricted to legitimate users. (2) Confidentiality-sensitive organizational information (e.g., marketing plans, trade secrets) is protected from unauthorized disclosure. (3) Privacy-personal information about customers, employees, suppliers, or business partners is collected, used, disclosed, and maintained only in compliance with internal policies and external regulatory requirements and is protected from unauthorized disclosure. (4) Processing Integrity-data are processed accurately, completely, in a timely manner, and only with proper authorization. (5)Availability-the system and its information are available to meet operational and contractual obligations. Students' answers may vary depending on which principle they select to discuss in more details. Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

2 Explain two fundamental concepts: why information security is a management issue, and the time-based model of information security. 1) Which of the following is not one of the three fundamental information security concepts? A) Information security is a technology issue based on prevention. B) Security is a management issue, not a technology issue. C) The idea of defense-in-depth employs multiple layers of controls. D) The time-based model of security focuses on the relationship between preventive, detective and corrective controls. Answer: A Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) If the time an attacker takes to break through the organization's preventive controls is greater than the sum of the time required to detect the attack and the time required to respond to the attack, then security is A) effective. B) ineffective. C) overdone. D) undermanaged. Answer: A Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) It was 8:03 A.M. when Jiao Jan, the Network Administrator for South Asian Technologies, was informed that the intrusion detection system had identified an ongoing attempt to breach network security. By the time that Jiao had identified and blocked the attack, the hacker had accessed and downloaded several files from the company's server. Using the notation for the time-based model of security, in this case A) D > P B) P > D C) P > C D) C > P Answer: A Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking

4) There are "white hat" hackers and "black hat" hackers. Cowboy451 was one of the "black hat" hackers. He had researched an exploit and determined that he could penetrate the target system, download a file containing valuable data, and cover his tracks in eight minutes. Six minutes into the attack he was locked out of the system. Using the notation of the time-based model of security, which of the following must be true? A) P < 6 B) D = 6 C) P = 6 D) P > 6 Answer: D Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 5) Security is a technology issue and not just a management issue. Answer: FALSE Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6) In the time-based model of information security, P represents A) the time it takes to respond to and stop the attack. B) the time it takes for the organization to detect that an attack is in progress. C) the time it takes an attacker to break through the various controls that protect the organization's information assets. D) the time it takes to assess threats and select risk response. Answer: C Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) In the time-based model of information security, D represents A) the time it takes to respond to and stop the attack. B) the time it takes for the organization to detect that an attack is in progress. C) the time it takes an attacker to break through the various controls that protect the organization's information assets. D) the time it takes to assess threats and select risk response. Answer: B Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

8) In the time-based model of information security, R represents A) the time it takes to respond to and stop the attack. B) the time it takes for the organization to detect that an attack is in progress. C) the time it takes an attacker to break through the various controls that protect the organization's information assets. D) the time it takes to assess threats and select risk response. Answer: A Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) Describe the steps in the security life cycle. Answer: There are four steps in the security life cycle. The first step in the security life cycle is to assess the information security-related threats that the organization faces and select an appropriate response. The second step involves developing information security policies and communicating them to all employees. The third step involves the acquisition or building of specific technological tools. The final step in the security life cycle entails regular monitoring of performance to evaluate the effectiveness of the organization's information security program. Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3 Discuss the steps criminals follow to execute a targeted attack against an organization's information system. 1) The steps that criminals take to study their target's physical layout to learn about the controls it has in place is called A) scanning and mapping the target. B) social engineering. C) research. D) reconnaissance. Answer: D Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

2) The steps that criminals take to trick an unsuspecting employee into granting them access is called A) scanning and mapping the target. B) social engineering. C) research. D) reconnaissance. Answer: B Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) The steps that criminals take to identify potential points of remote entry is called A) scanning and mapping the target. B) social engineering. C) research. D) reconnaissance. Answer: A Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) The steps that criminals take to find known vulnerabilities and learn how to take advantage of those vulnerabilities is called A) scanning and mapping the target. B) social engineering. C) research. D) reconnaissance. Answer: C Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) Organizations are infrequently the target of deliberate attacks. Answer: FALSE Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

6) Social engineering attacks often take place over the Internet. Answer: FALSE Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) Describe the basic steps criminal use to attack an organization's information system. Select one of the steps and find a news story that relates to the step that you have chosen. Answer: The basic steps criminals use to attack an organization's information system include: (1) conduct reconnaissance, (2) attempt social engineering, (3) scan and map the target, (4) research, (5) execute the attack, and (6) cover tracks. Students' answers may vary depending on which step they choose to discuss. Concept: Understanding targeted attacks Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 4 Describe the preventive, detective, and corrective controls that can be used to protect an organization’’s information. 1) Identify the statement below which is not a useful control procedure regarding access to system outputs. A) Restricting access to rooms with printers. B) Coding reports to reflect their importance. C) Allowing visitors to move through the building without supervision. D) Requiring employees to log out of applications when leaving their desk. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 2) Verifying the identity of the person or device attempting to access the system is an example of A) authentication. B) authorization. C) identification. D) threat monitoring. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

3) Restricting access of users to specific portions of the system as well as specific tasks, is an example of A) authentication. B) authorization. C) identification. D) threat monitoring. Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 4) is/are an example of a preventive control. A) Emergency response teams B) Encryption C) Log analysis D) Intrusion detection Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) is/are an example of a detective control. A) Physical access controls B) Encryption C) Emergency response teams D) Log analysis Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 6) is/are an example of a preventive control. A) Continuous monitoring B) Encryption C) Emergency response teams D) Log analysis Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

7) Which of the following is an example of a corrective control? A) Physical access controls. B) Encryption. C) Intrusion detection. D) Incident response teams. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the following is an example of a detective control? A) Physical access controls. B) Encryption. C) Continuous monitoring. D) Incident response teams. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 9) Which of the following is an example of a preventive control? A) The creation of a "security-aware" culture. B) The creation of a "Log user friendly" culture. C) The creation of a "continuous monitoring" culture. D) The creation of a chief information security officer position. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following is not a requirement of effective passwords? A) Passwords should be changed at regular intervals. B) Passwords should be no more than 8 characters in length. C) Passwords should contain a mixture of upper and lowercase letters, numbers and characters. D) Passwords should not be words found in dictionaries. Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

11) Multi-factor authentication A) involves the use of two or more basic authentication methods. B) is a table specifying which portions of the systems users are permitted to access. C) provides weaker authentication than the use of effective passwords. D) requires the use of more than one effective password. Answer: A Concept: Protecting information resources Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 12) An access control matrix A) is the process of restricting access of authenticated users to specific portions of the system and limiting what actions they are permitted to perform. B) is used to implement authentication controls. C) matches the user's authentication credentials to his authorization. D) is a table specifying which portions of the system users are permitted to access. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 13) Perimeter defense is an example of which of the following preventive controls that are necessary to provide adequate security? A) Training. B) Controlling physical access. C) Controlling remote access. D) Host and application hardening. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 14) Which of the following preventive controls are necessary to provide adequate security for social engineering threats? A) Controlling physical access. B) Encryption. C) Profiling. D) Awareness training. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 12

15) A special purpose hardware device or software running on a general purpose computer, which filters information that is allowed to enter and leave the organization's information system, is known as a(n) A) demilitarized zone. B) intrusion detection system. C) intrusion prevention system. D) firewall. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 16) A separate network located outside the organization's internal information system that permits controlled access from the Internet to selected resources is known as a(n) A) demilitarized zone. B) intrusion detection system. C) intrusion prevention system. D) firewall. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 17) This protocol specifies the procedures for dividing files and documents into packets to be sent over the Internet. A) access control list B) Internet protocol C) packet switching protocol D) transmission control protocol Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

18) This protocol specifies the structure of packets sent over the internet and the route to get them to the proper destination. A) access control list B) Internet protocol C) packet switching protocol D) transmission control protocol Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 19) This network access control determines which IP packets are allowed entry to a network and which are dropped. A) access control list B) deep packet inspection C) stateful packet filtering D) static packet filtering Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 20) Compatibility tests utilize a(n) , which is a list of authorized users, programs, and data files the users are authorized to access or manipulate. A) validity test B) biometric matrix C) logical control matrix D) access control matrix Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 21) The process that screens individual IP packets based solely on the contents of the source and/or destination fields in the packet header is known as A) access control list. B) deep packet inspection. C) intrusion filtering. D) packet filtering. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 14

22) The process of maintaining a table listing all established connections between the organization's computers and the internet to determine whether an incoming packet is part of an ongoing communication initiated by an internal computer is known as A) packet filtering. B) deep packet inspection. C) access control list. D) access control matrix Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 23) The process that allows a firewall to be more effective by examining the data in the body of an IP packet, instead of just the header, is known as A) deep packet inspection. B) stateful packet filtering. C) static packet filtering. D) an intrusion prevention system. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 24) The security technology that evaluates IP packet traffic patterns in order to identify attacks against a system is known as A) an intrusion prevention system. B) stateful packet filtering. C) static packet filtering. D) deep packet inspection. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

25) The process of turning off unnecessary features in the system is known as A) deep packet inspection. B) hardening. C) intrusion detection. D) modaling. Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 26) The most common input-related vulnerability is called the A) softening attack. B) hardening attack. C) cross-site scripting attack. D) buffering attack. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 27) Which of the below keeps a record of the network traffic permitted to pass through a firewall? A) Intrusion detection system. B) Vulnerability scan. C) Log analysis. D) Penetration test. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 28) The process that uses automated tools to identify whether a system possesses any wellknown security problems is known as a(n) A) intrusion detection system. B) log analysis. C) penetration test. D) vulnerability scan. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

29) is an authorized attempt by an internal audit team or an external security consultant to attempt to break into the organization's information system. A) Log analysis test B) Intrusion test C) Penetration test D) Vulnerability test Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 30) A well-known hacker started her own computer security consulting business. Many companies pay her to attempt to gain unauthorized access to their network. If she is successful, she offers advice as to how to design and implement better controls. What is the name of the testing for which the hacker is being paid? A) Penetration test. B) Vulnerability scan. C) Deep packet inspection D) Buffer overflow test. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 31) Tools called can be used to identify unused and, therefore, unnecessary programs that represent potential security threats. A) router scanners B) vulnerabilities scanners C) deep inspection scanners D) TCP scanners Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

32) The disseminates information about fraud, errors, breaches and other improper system uses and their consequences. A) chief information officer B) chief operations officer C) chief security officer D) computer emergency response team Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 33) A major financial institution hired a renowned security firm to attempt to compromise its computer network. A few days later, the security firm reported that it had successfully entered the financial institution's computer system without being detected. The security firm presented an analysis of the vulnerabilities that had been found to the financial institution. This is an example of a A) preventive control. B) detective control. C) corrective control. D) security control. Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 34) Which of the following is commonly true of the default settings for most commercially available wireless access points? A) The security level is set at the factory and cannot be changed. B) Security is set to an adjustable level that changes depending on the wireless network the device is connected. C) Security is set to the lowest level that the device is capable of handling. D) Security is set to the highest level that the device is capable of handling. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

35) In recent years, many of the attacks carried out by hackers have relied on this type of vulnerability in computer software. A) Code mastication. B) Boot sector corruption. C) URL injection. D) Buffer overflow. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 36) ShareIt is a social networking site that boasts over a million registered users and a quarterly membership growth rate in the double digits. As a consequence, the size of the information technology department has been growing very rapidly, with many new hires. Each employee is provided with a name badge with a photo and embedded computer chip that is used to gain entry to the facility. This is an example of a(n) A) authentication control. B) biometric device. C) remote access control. D) authorization control. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Reflective Thinking 37) New employees of Baker Technologies are assigned user names and appropriate permissions. Their credentials are then entered into the company's information system's access control matrix. This is an example of a(n) A) authentication control. B) biometric device. C) remote access control. D) authorization control. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Reflective Thinking

38) New employees of Baker Technologies are assigned user names and appropriate permissions. Each of them were given a company's issued laptop that have an integrated fingerprint reader. In order to log in, the user's fingerprint must be recognized by the reader. This is an example of a(n) A) authorization control. B) biometric device. C) remote access control. D) defense in depth. Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Reflective Thinking 39) Information technology managers are often in a bind when a new exploit is discovered in the wild. They can respond by updating the affected software or hardware with new code provided by the manufacturer, which runs the risk that a flaw in the update will break the system. Or they can wait until the new code has been extensively tested, but that runs the risk that they will be compromised by the exploit during the testing period. Dealing with these issues is referred to as A) change management. B) cloud computing. C) patch management. D) user account management. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 40) The most effective method for protecting an organization from social engineering attacks is providing A) a firewall. B) stateful packet filtering. C) a demilitarized zone. D) employee awareness training. Answer: D Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

41) The most effective way to protect network resources that are exposed to the internet, yet reside outside of a network is A) a firewall. B) employee training. C) a demilitarized zone. D) stateful packet filtering. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 42) All employees of E.C. Hoxy are required to pass through a gate and present their photo identification cards to the guard before they are admitted. Entry to secure areas, such as the Information Technology Department offices, requires further procedures. This is an example of a(n) A) authentication control. B) authorization control. C) physical access control. D) hardening procedure. Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 43) Residents in Berryhill received an e-mail stating that there is an armed robber on the loose. The e-mail claimed to be from the Berryhill police department, but it wasn't. Computer forensic experts later determined that the e-mail was sent from a computer lab in the Berryhill's public library. The police were then able to uniquely identify the computer that was used by means of its network interface card's address. Security cameras later help the police to reveal the identity of the individual responsible for the hoax. A) IDS B) TCP/IP C) MAC D) DMZ Answer: C Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking

44) Identify three ways users can be authenticated and give an example of each. Answer: Users can be authenticated by verifying: 1. something they know (password). 2. something they have (smart card or ID badge). 3. Something they are (biometric identification of fingerprint). Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 45) Describe four requirements of effective passwords . Answer: 1. Strong passwords should be long. 2. Passwords should use a mixture of upper and lowercase letters, numbers and characters. 3. Passwords should be random and not words found in dictionaries. 4. Passwords should be changed frequently. Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 46) Explain social engineering. Answer: Social engineering attacks use deception to obtain unauthorized access to information resources, such as attackers who post as a janitor or as a legitimate system user. Employees must be trained not to divulge passwords or other information about their accounts to anyone who contacts them and claims to be part of the organization's security team. Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 47) Explain the value of penetration testing. Answer: Penetration testing involves an authorized attempt by an internal audit team or an external security consultant to break into the organization's information system. This type of service is provided by risk management specialists in all the Big Four accounting firms. These specialists spend more than half of their time on security matters. The team attempts to compromise the system using every means possible. With a combination of systems technology skills and social engineering, these teams often find weaknesses in systems that were believed to be secure. Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

48) Identify six physical access controls. Answer: Require visitors to sign in and receive a visitor badge before being escorted by an employee; require employees to wear photo ID badges that are checked by security guards; physical locks and keys; storing documents and electronic media in a fire-proof safe or cabinet; restrict or prohibit cell phones, iPods and other portable devices; set screen savers to start after a few minutes of inactivity; set computers to lock keyboards after a few minutes of inactivity; utilize screen protection devices; use biometric devices to authorize access to spaces and equipment; attach and lock laptops to immobile objects; utilize magnetic or chip cards to authorize access to spaces and equipment; limit or prohibit windows and glass walls in sensitive areas. Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 49) A border router A) routes electronic communications within an organization. B) connects an organization's information system to the Internet. C) permits controlled access from the Internet to selected resources. D) serves as the main firewall. Answer: B Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 50) A demilitarized zone A) routes electronic communications within an organization. B) connects an organization's information system to the Internet. C) permits controlled access from the Internet to selected resources. D) serves as the main firewall. Answer: C Concept: Protecting information resources Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 51) Describe what information security process the term hardening refers to. Answer: Hardening is the process of modifying the default configuration of a system to eliminate unnecessary settings and services. Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

52) Describe what a man-trap is and how it contributes to information security. Answer: A man-trap is a specially designed room to trap unauthorized individuals. Typically, a man-trap room contains two doors. Entry to the first door requires the person insert and ID card and enter a password. Successful authentication opens the first door, permitting the individual into the room. Once inside the room, the door closes and locks behind the individual. Then, the individual must successfully pass a second set of authentication controls that typically includes a biometric credential. Failure to pass results in the individual being trapped in the room. Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking 53) Why does COBIT5 DSS-05.06 stress the importance of restricting physical access to network printers? A) because hackers can use them to print out sensitive information B) because hackers often hide inside large network printers until night C) because document images are often stored on network printers D) because network printers are easier to hack into than computers Answer: C Concept: Protecting information resources Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 54) The most important element of any preventive control is A) the people. B) the performance. C) the procedure(s). D) the penalty. Answer: A Concept: Protecting information resources Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5 Describe the controls that can be used to timely detect that an organization's information system is under attack. 1) Logs need to be analyzed regularly to detect problems in a timely manner. Answer: TRUE Concept: Detecting attacks Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

2) A system that creates logs of all network traffic that was permitted to pass the firewall and then analyzes those logs for signs of attempted or successful intrusions is called A) log analysis. B) intrusion detection systems. C) continuous monitoring. D) defense in depth. Answer: B Concept: Detecting attacks Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 3) COBIT 5 management practice APO01.08 stresses the importance of of both employee compliance with the organization's information security policies and overall performance of business processes. A) continuous improvement of B) continuous reviewing C) continuous monitoring D) continuous auditing Answer: C Concept: Detecting attacks Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 4) Describe the three types of detective controls that enable organizations timely detection of intrusions and problems. Answer: The three types of detective controls that enable organizations timely detection of intrusions and problems are (1) Log analysis. It is the process of examining logs to identify evidence of possible attacks. (2) Network intrusion detection systems. It consists of a set of sensors and a central monitoring unit that create logs of network traffic that was permitted to pass the firewall and then analyze those logs for signs of attempted or successful intrusions. (3) Continuously Monitoring. COBIT 5 management practice APO01.08 stresses the importance of continuously monitoring both employee compliance with the organization's information security policies and overall performance of business processes. Such monitoring is an important detective control that can timely identify potential problems and identify opportunities to improve existing controls. Concept: Detecting attacks Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

6 Discuss how organizations can timely respond to attacks against their information system. 1) Timely detection of problems is not enough to protect organizations' information resources. Answer: TRUE Concept: Responding to attacks Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking 2) Many corrective controls rely on human judgment. Answer: TRUE Concept: Responding to attacks Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is not a step in an organization's incident response process? A) Recognition. B) Recovery. C) Isolation. D) Containment. Answer: C Concept: The trust services framework Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 4) Who bears the responsibility for information security in an organization? A) CIO. B) CISO. C) CFO. D) COO. Answer: B Concept: Responding to attacks Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking

5) Describe the function of a computer incident response team (CIRT) and the steps that a CIRT should perform following a security incident. Answer: A CIRT is responsible for dealing with major security incidents and breaches. The team should include technical specialists and senior operations management. In response to a security incident, first the CIRT must recognize that a problem exists. Log analysis, intrusion detection systems can be used to detect problems and alert the CIRT. Second, the problem must be contained, perhaps by shutting down a server or curtailing traffic on the network. Third, the CIRT must focus on recovery. Corrupt programs may need to be reinstalled and data restored from backups. Finally, the CIRT must follow-up to discover how the incident occurred and to design corrective controls to prevent similar incidents in the future. Concept: Responding to attacks Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytical Thinking 7 Explain how virtualization, cloud computing, and the Internet of Things affect information security. 1) Identify one aspect of systems reliability that is not a source of concern with regards to a public cloud. A) confidentiality B) privacy C) efficiency D) availability Answer: C Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 2) Identify the primary means of protecting data stored in a cloud from unauthorized access. A) authentication B) authorization C) virtualization D) securitization Answer: A Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking

3) Virtualization refers to the ability of A) running multiple systems simultaneously on one physical computer. B) eliminating the need for a physical computer. C) using the Internet to perform all needed system functions. D) using web-based security to protect an organization. Answer: A Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 4) Cloud computing can potentially generate significant cost savings for an organization. Answer: TRUE Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytical Thinking 5) Cloud computing is generally more secure than traditional computing. Answer: FALSE Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytical Thinking 6) Describe the differences between virtualization and cloud computing. Answer: Virtualization takes advantage of the power and speed of modern computers to run multiple systems simultaneously on one physical computer. This cuts hardware costs, because fewer servers need to be purchased. Fewer machines mean lower maintenance costs. Data center costs also fall because less space needs to be rented, which also reduces utility costs. Cloud computing takes advantage of the high bandwidth of the modern global telecommunication network to enable employees to use a browser to remotely access software (software as a service), data storage devices (storage as a service), hardware (infrastructure as a service), and entire application environments (platform as a service). Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking

7) Describe the security risks associated with virtualization and cloud computing. Answer: Virtualization and cloud computing alter the risk of some information security threats. For example, unsupervised physical access in a virtualization environment exposes not just one device but also the entire virtual network to the risk of theft or destruction and compromise. Similarly, compromising a cloud provider's system may provide unauthorized access to multiple systems. Moreover, because public clouds are, by definition, accessible via the Internet, the authentication process is the primary means of protecting your data stored in the cloud from unauthorized access. Public clouds also raise concerns about the other aspects of systems reliability (confidentiality, privacy, processing integrity, and availability) because the organization is outsourcing control of its data and computing resources to a third party. Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking 8) Describe the concept of Internet of Things (IoT) and its security implications. Answer: The term Internet of Things (IoT) refers to the embedding of sensors in a multitude of devices (lights, heating and air conditioning, appliances, etc.) so that those devices can now connect to the Internet. The IoT has significant implications for information security. On the one hand, it makes the design of an effective set of controls much more complex. Traditionally, information security focused on controlling access to a limited number of endpoints: laptops, desktop computers, servers, printers, and mobile devices. The move to the IoT means that many other devices found in work settings now provide a potential means of accessing the corporate network and, therefore, must be secured. On the other hand, the IoT provides an opportunity to enhance physical access control. Concept: Virtualization, cloud computing, and the internet Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 9 Confidentiality and Privacy Controls 1 Describe the controls that can be used to protect the confidentiality of an organization’s information. 1) Identify the type of information below that is least likely to be considered confidential by an organization. A) Audited financial statements. B) Legal documents. C) Top executives' salaries. D) New product development plans. Answer: A Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following is not one of the basic actions that an organization must take to preserve the confidentiality of sensitive information? A) Identification of information to be protected. B) Backing up the information. C) Controlling access to the information. D) Training. Answer: B Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3) Classification of confidential information is the responsibility of whom, according to COBIT5? A) External auditor. B) Information owner. C) IT security professionals. D) Management. Answer: B Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) Encryption is one of the many ways to protect information in transit over the internet. Answer: TRUE Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Encryption is not a panacea to protecting confidential information. Answer: TRUE Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6) Encryption is a necessary part of which information security approach? A) Defense in depth. B) Time based defense. C) Continuous monitoring. D) Synthetic based defense. Answer: A Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) Information rights management software can do all of the following except A) limiting access to specific files. B) limit action privileges to a specific time period. C) authenticate individuals accessing information. D) specify the actions individuals granted access to information can perform. Answer: C Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 8) Identify the first step in protecting the confidentiality of intellectual property below. A) Identifying who has access to the intellectual property. B) Identifying the means necessary to protect the intellectual property. C) Identifying the weaknesses surrounding the creation of the intellectual property. D) Identifying what controls should be placed around the intellectual property. Answer: A Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2

9) After the information that needs to be protected has been identified, what step should be completed next? A) The information needs to be placed in a secure, central area. B) The information needs to be encrypted. C) The information needs to be classified in terms of its value to the organization. D) The information needs to be depreciated. Answer: C Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) Identify the last step in protecting the confidentiality of intellectual property below. A) Encrypt the information. B) Control access to the information. C) Train employees to properly handle the information. D) Identify and classify the information to be protected. Answer: C Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 11) Which type of software blocks outgoing messages containing key words or phrases associated with an organization's sensitive data? A) Anti-virus software. B) Data loss prevention software. C) A digital watermark. D) Information rights software. Answer: B Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

12) Which type of software provides an additional layer of protection to sensitive information that is stored in digital format, offering the capability not only to limit access to specific files or documents but also to specify the actions that individuals who are granted access to that resource can perform? A) Anti-virus software. B) Data loss prevention software. C) A digital watermark. D) Information rights software. Answer: D Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) The Bear Corporation uses a tool that embeds a code into all of its digital documents. It then scours the internet, searching for codes that it has embedded into its files. When Bear finds an embedded code on the internet, it knows that confidential information has been leaked. Bear then begins identifying how the information was leaked and who was involved with the leak. Bear is using A) an information rights management software. B) a data loss prevention software. C) a digital watermark. D) a stop leak software. Answer: C Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 14) What confidentiality and security risk does using VoIP present to organizations? A) Internet e-mail communications can be intercepted. B) Internet photographs can be intercepted. C) Internet video can be intercepted. D) Internet voice conversations can be intercepted. Answer: D Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

15) Describe the four basic actions that organizations must take to preserve the confidentiality of sensitive information. Answer: The four basic actions that must be taken to preserve the confidentiality of sensitive information are (1) identify and classify the information to be protected, (2) encrypt the information, (3) control access to the information, and (4) train employees to properly handle the information. Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) Discuss the most important control for protecting confidentiality. Answer: Training is arguably the most important control for protecting confidentiality. Employees need to know what information they can share with outsiders and what information needs to be protected. Employees also need to be taught how to protect confidential data. With proper training, employees can play an important role in protecting the confidentiality of an organization's information and enhance the effectiveness of related controls. Concept: Preserving confidentiality Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 2 Explain the controls that organizations can use to protect the privacy of personal information they collect from customers, suppliers, and employees, and discuss how the Generally Accepted Privacy Principles (GAPP) framework provides guidance in developing a comprehensive approach to protecting privacy. 1) Which of the following is not one of the 10 internationally recognized best practices for protecting the privacy of customers' personal information? A) Provide free credit report monitoring for customers. B) Inform customers of the option to opt-out of data collection and use of their personal information. C) Allow customers' browsers to decline to accept cookies. D) Utilize controls to prevent unauthorized access to, and disclosure of, customers' information. Answer: A Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

2) A client approached Paxton Uffe and said, "Paxton, I need for my customers to make payments online using credit cards, but I want to make sure that the credit card data isn't intercepted. What do you suggest?" Paxton responded, "The most effective solution is to implement A) a data masking program." B) a virtual private network." C) a private cloud environment." D) an encryption system with digital signatures." Answer: D Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) Describe some steps you can take to minimize your risk of identity theft. Answer: Shred documents containing personal information. Never send personally identifying information in unencrypted e-mail. Beware of e-mail/phone/print requests to verify personal information that the requesting party should already possess. Do not carry your social security card with you. Print only your initials and last name on checks. Limit the amount of other information preprinted on checks. Do not use your mailbox for outgoing mail. Do not carry more than a few blank checks with you. Use special software to digitally clean any digital media prior to disposal. Monitor your credit cards regularly. File a police report as soon as you discover a purse or wallet missing. Make photocopies of your driver's license, passport and credit cards and keep them in a safe location. Immediately cancel any stolen or lost credit cards. Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4) The first steps in protecting the privacy of personal information is to identify A) what sensitive information is possessed by the organization. B) where sensitive information is stored. C) who has access to sensitive information. D) All of the above are first steps in protecting privacy. Answer: D Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) It is impossible to encrypt information transmitted over the Internet. Answer: FALSE Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 6

6) Data masking is also referred to as A) encryption. B) tokenization. C) captcha. D) cookies. Answer: B Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 7) Abbie Johnson is a programmer at Healtheast network. Abbie has recently developed a new computer program for Healtheast. As part of the testing process, Abbie needs to use realistic patients data to ensure that the system is working properly. To protect privacy, management at Healtheast uses a program that replaces private patient information with fake values before sending the data to Abbie for testing. The program that replaces patient information with fake values is called A) data encryptioning. B) data masking. C) data wiping. D) data redacting. Answer: B Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 8) Cindy Vindoolo logged on to her e-mail account to find that she had received 50 e-mails from a company called LifeCo that promised her extreme weight loss if she bought their diet pills. Cindy angrily deleted all 50 e-mails, realizing she was a victim of A) telemarketing. B) spam. C) direct mail. D) MLM. Answer: B Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

9) Under CAN-SPAM legislation, an organization that receives an opt-out request from an individual has days to implement steps to ensure they do not send out any additional unsolicited e-mail to the individual again. A) 2 B) 5 C) 7 D) 10 Answer: D Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) Identify the item below that is not a step you could take to prevent yourself from becoming a victim of identity theft. A) Shred all documents that contain your personal information. B) Only print your initial and last name on your personal checks. C) Monitor your credit reports regularly. D) Refuse to disclose your social security number to anyone or any organization. Answer: D Concept: Protecting information resources Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 11) Identify the item below which is not a piece of legislation passed to protect individuals against identity theft or to secure individuals' privacy. A) The Health Insurance Portability and Accountability Act (HIPAA). B) The Health Information Technology for Economic and Clinical Health Act (HITECH). C) The Gramm––Leach––Bliley Act. D) The Dodd-Frank Act. Answer: D Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

12) If an organization asks you to disclose your social security number, yet fails to permit you to opt-out before you provide the information, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Management. B) Notice. C) Choice and consent. D) Use and retention. Answer: C Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 13) If an organization asks you to disclose your social security number, but fails to establish a set of procedures and policies for protecting your privacy, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Management. B) Notice. C) Choice and consent. D) Use and retention. Answer: A Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 14) If an organization asks you to disclose your social security number, but fails to tell you about its privacy policies and practices, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Management. B) Notice. C) Choice and consent. D) Use and retention. Answer: B Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

15) If an organization asks you to disclose your social security number, yet fails to properly dispose of your private information once it has fulfilled its purpose, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Management. B) Notice. C) Choice and consent. D) Use and retention. Answer: D Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 16) If an organization asks you to disclose your social security number, but decides to use it for a different purpose than the one stated in the organization's privacy policies, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Collection. B) Access. C) Security. D) Quality. Answer: A Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 17) If an organization asks you to disclose your date of birth and your address, but refuses to let you review or correct the information you provided, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Collection. B) Access. C) Security. D) Choice and consent. Answer: B Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

18) If an organization asks you to disclose your date of birth and your address, but fails to take any steps to protect your private information, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Collection. B) Access. C) Security. D) Quality. Answer: C Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 19) If an organization asks you to disclose your date of birth and your address, but fails to establish any procedures for responding to customer complaints, the organization has likely violated which of the Generally Accepted Privacy Principles? A) Collection. B) Access. C) Security. D) Monitoring and enforcement. Answer: D Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 20) Discuss to the key CAN-SPAM's guidelines on commercial e-mail that has the primary purpose of advertising. Answer: The key guidelines include: (1) The sender's identity must be clearly displayed in the header of the message. (2) The subject field in the header must clearly identify the message as an advertisement or solicitation. (3) The body of the message must provide recipients with a working link that can be used to opt out of future e-mail. (4) The body of the message must include the sender's valid postal address. (5) Organizations should not send commercial e-mail to randomly generated addresses, nor should they set up websites designed to "harvest" e-mail addresses of potential customers. Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 21) CAN-SPAM applies to both commercial and personal e-mail. Answer: FALSE Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 11

22) CAN-SPAM provides both criminal and civil penalties for violations of the law. Answer: TRUE Concept: Protecting the privacy of information Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3 Discuss how different types of encryption systems work, and explain how digital signatures provide the means for creating legally-enforceable contracts. 1) Which of the following is not true regarding virtual private networks (VPN)? A) VPNs provide the functionality of a privately owned network using the Internet. B) Using VPN software to encrypt information while it is in transit over the Internet in effect creates private communication channels, often referred to as tunnels, which are accessible only to those parties possessing the appropriate encryption and decryption keys. C) It is more expensive to reconfigure VPNs to include new sites than it is to add or remove the corresponding physical connections in a privately owned network. D) The cost of the VPN software is much less than the cost of leasing or buying the infrastructure (telephone lines, satellite links, communications equipment, etc.) needed to create a privately owned secure communications network. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 2) All of the following are associated with asymmetric encryption except A) speed. B) private keys. C) public keys. D) no need for key exchange. Answer: A Concept: Encryption Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

3) The system and processes used to issue and manage asymmetric keys and digital certificates are known as A) asymmetric encryption. B) certificate authority. C) digital signature. D) public key infrastructure. Answer: D Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) Text that was transformed into unreadable gibberish using encryption is called A) plaintext. B) ciphertext. C) encryption text. D) private text. Answer: B Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) Identify one weakness of encryption below. A) Encrypted packets cannot be examined by a firewall. B) Encryption provides for both authentication and non-repudiation. C) Encryption protects the privacy of information during transmission. D) Encryption protects the confidentiality of information while in storage. Answer: A Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 6) Using a combination of symmetric and asymmetric key encryption, Sofia sent a report to her home office in Indiana. She received an e-mail acknowledgement that her report had been received, but a few minutes later she received a second e-mail that contained a different hash total than the one associated with her report. This most likely explanation for this result is that A) the public key had been compromised. B) the private key had been compromised. C) the symmetric encryption key had been compromised. D) the asymmetric encryption key had been compromised. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 13

7) Encryption has a remarkably long and varied history. The invention of writing was apparently soon followed by a desire to conceal messages. One of the methods, was the simple substitution of numbers for letters, for example A = 1, B = 2, etc. This is an example of A) a hashing algorithm. B) symmetric key encryption. C) asymmetric key encryption. D) a public key. Answer: B Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 8) An electronic document that certifies the identity of the owner of a particular public key. A) Asymmetric encryption. B) Digital certificate. C) Digital signature. D) Public key. Answer: B Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 9) Which systems use the same key to encrypt communications and to decrypt communications? A) Asymmetric encryption. B) Symmetric encryption. C) Hashing encryption. D) Public key encryption Answer: B Concept: Encryption Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 10) The creation of a digital signature is a two-step process. Answer: TRUE Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

11) are used to create digital signatures. A) Asymmetric encryption and hashing B) Hashing and packet filtering C) Packet filtering and encryption D) Symmetric encryption and hashing Answer: A Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 12) Information encrypted with the creator's private key that is used to authenticate the sender is called A) asymmetric encryption. B) digital certificate. C) digital signature. D) public key. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the following is not one of the three important factors determining the strength of any encryption system? A) Key length. B) Policies for managing cryptographic keys. C) Encryption algorithm. D) Storage of digital signatures. Answer: D Concept: Encryption Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 14) A process that takes plaintext of any length and transforms it into a short code is called A) asymmetric encryption. B) encryption. C) hashing. D) symmetric encryption. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

15) Which of the following descriptions is not associated with symmetric encryption? A) A shared secret key. B) Faster encryption. C) Lack of authentication. D) Separate keys for each communication party. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 16) Encryption has a remarkably long and varied history. Spies have been using it to convey secret messages ever since there were secret messages to convey. One powerful method of encryption uses random digits. Two documents are prepared with the same random sequence of numbers. The spy is sent out with one and the spy master retains the other. The digits are used as follows. Suppose that the word to be encrypted is SPY and the random digits are 352. Then S becomes V (three letters after S), P becomes U (five letters after P), and Y becomes A (two letters after Y, restarting at A after Z). The spy would encrypt a message and then destroy the document used to encrypt it. This is an early example of A) a hashing algorithm. B) asymmetric key encryption. C) symmetric key encryption. D) public key encryption. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 17) One way to circumvent the counterfeiting of public keys is by using A) a digital certificate. B) digital authority. C) encryption. D) cryptography. Answer: A Concept: Encryption Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

18) In a private key system the sender and the receiver have system they have . A) different keys; the same key B) a decrypting algorithm; an encrypting algorithm C) the same key; two separate keys D) an encrypting algorithm; a decrypting algorithm Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

, and in the public key

19) Asymmetric key encryption combined with the information provided by a certificate authority allows unique identification of A) the user of encrypted data. B) the provider of encrypted data. C) both the user and the provider of encrypted data. D) either the user or the provider of encrypted data. Answer: D Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20) A laptop computer belonging to the Novak group was stolen from the trunk of a sales manager's car while she was attending a conference. After reporting the theft, the manager considered the implications for the company's network security and concluded there was little to worry about because A) the computer was insured against theft. B) the computer was protected by a password. C) the data stored on the computer was encrypted. D) it was unlikely that the thief would know how to access the company data stored on the computer. Answer: C Concept: Encryption Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

21) You are assisting a manager from your company's headquarters in New York. The manager needs to interact online in real time with one of your company's affiliate overseas. The manager wants to make sure that her communications with the overseas affiliate won't be intercepted. What should you suggest to the manager? A) A virtual private network connection. B) A multifactor authentication network connection. C) A private cloud network connection. D) An asymmetric encryption system with digital signatures connection. Answer: A Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22) Describe symmetric encryption and identify three limitations. Answer: Symmetric encryption systems use the same key to encrypt and decrypt data. Symmetric encryption is much faster than asymmetric encryption, but the sender and receiver need to know the shared secret key, which requires a different secure method of exchanging the key. Also, different secret keys must be used with each different communication party. Finally, there is no way to prove who created a specific document. Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 23) Compare the advantages and disadvantage of symmetric and asymmetric encryption. Answer: The advantage of symmetric encryption is much faster speed. The disadvantages are the requirement of a separate key for everyone who wishes to communicate and the need to find a secure way to share the secret key with the other party. The advantages of asymmetric encryption include (a) everyone can use your public key to communicate with you, (b) no need to store keys for each party with whom you wish to communicate, and (c) can be used to create legally binding digital signatures. The disadvantages are slower speed and the need to have a public key infrastructure (PKI) to validate ownership of public keys. Concept: Encryption Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 10 Processing Integrity and Availability Controls 1 Identify and explain the input, processing, and output controls designed to ensure processing integrity. 1) The best example of an effective payroll transaction file hash total would most likely be A) sum of net pay. B) total number of employees. C) sum of hours worked. D) total of employees' social security numbers. Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) The best example of an effective payroll transaction file financial total would most likely be A) sum of net pay. B) total number of employees. C) sum of hours worked. D) total of employees' social security numbers. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) The best example of an effective payroll transaction file record count would most likely be A) sum of net pay. B) total number of employees. C) sum of FICA. D) total of employees' social security numbers. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) Error logs and review are an example of A) data entry controls. B) data transmission controls. C) output controls. D) processing controls. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Following is the result of batch control totals on employee Social Security numbers in a payroll processing transaction: Values Correct Entered Values From During Masterfile Processing 487358796 487358796 534916487 534916487 498374526 498374526 514873420 514873420 534196487 534916487 678487853 678487853 471230589 471230589 3719438158 3720158158 The difference in the control totals is 720,000. Which data entry control would best prevent similar data entry errors in the future? A) Batch check. B) Validity check. C) Check digit. D) Sequence check. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

6) Employee Name Mary Jones Tom Davis Amy Dunn Kate Smith Kevin White Jill Brown

Overtime Hours 10 -5 3 2 -4 800

The total overtime hours is 806. Which data entry control would best prevent similar data entry errors in the future? A) Sequence check. B) Validity check. C) Check digit. D) Reasonableness test. Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 7) Which of the following data entry controls would not be useful if you are recording the checkout of library books by members? A) Sequence check. B) Prompting. C) Validity check. D) Concurrent update control. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 8) A customer forget to include her account number on her check, and the accounts receivable clerk credited her payment to a different customer with the same last name. Which control could have been used to most effectively to prevent this error? A) Closed-loop verification. B) Duplicate values check. C) Reasonableness test. D) Reconciliation of a batch control total. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3

9) If invoices are processed in groups of fifty, which fields from the document shown below would not be used to create a hash control total?

A) Amount. B) Item Number. C) Quantity Ordered. D) Sales Order number. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

10) is a data entry input control that involves summing the first four digits of a customer number to calculate the value of the fifth digit, then comparing the calculated number to the number entered during data entry. A) Validity check B) Duplicate data check C) Closed-loop verification D) Check digit verification Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 11) is a data entry input control that involves checking the accuracy of input data by using it to retrieve and display other related information. A) Validity check B) Duplicate data check C) Closed-loop verification D) Check digit verification Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) is a data entry input control that requests each input data item and waits for an acceptable response, ensures that all necessary data are entered. A) Prompting B) Duplicate data check C) Closed-loop verification D) Check digit verification Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) All of the following controls for online entry of a sales order would be useful except A) check digit verification on the dollar amount of the order. B) validity check on the inventory item numbers. C) field check on the customer ID and dollar amount of the order. D) concurrent update control. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 5

14) The inventory tracking system shows that 12 laptop were on hand before a customer brings two laptops to the register for purchase. The cashier accidentally enters the quantity sold as 20 instead of 2. Which data entry control would most effectively prevent this error? A) Limit check. B) Sign check. C) Field check. D) Validity check. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 15) A payroll clerk accidentally entered an employee's hours worked for the week as 380 instead of 38. The data entry control that would best prevent this error would be A) a limit check. B) a check digit. C) batch total reconciliation. D) a field check. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) The data entry control that would best prevent entering an invoice received from a vendor who is not on an authorized supplier list is A) a validity check. B) an authorization check. C) a check digit. D) closed-loop verification. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 17) Form design is one example of a(n) A) output control. B) processing control. C) input control. D) data entry control. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6

18) Cancellation and storage of documents is one example of a(n) A) output control. B) processing control. C) input control. D) data entry control. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 19) Sequentially prenumbered forms are an example of a(n) A) data entry control. B) data transmission control. C) processing control. D) input control. Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 20) Turnaround documents are an example of a(n) A) data entry control. B) output control. C) processing control. D) input control. Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 21) A validity check is an example of A) a data entry control. B) an output control. C) a data transmission control. D) an input control. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

22) Checksums is an example of a(n) A) data entry control. B) data transmission control. C) output control. D) processing control. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) Reconciliation procedures is an example of A) a data entry control. B) a data transmission control. C) an output control. D) a processing control. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 24) Data matching is an example of a(n) A) data entry control. B) data transmission control. C) processing control. D) input control. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 25) A hash total is an example of which control below? A) Data entry control. B) Data transmission control. C) Processing control. D) Output control. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

26) Cancellation and storage of documents means A) documents are defaced and stored. B) documents are defaced before being shredded. C) cancellation data are copied from documents before they are stored. D) data are copied from a document and stored before it is being shredded. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 27) A completeness check is an example of a(n) A) data transmission control. B) output control. C) processing control. D) input control. Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 28) A ensures input data will fit into the assigned field. A) limit check B) size check C) range check D) field check Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 29) A determines whether the input data are of the proper type. A) limit check B) size check C) range check D) field check Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

30) tests a numerical amount to ensure that it does not exceed a predetermined value nor fall below another predetermined value. A) Completeness check B) Field check C) Limit check D) Range check Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 31) A determines if all required data items have been entered. A) completeness check B) field check C) limit check D) range check Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 32) A determines the correctness of the logical relationship between two data items. A) range check B) reasonableness test C) sign check D) size check Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 33) A determines the correctness of the logical relationship between two data items. A) field check B) alpha-numeric check C) range check D) reasonableness test Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

34) A tests a numerical amount to ensure that it does not exceed a predetermined value. A) completeness check B) limit check C) range check D) sign check Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 35) The batch processing data entry control that sums a field that contains dollar values is called A) record count. B) financial total. C) hash total. D) sequence check. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 36) The batch processing data entry control that sums a non-financial numeric field is called A) record count. B) financial total. C) hash total. D) sequence check. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 37) When the staff accountant enters a correct customer number, the data entry screen displays the customer name and address. This is an example of A) prompting. B) preformatting. C) closed-loop verification. D) error checking. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

38) A control ensures that the correct and most current files are being updated. A) cross-footing balance test B) data matching C) file labels D) write-protect mechanism Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 39) The batch processing data entry control that sums the number of items in a batch is called A) financial total. B) hash total. C) record count. D) sequence check. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 40) A is a data entry control that compares the ID number in transaction data to a master file to verify that the ID number exists. A) reasonableness test B) user review C) data matching D) validity check Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 41) What control are zero balance tests an example of? A) Data entry controls. B) Output controls. C) Processing controls. D) Source data controls. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

42) A computer operator accidentally used the wrong master file when updating a transaction file. As a result, the master file data is now unreadable. Which control could best have prevented this from happening? A) Header record. B) Validity check. C) Trailer record. D) Parity check. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 43) When opening an Excel file, Sonja received a message saying that the file is locked for editing. This is happening because A) the file is corrupted due to a computer virus. B) Sonja opened the file as read-only. C) concurrent update controls have locked the file. D) there is no problem. Sonja is editing the file, so it is locked. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 44) The control that protects records from errors that occur when two or more users attempt to update the same record simultaneously is called A) concurrent update controls. B) cross-footing balance test. C) data conversion controls. D) recalculation of batch totals. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

45) The control that verifies accuracy by comparing two alternative ways of calculating the same total is called A) concurrent update controls. B) cross-footing balance test. C) data conversion controls. D) recalculation of batch totals. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 46) Modest Expectations Investment Services (MEIS) allows customers to manage their investments over the Internet. If customers attempt to sell more shares of a stock than they have in their account, an error message is displayed. This is an example of a A) reasonableness test. B) field check. C) validity check. D) limit check. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 47) Modest Expectations Investment Services (MEIS) allows customers to manage their investments over the Internet. If customers attempt to spend more money than they have in their account, an error message is displayed. This is an example of a A) reasonableness test. B) field check. C) validity check. D) limit check. Answer: A Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

48) The Spontaneous Combustion Rocket Shoppe in downtown Fargo, North Dakota, generates three quarters of its revenue from orders taken over the Internet. The revenue clearing account is debited by the total of cash and credit receipts and credited by the total of storefront and Internet sales. This is an example of a A) data integrity test. B) zero-balance test. C) trial balance audit. D) cross-footing balance test. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 49) A control entails verifying that the proper number of bits are set to the value 1 in each character received. A) echo check B) field check C) parity check D) trailer record Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 50) Which of the following is not a risk associated with the data input process? A) Data is invalid. B) Data is incomplete. C) Data is inaccurate. D) Data is corrupted. Answer: D Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 51) Which of the following is an example of a turnaround document? A) A receipt a customer must use to return the goods purchased. B) A telephone bill the customer must return with payment. C) A paycheck stub that must be used in the employee's tax return. D) A customer loyalty card used every time a customer purchases goods or services. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 15

52) Which of the following is an important control to prevent buffet overflow vulnerabilities? A) Limit check. B) Size check. C) Range check. D) Field check. Answer: B Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 53) Prompting is a control that helps ensure A) transaction data are not lost. B) transactions data are accurate. C) transactions data are complete. D) transaction data are valid. Answer: C Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 54) Discuss ways that can help ensure the processing integrity of electronic voting. Answer: Here are several ways that can help ensure the processing integrity of electronic voting: (1) Access to the source code. The government should keep copies of the source code of electronic voting software. (2) Hardware checks. Frequent on-site spot checks of the computer chips in voting machines. (3) Tests of physical security. Voting machines should be tested. (5) Background checks. All voting machine manufacturers should be carefully scrutinized and registered. Concept: Processing integrity Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

2 Identify and explain controls designed to ensure systems availability by minimizing the risk of system downtime and enabling efficient recovery and resumption of operations. 1) What is the most effective way to ensure information system availability? A) High bandwidth. B) Maintain a hot site. C) Maintain a cold site. D) Frequent backups. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following statements is true with regards to system availability? A) Human error does not threaten system availability. B) Threats to system availability can be completely eliminated. C) Proper controls can maximize the risk of threats causing significant system downtime. D) Threats to system availability include hardware and software failures as well as natural and man-made disasters. Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is not an objective of a disaster recovery plan? A) Minimize the extent of the disruption, damage or loss. B) Establish a permanent alternative means of processing information. C) Resume normal operations as soon as possible. D) Train employees for emergency operations. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 4) A disaster recovery plan typically does not include A) scheduled electronic vaulting of files. B) backup computer and telecommunication facilities. C) a system upgrade due to operating system software changes. D) uninterruptible power systems installed for key system components. Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 17

5) A facility that contains all the computing equipment the organization needs to perform its essential business activities is known as a A) cold site. B) hot site. C) remote site. D) subsidiary location. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6) A facility that is pre-wired for necessary telecommunications and computer equipment, but doesn't have equipment installed, is known as a A) cold site. B) hot site. C) remote site. D) subsidiary location. Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 7) When a computer system's files are automatically duplicated on a second data storage system as they are changed, the process is referred to as A) real-time mirroring. B) batch updating. C) consistency control. D) double-secure storage. Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

8) enables a system to continue functioning in the event that a particular component fails. A) An incremental backup procedure B) Fault tolerance C) Preventive maintenance D) A concurrent update control Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) is a plan that specifies how to resume not only IT operations but all business processes in the event of a major calamity. A) Disaster recovery plan B) Business continuity plan C) Real-time monitoring plan D) Business contingency plan Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 10) A copy of a database, master file, or software that will be retained indefinitely as a historical record is known as a(n) A) archive. B) cloud computing. C) differential backup. D) incremental backup. Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) While this type of backup process takes longer than the alternative, restoration is easier and faster. A) archive B) cloud computing C) differential backup D) incremental backup Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19

12) involves copying only the data items that have changed since the last partial backup. A) Archive B) Cloud computing C) Differential backup D) Incremental backup Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 13) copies all changes made since the last full backup. A) Archive B) Cloud computing C) Differential backup D) Incremental backup Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 14) The maximum amount of time between backups is determined by a company's A) recovery time objective. B) recovery point objective. C) recovery objective. D) maximum time recovery objective. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) The maximum acceptable down time after a computer system failure is determined by a company's A) recovery time objective. B) recovery point objective. C) recovery objective. D) maximum time recovery objective. Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

16) The recovery point objective is inversely related to the frequency of backups. Answer: TRUE Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17) The accounting department at Synergy Hydroelectric records an average of 12,500 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 50,000 transactions. If the firm's recovery time objective is 120 minutes, then the worst case recovery time objective is A) 2 hours. B) 4 hours. C) 6 hours. D) 8 hours. Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 18) The accounting department at Aglaya Telecom records an average of 8,000 transactions per hour. A cost-benefit analysis leads management to conclude that the maximum acceptable amount of data loss is 32,000 transactions. If the firm's recovery time objective is 240 minutes, then the worst case recovery time objective is A) 4 hours. B) 8 hours. C) 16 hours. D) 24 hours. Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

19) The accounting department at Aglaya Telecom records an average of 8,000 transactions per hour and have a recovery time objective of 240 minutes. Aglaya recently suffered a hardware malfunction and it took the company 16 hours to recover their lost data. How many transactions did Aglaya recover? A) 52,000 transactions. B) 5,200 transactions. C) 32,000 transactions. D) 3,200 transactions. Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 20) The accounting department at Aglaya Telecom records an average of 5,000 transactions per hour and have a recovery time objective of 120 minutes. Aglaya recently suffered a hardware malfunction and it took the company 20 hours to recover their lost data. How many transactions did Aglaya recover? A) 20,000 transactions. B) 30,000 transactions. C) 40,000 transactions. D) 50,000 transactions. Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 21) Probably the most important change management control is A) monitoring user rights and privileges during the change process. B) testing all changes thoroughly prior to implementation on a stand-alone computer. C) updating all documentation to reflect changes made to the system. D) management's careful monitoring and review. Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

22) Identify the statement below which is true. A) Cloud computing is a control technique for system availability. B) Cloud computing eliminates the need for backup of applications and data. C) Cloud computing eliminates the need for companies to own their own software and servers. D) Cloud computing refers to the practice of storing application files and backup data on satellites "in the clouds." Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 23) Discuss how cloud computing could both positively and negatively affect system availability. Answer: Cloud computing significantly reduces the risk that a single event would result in system unavailability, since the 'cloud' consists of banks of redundant servers, in multiple locations. However, since users don't own the cloud, if a provider goes out of business, users may find it very difficult to access applications and data stored in the cloud. Additionally, users should evaluate the security and availability controls of the cloud provider before transacting business. Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 24) Define and contrast a recovery point objective and a recovery time objective. Provide a numeric example. Answer: A recovery point objective is the maximum amount of time that a firm is willing to risk the possible loss of transaction data. A recovery time objective is the maximum amount of time that a firm is willing to risk losing access to its accounting information system due to disaster. Students' answers may vary depending on example given. Concept: Availability Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 25) What is the primary objective of ensuring systems and information are available for use whenever needed? A) To minimize system downtime. B) To minimize system expense. C) To maximize system processing speed. D) To maximize sales. Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 23

26) It is impossible to eliminate the risk of downtime. Answer: TRUE Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 27) Training can also reduce the risk of system downtime. Answer: TRUE Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 28) With regards to systems availability, deploying and using multiple components provides an AIS with A) fault tolerance. B) cost savings. C) enhanced processing speed. D) maximum sales. Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 29) Which of the following is not a common design feature of housing mission-critical servers and databases? A) Adequate air-conditioning systems to reduce the likelihood of damage due to overheating. B) Overhead sprinklers to provide protection from fire. C) Cables with special plugs that cannot be easily removed. D) Surge-protection devices to provide protection against temporary power fluctuations. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

30) To protect against malware, it is important that antivirus software automatically examine introduced into a system. A) CDs B) e-mail C) flash drives D) all of the above Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 31) Which of the following is a key control regarding the minimization of system downtime? A) fault tolerance B) disaster recovery plans C) backup procedures D) all of the above Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 32) To minimize the risk of system downtime, Grizzly Corporation stores its data on multiple disk drives simultaneously. This practice is called A) downtime minimization plan. B) redundant arrays of independent drives. C) redundant arrays of independent backups. D) patch backup management. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 33) Which COBIT5 management practice addresses the importance of locating and designing the data centers housing mission-critical servers and databases so as to minimize the risks associated with natural and human-caused disasters? A) DSS01.04 B) DSS04.07 C) DSS03.05 D) DSS04.04 Answer: A Concept: Availability Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 25

34) Whose responsibility is it to determine the amount of time an organization can afford to be without its information system? A) The board of directors. B) Senior management. C) External auditors. D) COBIT. Answer: B Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 35) Is it best practice for an organization to practice periodically restoring a system from its backup files? A) No, doing so might introduce errors into the system's data. B) No, doing so takes the system offline and prevents customers from being able to access the system. C) Yes, doing so verifies the procedure and backup media are working correctly. D) Yes, doing so improves the efficiency of the system. Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 36) Best practice requires backups be retained indefinitely. Answer: FALSE Concept: Availability Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 37) Which of the following is incorrect with regards to a data archive? A) Archives can be a copy of a database. B) Archives should be stored in different locations. C) Archives are usually encrypted. D) Physical and logical controls are the primary means of protecting archive files. Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

38) Loreen Tina is the chief lawyer for Tamara Incorporated. The CEO of Tamara Incorporated asks Loreen whether the company should periodically delete all company e-mail. If Loreen is well-versed in AIS best practices, she would mostly likely respond, A) Yes, if we are ever sued, the other attorney will not be able to comb through our e-mail for evidence. B) Yes, since e-mail requires a lot of storage space, deleting it periodically will reduce the amount of information we need to store. C) No, deleting an organization's e-mail is against the law. D) No, if we are ever sued we will not be able to draw upon our e-mail records to defend ourselves. Answer: D Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 39) Identify the most important component of a disaster recovery plan below. A) Documentation. B) Operating instructions. C) Periodic testing. D) On-site and off-site storage. Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 40) Identify one organization that quickly recovered from September 11th, 2001 due to its disaster recovery and business continuity plan. A) New York Stock Exchange B) NASDAQ C) New York Fire Department D) United Airlines Answer: C Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

41) According to COBIT 5, what should be the common features for locating and designing data centers housing mission-critical servers and databases? Answer: Common design features include: (1) Raised floors provide protection from damage caused by flooding. (2) Fire detection and suppression devices reduce the likelihood of fire damage. (3) Adequate air-conditioning systems reduce the likelihood of damage to computer equipment due to overheating or humidity. (4) Cables with special plugs that cannot be easily removed reduce the risk of system damage due to accidental unplugging of the device. (5) Surgeprotection devices provide protection against temporary power fluctuations that might otherwise cause computers and other network equipment to crash. (6) An uninterruptible power supply (UPS) system provides protection in the event of a prolonged power outage, using battery power to enable the system to operate long enough to back up critical data and safely shut down. (7) Physical access controls reduce the risk of theft or damage. Concept: Availability Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 11 Auditing Computer-Based Information Systems 1 Describe the nature, scope and objective of audit work, and identify the major steps in the audit process. 1) Auditing involves the A) collection, review, and documentation of audit evidence. B) planning and verification of economic events. C) collection of audit evidence and approval of economic events. D) testing, documentation, and certification of audit evidence. Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) What is not a typical responsibility of an internal auditor? A) Helping management to improve organizational effectiveness. B) Assisting in the design and implementation of an AIS. C) Preparation of the company's financial statements. D) Implementing and monitoring of internal controls. Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3) What is not a typical responsibility of an external auditor? A) Helping management to improve organizational effectiveness. B) Assisting in the design and implementation of an AIS. C) Preparation of the company's financial statements. D) All of the above. Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) Which type of work listed below is not typical of internal auditors? A) Operational and management audits. B) Information system audits. C) Financial statement audit. D) Financial audit of accounting records. Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) The audit examines the reliability and integrity of accounting records. A) financial B) informational C) information systems D) operational Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6) The audit reviews the general and application controls of an AIS to assess its compliance with internal control policies and procedures and its effectiveness in safeguarding assets. A) financial B) information systems C) management D) internal control Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 7) A(n) audit is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives. A) operational or management B) financial C) information systems D) internal control Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2

8) The audit is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives. A) financial B) informational C) information systems D) operational Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) The purpose of is to determine why, how, when, and who will perform the audit. A) audit planning B) the collection of audit evidence C) the communication of audit results D) the evaluation of audit evidence Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 10) Organizing the audit team and the physical examination of assets are components of which two separate audit stages? A) Planning; evaluating audit evidence. B) Planning; collecting audit evidence. C) Collecting audit evidence; communicating audit results. D) Communicating audit results; evaluating audit evidence. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 11) Consideration of risk factors and materiality is most associated with which audit stage? A) Collection of audit evidence. B) Communication of audit results. C) Audit planning. D) Evaluation of audit evidence. Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

12) A system that employs various types of advanced technology has more traditional batch processing. A) control B) detection C) inherent D) investing Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

risk than

13) An organization that has an antiquated accounting information system has more risk than an organization that has a more advanced system. A) control B) detection C) inherent D) investing Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 14) Control risk is defined as the A) susceptibility to material risk in the absence of controls. B) risk that a material misstatement will get through the internal control structure and into the financial statements. C) risk that auditors and their audit procedures will not detect a material error or misstatement. D) risk auditors will not be given the appropriate documents and records by management who wants to control audit activities and procedures. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

15) The possibility that a material error will occur even though auditors are following audit procedures and using good judgment is referred to as A) control risk. B) detection risk. C) inherent risk. D) investigating risk. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) Auditors have the ability to change inherent risk. Answer: FALSE Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 17) Auditors have the ability to change control risk. Answer: FALSE Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 18) Auditors have the ability to change detection risk. Answer: TRUE Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 19) The stage of the auditing process involves (among other things) the auditors observing the operating activities and having discussions with employees. A) audit planning B) collection of audit evidence C) communication of audit results D) evaluation of audit evidence Answer: B Concept: The fraud triangle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

20) Verifying the accuracy of certain information, often through communication with third parties, is known as A) reperformance. B) confirmation. C) substantiation. D) documentation. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 21) The evidence collection method that examines all supporting documents to determine the validity of a transaction is called A) review of documentation. B) vouching. C) physical examination. D) analytical review. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 22) The evidence collection method that considers the relationships and trends among information to detect items that should be investigated further is called A) review of the documentation. B) vouching. C) physical examination. D) analytical review. Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 23) An auditor searching for a shipping document to ensure that the sales number recorded in the sales journal was properly supported. This is an example of A) review of the documentation. B) vouching. C) confirmation. D) analytical review. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6

24) An auditor calculates the current ratio of the company to determine its ability to pay off its current financial obligation. This is an example of A) review of the documentation. B) vouching. C) confirmation. D) analytical review. Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 25) Auditors often use reperformance to test a company's internal control. Answer: TRUE Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 26) Assessing the quality of internal controls, the reliability of information, and operating performance are all part of A) audit planning. B) collection of audit evidence. C) communication of audit results. D) evaluation of audit evidence. Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 27) The auditor's objective is to seek audited. A) absolute reliability B) reasonable objectivity C) reasonable evidence D) reasonable assurance Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

that no material error exists in the information

28) Which of the choices below best describes a risk-based audit approach? A) A four-step approach to internal control evaluation. B) A three-step approach to internal control evaluation. C) A four-step approach to financial statement review and recommendations. D) A three-step approach to financial statement review and recommendations. Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 29) The first step in a risk-based audit approach is to A) evaluate the control procedures. B) determine the threats facing the AIS. C) identify the control procedures that should be in place. D) evaluate weaknesses to determine their effect on the audit procedures. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 30) can determine whether the necessary control procedures are in place. A) A systems review B) A systems overhaul C) Tests of controls D) Both B and C Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 31) When a control deficiency is identified, the auditor should inquire about A) tests of controls. B) compensating controls. C) the feasibility of a systems review. D) materiality and inherent risk factors. Answer: B Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

32) The to auditing provides auditors with a clear understanding of possible errors and irregularities and the related risks and exposures. A) risk-based approach B) risk-adjusted approach C) financial audit approach D) information systems approach Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 33) Increasing the effectiveness of internal controls would have the greatest effect on A) reducing inherent risk. B) reducing control risk. C) reducing detection risk. D) reducing audit risk. Answer: B Concept: The fraud triangle Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 34) Expanding a firm's operations to include a manufacturing facility overseas will A) reduce inherent risk. B) reduce control risk. C) increase inherent risk. D) increase control risk. Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 35) Increasing the effectiveness of auditing software will A) reduce detection risk. B) reduce control risk. C) increase detection risk. D) increase control risk. Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

36) There is a direct relationship between inherent risk and detection risk. Answer: FALSE Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 37) There is an inverse relationship between control risk and detection risk. Answer: TRUE Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 38) An auditor examines all documents related to the acquisition, repair history, and disposal of a firm's delivery van. This is an example of collecting audit evidence by A) confirmation. B) reperformance. C) vouching. D) analytical review. Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 39) An auditor manually calculates accumulated depreciation on a delivery van and compares her calculation with the accounting records. The auditor is performing A) vouching. B) confirmation. C) reperformance. D) analytical review. Answer: C Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

40) An auditor finds that employee absentee rates are significantly higher on Mondays and Fridays than on other work days. This is an example collecting audit evidence by A) confirmation. B) reperformance. C) vouching. D) analytical review. Answer: D Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 41) Which of the following is not one of the types of internal audits? A) A review of the corporate organizational structure and reporting hierarchies. B) An examination of procedures for reporting and disposing of hazardous waste. C) A review of source documents and general ledger accounts to determine integrity of recorded transactions. D) A comparison of estimates and analysis made before purchase of a major capital asset to actual numbers and results achieved. Answer: A Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 42) Explain the differences between each type of audit risk. Answer: Inherent risk is the threat faced just by conducting business in a chosen way. For example, a business with multiple locations in several foreign countries faces more threats than a business with a single location. Control risk is the threat that a company has inadequate, nonexistent or unenforced policies and procedures to prevent errors and fraud from getting into the system and being reflected in the financial statements. Detection risk is the threat that errors or fraud get into the system and audit procedures do not identify the errors or fraud. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 43) How and to whom does an auditor communicate the audit results? Answer: The auditor prepares a written report summarizing the findings and recommendations, with references to supporting evidence in working papers. The report is presented to management, the audit committee, the board of directors, and other appropriate parties. The auditor then follows up later to determine if recommendations were implemented. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 11

44) How is a financial audit different from an information systems audit? Answer: Financial audits examine the reliability and integrity of accounting records in terms of financial and operating information. An information systems (IS) audit reviews the general and application controls of an AIS to assess its compliance with internal control policies and procedures and its effectiveness in safeguarding assets. Although the AIS may generate accounting records and financial information, it is important that the AIS itself be audited to verify compliance with internal controls and procedures. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 45) Why do all audits follow a sequence of events that can be divided into four stages, and what are the four stages? Answer: The auditor's function generally remains the same no matter what type of audit is being conducted. The process of auditing can be broken down into the four stages of planning, collecting evidence, evaluating evidence, and communicating audit results. These stages form a working template for any type of financial, information systems, or operational or management audits. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 46) Name and describe the different types of audits. Answer: The financial audit — this audit examines the reliability and integrity of accounting records (both financial and operating information). The information systems audit — this audit reviews the general and application controls of an AIS and assesses its compliance with internal control policies and procedures and effectiveness in safeguarding assets. The operational or management audit — this audit conducts an evaluation of the efficient and effective use of resources, as well as an evaluation of the accomplishment of established goals and objectives. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

47) Describe the risk-based audit approach. Answer: The risk-based audit approach has four steps that evaluate internal controls. This approach provides a logical framework for conducting an audit of the internal control structure of a system. The first step is to determine the threats facing the AIS. Threats here can be defined as errors and irregularities in the AIS. Once the threat risk has been established, the auditor should identify the control procedures that should be in place to minimize each threat. The control procedures identified should either be able to prevent or detect errors and irregularities within the AIS. The next step is to evaluate the control procedures. This step includes a systems review of documentation and also interviewing the appropriate personnel to determine whether the needed procedures are in place within the system. The auditor can then use tests of controls to determine if the procedures are being satisfactorily followed. The fourth step is to evaluate weaknesses found in the AIS. Weaknesses here means errors and irregularities not covered by the AIS control procedures. When such deficiencies are identified, the auditor should see if there are compensating controls that may counterbalance the deficiency. A deficiency in one area may be neutralized given control strengths in other areas. The ultimate goal of the risk-based approach is to provide the auditor with a clear understanding of errors and irregularities that may be in the system along with the related risks and exposures. Once an understanding has been obtained, the auditor may provide recommendations to management as to how the AIS control system can be improved. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 48) Describe how audit evidence can be collected. Answer: Since the audit effort revolves around the identification, collection, and evaluation of evidence, most audit effort is spent in the collection process. To identify, collect, and evaluate evidence, several methods have been developed to assist in the effort. These methods include: 1) the observation of the activities being audited; 2) a review of documentation to gain a better understanding of the AIS; 3) discussions with employees about their jobs and how procedures are carried out; 4) the creation and administration of questionnaires to gather data about the system; examination of tangible assets; 6) confirmation of the accuracy of certain information; of selected calculations; 8) vouching for the validity of a transaction by examination of all supporting documentation; and, 9) analytical review of relationships and trends among information to detect items that should be further investigated. It is important to remember that only a sample of evidence is collected for audit purposes, as it is not feasible to perform audit procedures on the entire set of activities, records, assets, or documents that are under the review process in an audit. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

49) Describe the concept of materiality and provide an example. Answer: Materiality is the amount of an error, fraud, or omission that would affect the decision of a prudent user of financial information. Determining materiality, what is and is not important in an audit, is a matter of professional judgment. Materiality is more important to external audits, where the emphasis is fairness of financial statement, than to internal audits, where the focus is on adherence to management policies. Students' answers may vary depending on their examples. Concept: The nature of auditing Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Identify the six objectives of an information system audit, and describe how the risk-based audit approach can be used to accomplish these objectives. 1) What is the purpose of an information systems audit? A) To determine the inherent risk factors found in the system. B) To review and evaluate the internal controls that protect the system. C) To examine the reliability and integrity of accounting records. D) To examine whether resources have been used in an economical and efficient manner in keeping with organization goals and objectives. Answer: B Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 2) The information systems audit objective that pertains to source data being processed into some form of output is known as A) overall security. B) program development. C) program modifications. D) processing. Answer: D Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

3) The information systems audit objective that pertains to protect computer equipment, programs, communications, and data from unauthorized access, modification, or destruction is known as A) overall security. B) program development. C) program modifications. D) processing. Answer: A Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 4) The information systems audit objective that pertains to having management's authorization and approval is known as A) overall security. B) program development. C) program modifications. D) processing. Answer: C Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) Which of the following is not one of the six objectives of an information systems audit? A) Security provisions exist to protect data from unauthorized access, modification, or destruction. B) Obtaining evidence to provide reasonable assurance the financial statements are not materially misstated C) Programs have been developed and acquired in accordance with management's authorization. D) Program modifications have received management's authorization and approval. Answer: B Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

6) Which of the following is not an information systems audit test of controls? A) Observe computer-site access procedures. B) Investigate how unauthorized access attempts are handled. C) Review logical access policies and procedures. D) Examine the results of disaster recovery plan simulations. Answer: C Concept: Information security concepts Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) Which of the following is an information systems audit review procedure? A) Verify the extent and effectiveness of encryption. B) Inspect computer sites. C) Test assignment procedures for user IDs. D) Observe the preparation of backup files. Answer: B Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 8) Which of the following is not a control procedure for preventing inadvertent programming errors? A) Review software license agreements. B) Test new programs, including user acceptance testing. C) Purchase hardware only from management approved vendors. D) Require management approval of programming specifications. Answer: C Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) You are the head of the IT department at Panther Designs, Inc. A systems review reveals that your firm has poor control procedures for preventing inadvertent programming errors. However, you are not concerned because you feel Panther Designs has strong compensating controls. What control likely exists to give you this confidence? A) The internal audit department processes test data at Panther Designs. B) Panther Designs pays its employees well, decreasing the likelihood of errors. C) Panther Designs only hires competent programmers, decreasing the likelihood of errors. D) All of Panther Design's IT applications are less than 2 years old. Answer: A Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 16

10) You are an internal auditor for Ron Burgandy Suits. The CEO has asked you to perform an audit of the program modifications process. Identify one procedure you might use to test controls surrounding the program modification process. A) Review logical access control policies. B) Discuss modification policies with management, users, and systems personnel. C) Verify logical access controls are in effect for program changes. D) Separate development, test, and production versions of programs. Answer: C Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 11) What is a test data generator? A) It is an application that records how well systems personnel have performed on company competency examinations. B) It is an application that prepares data that can be used for auditing the effectiveness of computer processing. C) It is an application that records which professional examinations systems personnel have obtained. D) It is a backup generator application that can be used to generate data if the original storage device fails. Answer: B Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 12) Embedded audit molecules can be used to continually monitor the system and collect audit evidence. Answer: TRUE Concept: The nature of auditing Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

13) Describe the difference between concurrent audit techniques and embedded audit modules. Answer: Auditors use concurrent audit techniques to continually monitor the system and collect audit evidence while live data are processed during regular operating hours. Concurrent audit techniques use embedded audit modules, which are program code segments that perform audit functions, report test results, and store the evidence collected for auditor review. Concurrent audit techniques are time-consuming and difficult to use but are less so if incorporated when programs are developed. Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 14) Describe the five commonly used concurrent audit techniques. Answer: (1) Integrated test facility - Inserting a dummy entity in a company's system; processing test transactions to update them will not affect actual records. (2) Snapshot technique - Marking transactions with a special code, recording them and their master file records before and after processing, and storing the data to later verify that all processing steps were properly executed. (3) System control audit review file (SCARF) - Using embedded audit modules to continuously monitor transactions, collect data on transactions with special audit significance, and store the data to later identify and investigate questionable transactions. (4) Audit hooks Audit routines that notify auditors of questionable transactions, often as they occur. (5) Continuous and intermittent simulation (CIS) - Embedding an audit module in a DBMS that uses specified criteria to examine all transactions that update the database. Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) Using embedded audit modules to continuously monitor transactions, collect data on transactions with special audit significance, and store the data to later identify and investigate questionable transactions is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks. Answer: C Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking

16) Audit routines that notify auditors of questionable transactions, often as they occur is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks. Answer: D Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 17) Inserting a dummy entity in a company's system; processing test transactions to update that will not affect actual records is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks. Answer: A Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 18) Marking transactions with a special code, recording them and their master file records before and after processing, and storing the data to later verify that all processing steps were properly executed is an example of A) integrated test facility. B) snapshot technique. C) system control audit review file. D) audit hooks. Answer: B Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

19) Software that interprets a program's source code and generates a flowchart of the program's logic is called A) automated flowcharting programs. B) automated decision table programs. C) mapping programs. D) tracing program. Answer: A Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 20) Software that identifies unexecuted program code is called A) automated flowcharting programs. B) automated decision table programs. C) mapping programs. D) tracing program. Answer: C Concept: Information systems audit Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3 Describe computer audit software, and explain how it is used in the audit of an AIS. 1) Identify the activity below that the external auditor should not be involved. A) Examining system access logs. B) Developing the information system. C) Examining logical access policies and procedures. D) Making recommendations to management for improvement of existing internal controls. Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 2) What role should an auditor play in system development? A) an independent reviewer only B) a developer of internal controls C) an advisor and developer of internal control specifications D) A and B above Answer: A Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20

3) Which statement below is incorrect regarding program modifications? A) Only material program changes should be thoroughly tested and documented. B) During the change process, the developmental version of the program must be kept separate from the production version. C) After the modified program has received final approval, the change is implemented by replacing the developmental version with the production version. D) When a program change is submitted for approval, a list of all required updates should be compiled and then approved by management and program users. Answer: A Concept: Auditing software Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4) How could auditors determine if unauthorized program changes have been made? A) By interviewing and making inquiries of the programming staff. B) By examining the systems design and programming documentation. C) By using a source code comparison program. D) By interviewing and making inquiries of recently terminated programming staff. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) Which auditing technique will not assist in determining if unauthorized programming changes have been made? A) The use of a source code comparison program. B) The use of the reprocessing technique to compare program output. C) By interviewing and making inquiries of the programming staff. D) The use of parallel simulation to compare program output. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) Strong controls can partially compensate for inadequate A) development; processing B) processing; development C) operational; internal D) internal; operational Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 21

controls.

7) The procedure for auditing computer process controls uses a hypothetical series of valid and invalid transactions. A) concurrent audit techniques B) test data processing C) integrated test facility D) dual process Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 8) The auditor uses to continuously monitor the system and collect audit evidence while live data are processed. A) test data processing B) parallel simulation C) concurrent audit techniques D) analysis of program logic Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 9) Auditors have several techniques available to them to test computer-processing controls. An audit technique that immediately alerts auditors of suspicious transactions is known as A) a SCARF. B) reperformance. C) the snapshot technique. D) an audit hook. Answer: D Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

10) A type of software that auditors can use to analyze program logic and detect unexecuted program code is A) an audit log. B) a mapping program. C) a scanning routine. D) program tracing. Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) is one tool used to document source data controls. A) An input control matrix B) A flowchart generator program C) A program algorithm matrix D) A mapping program Answer: A Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 12) The use of a secure file library and restrictions on physical access to data files are control procedures used together to prevent A) an employee or outsider obtaining data about an important client. B) a data entry clerk from introducing data entry errors into the system. C) a computer operator from losing or corrupting files or data during transaction processing. D) programmers making unauthorized modifications to programs. Answer: A Concept: Auditing software Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 13) An auditor creates a fictitious customer in the system and then creates several fictitious sales to the customer. The records are then tracked as they are processed by the system. The auditor is using A) an integrated test facility. B) the snapshot technique. C) a system control audit review file. D) continuous and intermittent simulation. Answer: A Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 23

14) An auditor sets an embedded audit module to flag all credit transactions in excess of $5,000. The flag causes the system state to be recorded before and after each transaction is processed. The auditor is using A) audit hooks. B) an integrated test facility. C) the snapshot technique. D) a system control audit review file. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 15) An auditor sets an embedded audit module to record all credit transactions in excess of $5,000 and stores the data in an audit log. The auditor is using A) audit hooks. B) the snapshot technique. C) a system control audit review file. D) continuous and intermittent simulation. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 16) An auditor sets an embedded audit module to flag questionable online transactions, display information about the transaction on the auditor's computer, and send a text message to the auditor's cell phone. The auditor is using A) the snapshot technique. B) a system control audit review file. C) audit hooks. D) continuous and intermittent simulation. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

17) An auditor sets an embedded audit module to selectively monitor transactions. Selected transactions are then reprocessed independently, and the results are compared with those obtained by the normal system processing. The auditor is using A) an integrated test facility. B) the snapshot technique. C) a system control audit review file. D) continuous and intermittent simulation. Answer: D Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 18) When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that blocks of code are superseded by other blocks of code. Blocks of code that are not executed by the program can be identified by A) embedded audit modules. B) scanning routines. C) mapping programs. D) automated flow charting programs. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 19) When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that variables defined during the early part of development become irrelevant. The occurrences of variables that are not used by the program can be found using A) program tracing. B) scanning routines. C) mapping programs. D) embedded audit modules. Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

20) Explain why the auditor's role in program development and acquisition should be limited. Answer: The auditor's role in any organization systems development should be limited only to an independent review of systems development activities. The key to the auditor's role is independence; the only way auditors can maintain the objectivity necessary for performing an independent evaluation function is by avoiding any and all involvement in the development of the system itself. If auditor independence is impaired, the audit itself may be of little value and its results could easily be called into question. The auditors could be basically reviewing their own work. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 21) Audit tests and procedures traditionally have been performed on a sample basis. Do options exist for auditors to test significantly more (or all) transactions? Answer: Computer assisted audit techniques (CAATS) allow auditors to automate and simplify the audit process. Large amounts of data can be examined by software, created from auditorsupplied specifications. Two popular CAATS packages are Audit Control Language (ACL) and Interactive Data Extraction and Analysis (IDEA). Auditors can also use concurrent audit techniques to identify and collect information about certain types of transactions in real-time. Examples of concurrent audit techniques are embedded audit modules, integrated test facility, system control audit review file (SCARF), snapshot technique, audit hooks and continuous and intermittent simulation (CIS). Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22) When doing an information systems audit, auditors must review and evaluate the program development process. What errors or fraud could occur during the program development process? Answer: There can be unintentional errors due to misunderstood systems specifications, incomplete specifications, or poor programming. Developers could insert unauthorized code instructions into the program for fraudulent purposes. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

23) Briefly describe tests that can be used to detect unauthorized program modifications. Answer: Review procedures for requesting, approving, programming, and testing changes. Review or observe specific testing and implementation procedures. Compare source code from the approved and tested program with the program code currently in use. Randomly and without notice, use the source code from the approved and tested program to reprocess transactions, and compare the results with the operational system results. Write new code designed to replicate the approved and tested code and use parallel simulation to reprocess transactions, and compare the results with the operational system results. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 24) Define and give examples of embedded audit modules. Answer: Embedded audit modules are segments of program code that perform audit functions, report test results and store collected evidence for later review. An Integrated Test Facility (ITF) processes fictitious records through the operational system in real-time. The snapshot technique records master file records immediately before and immediately after processing specifically selected transactions. A System Control Audit Review File (SCARF) continuously monitors transactions and collects transaction data that meet, or fall outside, predetermined criteria. Audit Hooks immediately notify auditors of suspicious transactions being processed, or submitted for processing. Continuous and Intermittent Simulation (CIS) identifies specific transactions with audit significance and processes the transactions parallel to the operational system. If discrepancies result, the CIS can store the evidence for later review or can prevent transaction processing. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 25) a) What is test data processing? b) How is it done? c) What are the sources that an auditor can use to generate test data? Answer: a) Test data processing is a technique used to examine the integrity of the computer processing controls. b) Test data processing involves the creation of a series of hypothetical valid and invalid transactions and the introduction of those transactions into the system. The invalid data may include records with missing data, fields containing unreasonably large amounts, invalid account numbers, etc. If the program controls are working, then all invalid transactions should be rejected. Valid transactions should all be properly processed. c) The various ways test data can be generated are: A listing of actual transactions. The initial transactions used by the programmer to test the system. A test data generator program that generates data using program specifications. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking

26) Describe the disadvantages of test data processing. Answer: The auditor must spend considerable time developing an understanding of the system and preparing an adequate set of test transactions. Care must be taken to ensure that test data does not affect the company's files and databases. The auditor can reverse the effects of the test transactions or process the transactions in a separate run using a copy of the file or database. However, a separate run removes some of the authenticity obtained from processing test data with regular transactions. Also, since the reversal procedures may reveal the existence and nature of the auditor's test to key personnel, it can be less effective than a concealed test. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 27) An audit software program that generates programs that perform certain audit functions, based on auditor specifications, is referred to as a(n) A) input controls matrix. B) CAATS. C) embedded audit module. D) mapping program. Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 28) An auditor might use to convert data from several sources into a single common format. A) Windows Media Converter B) concurrent audit technique C) computer assisted audit techniques software D) Adobe Professional Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 29) An auditor might use A) Excel B) Access C) IDEA D) SQL Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

to examining large data files.

30) What is the primary purpose of computer audit software? A) To eliminate auditor judgment errors. B) To assist the auditor in retrieving and reviewing information. C) To help auditors detect unauthorized modifications to system program code. D) To help auditors recheck all mathematical calculations, cross-foot, reprocess financial statements and compare to originals. Answer: B Concept: Auditing software Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 31) How has the U.S. government deployed computer-assisted audit techniques to reduce the budget? A) To identify fraudulent Medicare claims. B) To identify fraudulent defense spending. C) To identify fraudulent tax returns. D) All of the above. Answer: A Concept: Auditing software Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 32) One of the advantages of CAATS software is that it can replace the auditor's judgment in specific areas of an audit. Answer: FALSE Concept: Auditing software Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 33) Identify the company below that CAATS would likely provide the most value. A) A local car dealership. B) A local floral shop. C) A large grocery store that uses an ERP system. D) A medium-sized restaurant chain with restaurants in many cities. Answer: D Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

34) Which of the following is not one way CAATS could be used? A) To merge files. B) To test files for specific risks. C) To process electronic transactions. D) To query data files to retrieve records meeting specified criteria. Answer: C Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 35) What type of data does CAATS use to produce an auditing program? A) Archived data. B) Backup data. C) Live data. D) A copy of live data. Answer: D Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 36) Describe some of the important uses of CAATs. Answer: Here are some of the important uses of CAATs: Querying data files to retrieve records meeting specified criteria; Creating, updating, comparing, downloading, and merging files; Summarizing, sorting, and filtering data; Accessing data in different formats and converting the data into a common format; Examining records for quality, completeness, consistency, and correctness; Stratifying records, selecting and analyzing statistical samples; Testing for specific risks and identifying how to control for that risk; Performing calculations, statistical analyses, and other mathematical operations; Performing analytical tests, such as ratio and trend analysis, looking for unexpected or unexplained data patterns that may indicate fraud; Identifying financial leakage, policy noncompliance, and data processing errors; Reconciling physical counts to computed amounts, testing clerical accuracy of extensions and balances, testing for duplicate items; Formatting and printing reports and documents; Creating electronic work papers. Concept: Auditing software Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4 Describe the nature and scope of an operational audit. 1) The scope of a(n) audit encompasses all aspects of systems management. A) operational B) information systems C) financial D) internal control Answer: A Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 2) Evaluating effectiveness, efficiency, and goal achievement are objectives of A) financial B) operational C) information systems D) all of the above Answer: B Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

audits.

3) In the stage of an operational audit, the auditor measures the actual system against an ideal standard. A) evidence collection B) evidence evaluation C) testing D) internal control Answer: B Concept: Preserving confidentiality Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 4) The evidence collection stage of an operational audit includes all the following activities except A) reviewing operational policies. B) establishing audit objectives. C) testing the accuracy of operating information. D) testing controls. Answer: B Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 31

5) During the evidence evaluation stage of an operational audit, the auditor measures the system against generally accepted accounting principles (GAAP). Answer: FALSE Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 6) As the head of the internal audit department for Orange Computing, you want to hire a person to serve as one of Orange's operational auditors. Identify the candidate below that is likely to be the most qualified person for the job. A) Jane, a CPA who has 10 years of audit experience B) Kasheena, an MBA who has 10 years of management experience C) Joe, a CISA who has 10 years of IT audit experience D) Vahlia, a CPA who has 7 years of audit experience and 3 years of management experience Answer: D Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking 7) Who generally receives the findings and conclusions of an operational audit? A) The board of directors. B) Management. C) The external auditor. D) The IRS. Answer: B Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 8) Andile Uzoma is the CEO of Chibuzo Incorporated. The board of directors has recently demanded that they receive independent assurance regarding the financial statements, which are generated using an accounting information system. Which type of audit would best suit the demands of the board of directors? A) Financial audit. B) Information system audit. C) Operational audit. D) Sustainability audit. Answer: A Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 32

9) Andile Uzoma is the CEO of Chibuzo Incorporated. The board of directors has recently demanded that they receive more assurance that internal controls surrounding the company's information system are effective. Which type of audit would best suit the demands of the board of directors? A) Financial audit. B) Information system audit. C) Operational audit. D) Sustainability audit. Answer: B Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 10) Andile Uzoma is the CEO of Chibuzo Incorporated. The board of directors has recently demanded that they receive more assurance that Chibuzo Incorporated is operating in an efficient, effective manner. Which type of audit would best suit the demands of the board of directors? A) Financial audit. B) Information system audit. C) Operational audit. D) Sustainability audit. Answer: C Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 11) With regards to an accounting information system, a financial audit is most concerned with A) the system's output. B) the system's input. C) the system's processing. D) the system's storage. Answer: A Concept: Operational audits of an AIS Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 12 The Revenue Cycle: Sales to Cash Collections 1 Describe the basic business activities in the revenue cycle and discuss the general threats to that process and the controls that can be used to mitigate those threats. 1) is not a basic activity of the revenue cycle. A) Sales order entry B) Shipping C) Receiving D) Billing Answer: C Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) Describe the basic revenue cycle activities. Answer: The revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales. The basic activities in the revenue cycle are: order entry — soliciting and processing customer activities — filling customer orders and shipping merchandise — invoicing customers and maintaining customer accounts collections — the cashier handles remittances and deposits them in the bank; accounts receivable personnel credits customer accounts for the payments received. Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) If a firm does not use an ERP, the best way to mitigate the risk of the destruction of master data is to A) implement backup and disaster recovery procedures. B) use an ERP. C) proper segregation of duties. D) use multiple master data files. Answer: A Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) If a firm uses an ERP, the best way to mitigate the risk of the destruction of master data is to A) frequently update the ERP system. B) implement the ERP system in three separate instances. C) periodically audit the ERP system. D) integrate the ERP system with all IT functions. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 5) Which of the decisions below is not ordinarily found as part of the revenue cycle? A) What credit terms should be offered? B) How often should accounts receivable be subjected to audit? C) How can customer payments be processed to maximize cash flows? D) What are the optimal prices for each product or service? Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6) Which of the following is not a key decision that needs to be made in the revenue cycle? A) How should merchandise be delivered to customers? B) Should credit be extended to customers? C) How can customer payments be processed to maximize cash flow? D) Which vendor should inventory be purchased from? Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) Consider the following revenue cycle scenario: The company has been exposed to customer dissatisfaction and the suggested control procedure to be implemented is to install and use barcode scanners. What is the threat? A) The company may be shipping the wrong merchandise. B) The company may be shipping the wrong quantities of merchandise. C) The company may be shipping orders to the wrong address. D) All of the above threats may apply to this scenario. Answer: A Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

8) In a revenue cycle with proper controls, the involved in any cash handling activities. A) accounts receivable clerk; treasurer B) accounts receivable clerk; controller C) cashier; controller D) cashier; treasurer Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

who reports to the

, is not

9) A serious exposure in the revenue cycle is loss of assets. What is the related threat and applicable control procedure that address this exposure? A) shipping errors; reconciliation of sales order with picking ticket and packing slip B) theft of cash; segregation of duties and minimization of cash handling C) making sales that turn out to be uncollectible; force sales people to make collection calls on customers with past due balances D) poor performance; preparation and review of performance reports Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following duties could be performed by the same individual and not violate segregation of duty controls? A) handling cash and posting to customer accounts B) issuing credit memos and maintaining customer accounts C) handling cash and authorizing credit memos D) handling cash receipts and mailing vendor payments Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

11) Describe four threats in the revenue cycle and identify appropriate controls for each threat. Answer: Answers can include the following information: Threat 1: Sales to customers with poor credit — Controls: Having an independent credit approval function and maintaining good customer accounting can help to prevent problems. Threat 2: Shipping errors — Controls: Reconciling shipping notices with picking tickets; barcode scanners; and data entry application controls will help to catch these errors. Threat 3: Theft of inventory — Controls: Secure the location of inventory and document transfers; release only with valid shipping orders; have good accountability for picking and shipping; and finally, periodically reconcile records with a physical count. Threat 4: Failure to bill customers — Controls: Separating shipping and billing and prenumbering of shipping documents helps along with reconciliation of all sales documents. Threat 5: Billing errors — Controls: Reconciliation of picking tickets and bills of lading with sales orders; data entry edit controls; and price lists may prevent billing errors. Threat 6: Theft of cash — Controls: Segregation of duties is essential to prevent this serious problem (the following duties should be separate: handling cash and posting to customer accounts; handling cash and authorizing credit memos and adjustments; issuing credit memos and maintaining customer accounts); use of lockboxes for receipts and EFT for disbursements; mailing customer statements monthly; use cash registers in retail operations where cash payments are received; deposit cash daily in the bank; and have the bank reconciliation function performed by independent third parties. Threat 7: Posting errors in updating accounts receivable — Controls: Use of editing and batch totals is essential here. Threat 8: Loss of data — Controls: Regular backups are essential with one copy stored off-site; and logical and physical access controls to prevent leakage to competitors and irregularities. Threat 9: Poor performance — Controls: Use sales and profitability analyses; accounts receivable aging; and cash budgets to track operations. Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

12) Discuss the general control issue of the loss of data, as it relates to the revenue cycle. Answer: One of the two general objectives that pertain to all revenue cycle activities is the loss of data. The primary threats related to the data availability objective are the loss of data and access controls. It is imperative that accurate customer account and inventory records be maintained for external and internal reporting purposes and for customer inquiries. Such records must be protected from loss and damage by using backup files. One backup file should be kept on-site, while a second should be kept off-site. Backup files of the most recent transactions should also be maintained. Also, all disks and tapes should have both external and internal file labels to reduce the possibility of accidental erasure of important files. Access controls are also important as a general control. Unauthorized access to information may cause leaks of the information to competitors and the risk of damage to sensitive and important data files. Employees should have certain access restrictions to help prevent this threat from occurring. Passwords and user IDs will help to limit access to files and the operations allowed to be performed on files. For example, the sales staff should not be allowed write-access to customers' credit limit and approval information. Individual terminals should also have access controls in place. An example of this control would be to prevent someone at a shipping dock terminal from entering a sales transaction order. Another control that should be put in place is to require activity logs of any management approved transaction. Such a log should be maintained for audit trail purposes. Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 13) Discuss the revenue cycle threat of stockouts, carrying costs, and markdowns. Answer: Stockouts, carrying costs, and markdowns are a threat in the sales order entry process. The problem with stockouts is that when goods are not available to ship to customers, the business risks losing the sale to a competitor that can provide the goods in a timely manner. The opposite problem can also occur where excess inventory increases carrying costs, with the result that markdowns may be necessary in order to sell the inventory. Two controls can be implemented to cope with this threat. One control that can be put into place is to establish accurate inventory control. An AIS with real-time online capabilities can be programmed to use the perpetual inventory method. This will ensure that accurate records are maintained about the quantity of inventory for sale. This will eliminate mistakes in placing orders for goods when a sufficient inventory amount is on hand. Periodic physical counts of inventory will also verify the perpetual amounts recorded by the AIS. Another important control in this situation is that of accurate sales forecasting. Proper marketing efforts should be made in conjunction with regularly reviewing sales forecasts for accuracy. Such forecasts should be revised as necessary. Sales force marketing efforts should be commensurate with inventory levels as well. Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking

14) Which of the following is not a general threat to the revenue cycle? A) inaccurate master data B) loss of customers C) poor performance D) unauthorized disclosure of sensitive information Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 15) Which of the following is not a general threat to the revenue cycle? A) inaccurate master data B) loss of customers C) poor performance D) unauthorized disclosure of sensitive information Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) The revenue cycle's primary objective is to A) maximize the company's profit. B) provide quality product in order to maximize market share. C) lower expenses. D) provide the right product in the right place at the right time for the right price. Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) Which of the following controls can minimize the threat of incomplete/inaccurate orders? A) Separation of billing and shipping functions. B) Use of cash registers. C) Bar-code and RFID technology. D) Restriction of access to master data. Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

18) Which of the following controls can minimize the threat of theft of cash? A) Separation of billing and shipping functions. B) Use of cash registers. C) Bar-code and RFID technology. D) Restriction of access to master data. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 19) Which of the following controls can minimize the threat of failure to bill? A) Separation of billing and shipping functions. B) Use of cash registers. C) Bar-code and RFID technology. D) Restriction of access to master data. Answer: A Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 20) Which of the following controls can minimize the threat of theft of inventory? A) Separation of billing and shipping functions. B) Use of cash registers. C) Bar-code and RFID technology. D) Restriction of access to master data. Answer: C Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain the sales order entry process, the key decisions that need to be made, and threats to that process, and describe the controls that can be used to mitigate those threats. 1) Regularly reviewing an accounts receivable aging report can help management do what? A) spot firms who are falling behind in their payments B) identify customers who have not purchased anything lately C) improve the speed which customers make payments D) determine whether the firm's pricing policy is effective Answer: A Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7

2) Regularly reviewing an accounts receivable aging report can help management do what? A) identify customers who have not purchased anything lately B) determine whether changes are needed in the firm's credit policies C) improve the speed which customers make payments D) determine whether the firm's pricing policy is effective Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) Shipping efficiency can often be improved by replacing RFID tags with bar codes. Answer: FALSE Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 4) During the sales order entry process, a is performed to compare the quantity ordered with the standard amounts normally ordered. A) completeness test B) redundant data check C) field check D) reasonableness test Answer: D Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) During the sales order entry process, a record contains all appropriate data items. A) completeness test B) redundant data check C) field check D) reasonableness test Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

is performed to verify that each transaction

6) The best solution for maintaining accurate automated perpetual inventory system is to use A) closed-loop verification when inventory is received from vendors and recorded. B) point of sale devices integrated with inventory records. C) periodic physical counts to reconcile with perpetual inventory records. D) RFID tags. Answer: D Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 7) To ensure proper segregation of duties, only the memos. A) accounts receivable supervisor B) controller C) credit manager D) cashier Answer: C Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

has authority to issue credit

8) It has been discovered that credit sales have been made to customers with a poor credit rating. If this continues, the company will face increasing uncollectible receivables and losses due to bad debts. Separation of duties between and should help resolve the problem. A) shipping; billing duties B) credit approval; marketing C) billing; credit approval D) marketing; accounts receivable Answer: B Concept: Shipping Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

9) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size fits all pajama tops, the following error message popped up: "Did you mean to enter a quantity of 1000 for your order?" This message is the result of a A) reasonableness test. B) validity check. C) limit check. D) closed-loop verification. Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Reflective Thinking 10) The manager of Cezary Foods was purchasing inventory from Bogumil Distributors online. The manager entered the items and quantities, completed the checkout and payment process, but received the following error message before the order could be processed: "Please enter your phone number." This message is likely the result of a A) validity check. B) completeness test. C) closed-loop verification. D) customer relationship management software application. Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Reflective Thinking 11) Bogumil Distributors is an Internet-based wholesaler. Customers enter their orders online. The manager of Cezary Foods was entering an order when the following error message popped up: "Your order exceeds your available credit. You will be contacted within 8 hours." This message is the result of a A) sign check. B) validity check. C) reasonableness test. D) limit check. Answer: D Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

12) A clerk at a grocery store scanned the bar code for a low cost bag of frozen chicken wings then gave his friend an expensive brand-name bag of frozen chicken wings. Which of the following controls would best prevent the clerk from getting away with doing this? A) Physical inventory count. B) Segregation of duties. C) Limited physical access to bar codes. D) Use of RFID tags. Answer: D Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the following poses an internal control problem? A) Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service. B) Products are released from inventory after a warehouse employee and a shipping clerk both sign the pick list. C) Sales representatives have authority to increase customers' credit limits in $1,000 increments. D) When customer payments are received in the mail, checks are sent to the cashier's office and remittance advices are sent to the accounts receivable department. Answer: C Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 14) The least effective control for preventing an organization from processing fraudulent credit memo is to A) match each credit memo with a receiving report. B) require approval for each credit memo by the credit manager. C) reconcile total of credit memos to total debits posted to customers' subsidiary ledgers. D) sequentially prenumber all credit memos and perform a sequence check at the end of each day. Answer: C Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

15) Explain how validity checks, completeness tests and reasonableness tests can be implemented to ensure accuracy of customer orders. Answer: Validity checks can be used to compare the customer and inventory information on the customer order with the information in the customer and inventory master files. A completeness test can ensure that all the necessary information is present on the customer order. A reasonableness test can compare the quantity ordered with the customer's past order history for that item. Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) Explain how to effectively segregate duties in the sales order activity. Answer: Sales orders should be recorded by sales personnel. Credit decisions should be made by the credit manager, not sales personnel. Also, sales orders authorize release of goods to shipping. Warehouse and shipping should be separate from sales. Because a computer does recording and authorization, it is important to ensure integrity of the programs and to perform edit checks on any online entries. Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

17) You have been hired by a catalog company to computerize its sales order entry process. Approximately 70% of all orders are received over the telephone by a sales person. The other 30% of orders are received by a sales person through mail or fax. The catalog company wants the phone orders processed real-time. The mail and fax orders will be processed in batches of 50 orders. The following attributes are collected for every sales order: Customer number (if the order is from a new customer, a new number needs to be assigned) Customer name Address Payment method (credit card for phone and fax orders and check for mailed orders) Credit card number and expiration date Items ordered and quantity of each Unit price of each item ordered Identify and describe at least ten specific control policies and procedures you will implement for the sales order process. Be very specific describing the controls and number each new control you suggest. Answer: 1. Validity check on customer number 2. Authorization controls to set up new customer records 3. Check digit on customer number 4. Modules 11 on customer number 5. Closed-loop verification on customer number 6. Credit approval before accepting orders 7. Credit check and credit limit establishment for new customers, before accepting orders 8. Preformatting of customer state, zip code and phone number 9. On-line real-time authorization of credit card charges 10. Field check on credit card number and expiration date 11. Validity check on item number 12. Check digit on item number 13. Modules 11 on item number 14. Closed-loop verification on item number 15. Auto fill of unit price, based on item number 16. Field check on quantity ordered 17. Batch control totals for mail and fax orders 18. Encryption of credit card data 19. Completeness check Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

18) Which of the following is not a threat to the revenue cycle sales order entry process? A) incomplete orders B) invalid orders C) cash flow problems D) uncollectible accounts Answer: C Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19) The legitimacy of customer orders is established by orders. A) the customer's signature B) the customer's pin number C) the customer's verbal authorization D) prior experience with the customer Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

in paper-based customer

20) The legitimacy of customer orders is established by orders. A) digital signatures B) the customer's pin number C) the customer's credit card number D) prior experience with the customer Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

in Internet-based customer

21) For strongest segregation of duties, the credit manager should never report to A) the marketing department. B) the accounting department. C) the credit department. D) the IT department. Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

22) For strongest segregation of duties, a sales representative should never be allowed to A) discuss the company's products. B) negotiate the sales price. C) approve a sale on credit. D) send a customer a gift. Answer: C Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 23) A credit sale should always be denied if it exceeds the customer's credit limit. Answer: FALSE Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 24) A credit sale should always be reviewed by a credit manager if it exceeds the customer's credit limit. Answer: TRUE Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 25) Basic segregation of duties requires the credit manager reports to the treasurer report to the . A) treasurer; controller B) treasurer; vice president of finance C) controller; vice president of finance D) marketing manager; vice president of finance Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

and the

26) When a customer places an order (on account) for a certain product, what should be done before the order is checked for inventory availability? A) The customer's available credit should be checked. B) The sales order should be created and written to a file. C) Shipping should be notified of an order in process. D) A picking list should be generated for the warehouse. Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 27) How is credit approval generally handled for established customers with a documented payment history? A) A new credit application is requested. B) General authorization by a sales clerk C) Specific authorization by the credit manager D) A formal credit check should be made for each sale. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 28) What is a typical procedure for processing sales orders from new customers or customers making a purchase that causes their credit limit to be exceeded? A) General authorization to approve the order is given to sales clerks. B) Specific authorization must be granted by the credit manager. C) The sale should be rejected. D) The sales clerk should order a report from a credit bureau before approving the order. Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 29) Checking the quantity of inventory available before accepting a sales order is a good practice for all of the reasons except to A) determine which items may need to be back ordered. B) verify the accuracy of the perpetual inventory records. C) inform the customer about availability and delivery times. D) update inventory records to reduce the quantity available by the number of items ordered. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16

30) Special software packages called service. A) EDI systems B) CRM systems C) POS systems D) VMI systems Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

can help an organization manage customer

31) The activities involved in soliciting and processing customer orders within the revenue cycle are known as the A) sales order entry process. B) shipping order process. C) revenue process. D) marketing process. Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 32) Laz Chance wears roller blades and headphones when he is at work at the Squishy Things Toy Company. He is a product packer. The headphones give him computer-generated instructions so he knows the location of each item and quantity that should be included in the order. These instructions are the equivalent of a A) picking ticket. B) bill of lading. C) packing slip. D) sales order. Answer: A Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

33) Define and describe benefits of a CRM system. Answer: CRM stands for customer relationship management. Since customer service is so important today, special CRM software packages have been created that support this vital process. CRM systems help a company to organize detailed data about customers so that more personalized service can be given to them. A CRM system may retain customer preferences and customer transaction history, which can be used to suggest other products the customer may wish to purchase. The system could also take a pro-active marketing approach in contacting customers at certain re-order points. A well-implemented CRM system can help the business achieve the goal of turning satisfied customers into loyal customers. Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 34) Describe typical credit approval procedures. Answer: Most business-to-business sales are made on credit. Key to revenue cycle success is the approval of credit sales before they are processed and goods shipped. A part of good control in this area is to establish a credit limit for customers. With new customers, or when orders exceed a customer's credit limit, or the customer has a past due balance, specific authorization for the credit manager should specifically authorize and approve further credit. The system can also be programmed to do a limit check for each order processed to maintain further control in this area. Also, marketing personnel should not make credit decisions, as a potential conflict of interest is possible. Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 35) Identify a useful tool for monitoring accounts receivable. A) ERP exception report B) accounts receivable aging report C) accounts receivable tolerance report D) customer credit limit report Answer: B Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

36) An accounts receivable aging report is useful for doing everything except A) estimating bad debts. B) estimating future sales. C) projecting the timing of future cash flows. D) deciding whether to increase a specific customer's credit limit. Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 37) It costs times as much to acquire a new customer as it does to make a sale to an existing customer. A) two B) five C) eight D) ten Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 38) Research suggests which of the following is key to improving total customer satisfaction? A) price of product B) speed of shipping C) quality and nature of customer contact after the sale D) quality and nature of customer contact before the sale Answer: C Concept: Revenue cycle information system Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking 39) A picking ticket is generated by the A) shipping process. B) sales order entry process. C) packing process. D) billing process. Answer: B Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

40) What is QR codes and can companies use them to improve interactions with their customers? Answer: QR codes are two-dimensional bar codes that can be scanned with a smartphone. They provide potential customers with access to multimedia anywhere at anytime. For example, consider a charity fund-raising event such as an outdoor concert. QR codes can be printed on posters, displayed on video screens, and included in the program. When attendees scan the code, they are directed to a mobile website where they can make a donation via their smartphone. Such a process is likely to result in a higher percentage of attendees actually donating, because they can act immediately upon their impulse. QR codes can also increase sales by enhancing customer service. Concept: Sales order entry Objective: Learning Objective 2 Difficulty: Moderate AACSB: Information Technology 3 Explain the shipping process, key decisions that need to be made, and threats to that process, and describe the controls that can be used to mitigate those threats. 1) Before a shipping notice is prepared during the revenue cycle, shipping department personnel should match the inventory received from the warehouse to the A) sales order. B) picking tickets. C) picking ticket and sales order. D) sales order and bill of lading. Answer: C Concept: Shipping Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 2) Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a A) completeness test. B) field check. C) reasonableness test. D) validity check. Answer: D Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

3) Which of the following is not a threat to the revenue cycle shipping process? A) incomplete orders B) inventory theft C) picking the wrong items D) wrong shipping address Answer: A Concept: Sales order entry Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) The normally triggers the billing process in the revenue cycle. A) sales order received from the sales department B) picking ticket received from the sales department C) packing slip received from the shipping department D) journal voucher received from the shipping department Answer: C Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) The should always be included with a merchandise shipment to a customer. A) picking ticket B) packing slip C) sales invoice D) remittance advice Answer: B Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) The is a legal contract that defines responsibility for goods that are in transit. A) bill of lading B) packing slip C) back order D) picking list Answer: A Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

7) Two documents usually accompany goods shipped to a customer. What are the two documents? A) a bill of lading and an invoice B) a packing slip and a bill of lading C) an invoice and a packing slip D) an invoice and a sales order Answer: B Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) The shipping department at Eka Toys follows policies that determine which carrier will deliver orders according to the size, weight, and destination of the shipment. It maintains standing agreements with shippers that specify legal responsibility for the shipment while it is in transit. The terms of the shipping agreements are documented on A) picking tickets. B) packing slips. C) bills of lading. D) RFID tags. Answer: C Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9) The packing slip A) lists the quantity, price, and description of each item included in the shipment. B) lists the price and description of each item included in the shipment. C) lists the quantity and description of each item included in the shipment. D) lists the quantity and price of each item included in the shipment. Answer: C Concept: Shipping Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

10) Key differences exist when an integrated Enterprise Resource Planning system (ERP) replaces an existing AIS or legacy system. For example, are more accurate and timely, enabling sales order entry staff to provide customers more accurate information about delivery dates. A) inventory records B) cash receipts C) credit approval decisions D) exception reports Answer: A Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 11) By using an ERP to merge the billing, sales, and marketing functions, the firm may be able to A) bill the customer right after the sale occurs. B) market products and services on bills sent to customers. C) use customer's past purchase history to send information about related products and services the customer may be interested in. D) eliminate the need for a firm to have a billing, sales, and marketing department. Answer: C Concept: Shipping Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 12) What is RFID tags and how do companies use them to improve their shipping process? Answer: RFID tags improve the efficiency and accuracy of tracking inventory movement. With bar codes, the item or box must be positioned properly so that the bar code can be read by the scanner. Switching to an RFID tag eliminates this need to align items with scanners; instead, the tags can be read as the inventory moves throughout the warehouse. In addition, each RFID tag can store detailed information to facilitate proper storage and routing of the inventory item. For companies that handle large volumes of merchandise, such as Federal Express and UPS, RFID's ability to reduce by even a few seconds the time it takes to process each package can yield enormous cost savings. Concept: Shipping Objective: Learning Objective 3 Difficulty: Moderate AACSB: Information Technology

13) The bill of lading is a legal contract that defines responsibility for the goods in the company's warehouse. Answer: FALSE Concept: Shipping Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4 Explain the billing process, key decisions that need to be made, and threats to that process, and describe the controls that can be used to mitigate those threats. 1) The basic document created in the billing process is call a A) bill of lading B) sales invoice C) sales order D) packing list Answer: B Concept: Billing Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

2) A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices. This describes the method. A) monthly statement B) open-invoice C) balance forward D) cycle billing Answer: B Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 3) A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) method. A) specific identification B) balance forward C) cycle billing D) open-invoice Answer: D Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

4) The document a customer returns with their payment and that identifies the source and the amount of the payment is called a A) remittance advice. B) remittance list. C) credit memorandum. D) debit memorandum. Answer: A Concept: Billing Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) In the method of tracking accounts receivable, customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance. A) specific identification B) open-invoice C) balance forward D) remittance advice Answer: C Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 6) When a customer pays off the balance on an invoice, the payment is credited to the file. A) customer master B) sales transaction C) cash receipts master D) All of the above are correct. Answer: A Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

7) A type of business document in which part of the original document is returned to the source for further processing is called a document. A) feedback B) returnable C) closed-loop D) turnaround Answer: D Concept: Billing Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 8) A document typically encountered in the revenue cycle that is both an output document and a source document is the A) sales invoice. B) customer purchase order. C) sales order. D) packing slip. Answer: A Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 9) A(n) system prepares and mails monthly statements to customers throughout the entire month, instead of just at the end of the month. A) continuous B) open-invoice C) cycle billing D) balance forward Answer: C Concept: Billing Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

10) The shipping department at Eka Toys follows policies that determine which carrier will deliver orders according to the size, weight, and destination of the shipment. It maintains standing agreements with shippers that specify legal responsibility for the shipment while it is in transit. The terms of the shipping agreements are documented on A) picking tickets. B) packing slips. C) bills of lading. D) RFID tags. Answer: C Concept: Billing Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 11) Describe the two methods to manage accounts receivable. Answer: Open invoice system — customers pay the invoice by returning a remittance advice turnaround document and a check. Remittances are applied against specific open invoices. The open-invoice method can be used to offer discounts for prompt payments since invoices are individually tracked. However, such individual tracking adds complexity in maintaining information. Balance-forward method — customers pay according to the amount shown on a monthly statement and remittances are applied against the total outstanding balance; this method is used by department stores typically where customers make a large number of smaller dollar amount purchases. Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 12) Describe cycle billing and identify how an organization might benefit by using cycle billing. Answer: Cycle billing is spreading out the customer base so that a portion of the billing is done each day to a group of customers. Credit card and utility companies use it extensively because of their large customer bases. The advantage of this method is that the billing load is dispersed and the cash flow of the company is evened out dramatically. Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

13) Which is the best control to prevent invoicing customers for more than the actual quantity shipped? A) Use the information from the sales order to prepare the sales invoice. B) Use the information from the packing slip to prepare the sales invoice. C) Use the information from the bill of lading to prepare the sales invoice. D) Use the information from the picking ticket to prepare the sales invoice. Answer: B Concept: Billing Objective: Learning Objective 4 Difficulty: Easy AACSB: Reflective Thinking 14) Separating the shipping and billing functions is designed to reduce the threat of A) failure to bill customers. B) billing customers for wrong quantities. C) billing customers before merchandise has been shipped. D) shipping the wrong merchandise. Answer: A Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 15) All of the following edit checks for online editing of accounts receivable transactions would probably be included except A) validity checks on customer ID and invoice numbers. B) check digit verification on the amount of the sale. C) closed loop verification on the customer ID. D) field checks on the values in dollar fields. Answer: B Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

16) The accounts receivable clerk destroys all invoices for sales made to family and friends and does not record the sales in the accounts receivable subsidiary ledgers. The family and friends usually give the clerk cash as a "thank you." Which procedure will not prevent or detect this fraud? A) Send monthly statements to all customers with balances owed. B) Reconcile sales invoices in the billing department to the total debits to accounts receivable subsidiary ledgers. C) Sequentially prenumber all invoices and prepare a sequence check at the end of each day. D) Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger. Answer: A Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 17) Which of the following is not a threat to the revenue cycle billing process? A) accounts receivable errors B) loss of customers C) failure to bill D) inaccurate credit memos Answer: B Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 18) Upon notification from the receiving department that the goods have been returned, the manager issues a(n) , which authorizes the adjustment of the customer's account. A) debt memo B) credit memo C) adjusting entry D) bill of lading Answer: B Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

19) What is image processing technology and how can it help companies improve the efficiency and effectiveness of managing their customer accounts? Answer: Image processing technology can further improve the efficiency and effectiveness of managing customer accounts. The digital images of customer remittances and invoices can be stored electronically and then be easily retrieved, manipulated, and integrated with other images and data to produce various types of output. Doing so provides employees fast access to all documents relating to a customer and eliminates the time wasted searching through file cabinets for lost paperwork. If a customer needs a duplicate copy of a monthly statement or an invoice to replace a lost original, it can be retrieved, printed, and faxed while the employee is talking to the customer on the phone. Image processing also can facilitate resolving customer complaints, because the same image can be viewed simultaneously by more than one person. Thus, a customer account representative and a credit manager could both review an image of a document in question while discussing the problem with the customer on the telephone. Image processing also reduces the space and cost associated with storing paper documents. The savings in this area can be substantial: One optical disk can store thousands of documents, in a fraction of the space. Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Information Technology 20) Discuss the advantage and disadvantage of the open-invoice method. Answer: One advantage of the open-invoice method is that it is conducive to offering discounts for prompt payment, as invoices are individually tracked and aged. It also results in a more uniform flow of cash collections throughout the month. A disadvantage of the open-invoice method is the added complexity required to maintain information about the status of each individual invoice for each customer. Concept: Billing Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5 Explain the cash collections process, key decisions that need to be made,and threats to that process, and describe the controls that can be used to mitigate those threats. 1) How can Electronic Data Interchange (EDI) facilitate the billing and accounts receivable process? Answer: The basic document created in the billing process is the sales invoice. Many companies still print paper invoices and send them to customers in the mail. Batch processing of invoices may create cash flow problems because of the time it takes invoices to flow through the regular mail system. Companies that use EDI can create quicker turnaround for payment, and save costs by reducing paper handling and processing. Depending on the number of invoices processed per year, these savings can be significant. Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 30

2) Discuss ways in which technology can be used to streamline cash collections. Answer: Answers may include the following points: A lockbox system can reduce delays due to processing and geographical distance between customer and company. Customers send remittances to a nearby P.O. box; a local bank picks up remittances, deposits cash and sends remittance advices and copies of all checks to the company. The main disadvantage is cost; the banks charge a service fee up to 1% of the cash processed through the system. Information technology can provide additional efficiencies in the use of lockboxes. An electronic lockbox sends electronic notification of remittances to the company. This method enables the company to begin applying remittances to customer accounts before the photocopies of the checks arrive. — An EFT system eliminates paper checks and uses electronic payments between banks. Integrating EFT and EDI, called the financial electronic data interchange, automates billing and cash collections. — Procurement cards or credit cards can be used. These cards eliminate the risks and costs associated with creating and maintaining accounts receivable, but cost between 2% to 4% of the gross sales price. Concept: Cash collection Objective: Learning Objective 5 Difficulty: Challenging AACSB: Analytical Thinking 3) Suppose management wanted to increase the speed of processing customer payments. One way to speed up payment transaction processing is to A) use a FEDI. B) use JEDI analysis software. C) eliminate credit sales. D) extend the amount of credit offered to customers. Answer: A Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 4) The cashier deposits checks for Benedek Incorporated and also prepares payments to vendors. Of the following, who is best able to reconcile the bank statement to Benedek's records on a regular basis? A) cashier B) internal audit department C) treasurer D) external auditor Answer: B Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

5) A monthly statement sent to customers serves a control purpose by A) providing an opportunity for customers to verify the balance owed and activity on the account. B) triggering the process to record a customer payment. C) summarizing invoices and amounts due for customers. D) reminding customers of the balance due and due date. Answer: A Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 6) Which of the following is not one of the controls when customer payments are commingled with other mail? A) preparing a remittance list as mail is opened B) restrictively endorsing checks when received C) requiring two mail room clerks to open mail together D) requiring the controller to be personally present when mail is received and opened Answer: D Concept: Cash collection Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 7) Segregation of duties controls dictates that the collection and recording functions be kept separate from each other. However, the accounts receivable department needs to know when customers pay their invoices. What is a solution to this potential internal control problem? A) Establish a lockbox arrangement with a bank. B) Have customers send a remittance advice with their payment. C) Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable. D) all of the above Answer: D Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

8) The benefits of a lockbox arrangement with a bank are maximized when A) the bank is located nearby to the company, so remittance advices can be delivered to the company every day. B) several banks around the country are used, in order to minimize the time payments spend in the mail. C) an arrangement is made with only one bank, so all remittance advices can be batched for processing. D) the bank deposits the payments and accesses the customer's information system to record the payments. Answer: B Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 9) An is an arrangement where a bank receives customer payments and transmits payment data to the organization. A) e-commerce B) electronic funds transfer (EFT) C) electronic lockbox D) electronic data interchange (EDI) Answer: C Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 10) Customers that send their payments electronically directly to the billing company's bank are using A) electronic funds transfer (EFT). B) electronic data interchange (EDI). C) procurement cards. D) an electronic lockbox. Answer: A Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

11) A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is A) Financial Electronic Data Interchange. B) e-commerce. C) to use procurement cards. D) an electronic lockbox. Answer: A Concept: Cash collection Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 12) When a proper segregation of duties exists in the area of handling cash receipts, the , who reports to the , actually handles the cash and is not the same person who posts cash receipts to customer accounts. A) cashier; treasurer B) cashier; controller C) accountant; treasurer D) accountant; controller Answer: A Concept: Cash collection Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Because it is the most fungible of all assets, the management of cash has always been the most difficult of all control issues. The most important of cash controls is A) minimization of cash handling. B) lockbox arrangements. C) segregation of duties. D) frequent reconciliation of records. Answer: C Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

14) Failure to collect cash on credit sales is a threat in the revenue cycle. What controls can be used to help neutralize this threat? Answer: Both accounts receivable and cash flows should be monitored. Segregation of duty controls should always be implemented and monitored for compliance. Also, a control used to deal with accounts receivable (which directly impacts cash flow) is to use an accounts receivable aging schedule. This schedule lists customer account balances by length of time outstanding and provides information for estimating bad debts. It can also assist in evaluating credit policies and specific customer credit limits. Also, a cash budget can be used to provide a more precise estimate of cash inflows (cash collected from sales) and cash outflow (outstanding payables). An organization can be alerted to a pending cash flow shortage, thus enabling it to secure short-term financing at competitive rates to deal with the problem in a timely manner. Concept: Cash collection Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 15) A number that enables customers to remit payments via an ACH credit without requiring the seller to divulge detailed information about its bank account is called A) EFT. B) EFDI. C) UPC D) UPIC. Answer: D Concept: Cash collection Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements 1 Discuss the basic business activities and related information processing operations in the expenditure cycle, explain the general threats to those activities, and describe the controls that can mitigate those threats. 1) To accomplish the objectives set forth in the expenditure cycle, a number of key management decisions must be addressed. Which of the decisions below is not ordinarily found as part of the expenditure cycle? A) How can cash payments to vendors be managed to maximize cash flow? B) What is the optimal level of inventory and supplies to carry on hand? C) Where should inventories and supplies be held? D) What are the optimal prices for each product or service? Answer: D Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) What types of decision-making and strategic information should the AIS provide in the expenditure cycle? Answer: The AIS should provide decision making information to: Determine when and how much additional inventory to order. Select the appropriate vendors from whom to order. Verify the accuracy of vendor invoices. Decide whether purchase discounts should be taken. Monitor cash flow needs to pay outstanding obligations. AIS should also provide the following strategic and performance evaluation information on: Efficiency and effectiveness of the purchasing department. Analysis of vendor performance such as on-time delivery, quality, etc. Time taken to move goods from the receiving dock into production. Percentage of purchase discounts taken. Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

3) Requiring all packing slips be reconciled to purchase orders before accepting a delivery of inventory would be most likely to prevent which of the following situations? A) A supplier delivers more inventory than ordered at the end of the year and sends an invoice for the total quantity delivered. B) An employee mails a fake invoice to the company, which is then paid. C) The inventory records are incorrectly updated when a receiving department employee enters the wrong product number on the receiving report. D) Receiving department employees steal inventory and then claim the inventory was received and delivered to the warehouse. Answer: A Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 4) One of the basic activities in the expenditure cycle is the receiving and storage of goods, supplies, and services. What is the counterpart of this activity in the revenue cycle? A) sales order entry process B) shipping function C) cash collection activity D) cash payments activity Answer: B Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 5) There is a symmetrical interdependence between a firm's expenditure cycle and its suppliers' A) production cycle. B) revenue cycle. C) expenditure cycle. D) general ledger and reporting system. Answer: B Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

6) The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast sweater sales. The technology that is used for communication between GRCCo and PetCo is A) electronic data interchange. B) vendor-managed inventory. C) sales force automation. D) optical character recognition. Answer: A Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) Explain what is meant by the expenditure cycle as a "mirror image" of the revenue cycle. Answer: The expenditure cycle has been called a "mirror image" of the revenue cycle because the activities of the expenditure cycle are the opposite, or "reflection" of several activities found in the revenue cycle. For example, the order goods activity generates a purchase order, which serves as customer input to the sales order entry process. The receive goods activity handles the goods sent via the supplier's shipping function. The pay for goods activity generates the payments that are processed by the supplier's cash collection activity. This mirror image also means that major technological improvements in the expenditure cycle may bring about complementary improvements in suppliers' revenue cycle as well. Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 8) Which of the following is not an activity performed in the expenditure cycle? A) ordering B) receiving C) cash disbursement D) shipping Answer: D Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

9) The first major business activity in the expenditure cycle is A) ordering inventory, supplies, or services. B) a customer sale. C) shipping goods to customers. D) receiving goods from vendors. Answer: A Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following threats is not specific to the purchase requisition process of the expenditure cycle? A) stockouts B) purchasing from unauthorized vendors C) requisitioning goods not needed D) All of the above are threats in the purchase requisition process. Answer: B Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

11) Identify ten threats and applicable control procedures in the expenditure cycle. Answer: Answers can include the following information: 1: Stock-outs — Controls: Inventory control system; accurate perpetual inventory; and vendor performance analysis is needed to prevent this problem 2: Requesting goods not needed — Controls: Review and approval by supervisors; use of prenumbered requisition forms; and restricted access to blank purchase orders 3: Purchasing goods at inflated prices — Controls: Competitive bidding and proper supervision; approved purchase orders; and price list consultations are needed to prevent this problem 4: Purchasing goods of inferior quality — Controls: Use experienced buyers who know good vendors; review purchase orders; and incorporate approved vendor list into formal procedures 5: Purchasing from unauthorized vendors — Control: Pre-numbered purchase orders should be approved; restrict access to approved vendor list and have procedures in place for any change to the list 6: Kickbacks paid to buyers to influence their decisions — Controls: Clear conflict of interest policy prohibiting the acceptance of any gift from vendors; disclosure of financial interest policy for purchasing agents; and vendor audits 7: Receiving unordered goods — Controls: Receiving department must reject any goods for which there is no approved purchase order 8: Errors in counting goods received — Controls: Use "blind" P.O. copies to force receiving personnel to actually count goods; provide incentives for counting goods 9: Theft of inventory — Controls: Secure inventory storage locations; make transfers of inventory with proper approval and documentation; do periodic physical count and reconciliation with recorded amounts 10: Errors in vendor invoices — Controls: Invoice accuracy should be verified and compared to P.O.s and receiving report data 11: Paying for goods not received — Controls: Voucher package and original invoice should be necessary for payments 12: Failure to take available purchase discounts — Controls: File approved invoices by due date; track invoices by due date; use a cash budget to plan for cash needs 13: Paying same invoice twice — Controls: Invoices should be approved only with a full voucher package and paid ones should be canceled so they cannot be used again; do not pay invoices marked "Duplicate" or "Copy" 14: Recording and posting errors for purchases and payments — Controls: Data entry controls, and periodic reconciliation of subsidiary ledger with general ledger control account 15: Misappropriation of cash by paying fictitious vendors and alteration of checks — Controls: Restrict access to cash, blank checks, and check signing machine; use check protection, prenumbered checks, and imprinted amounts on checks to cut down on forgery and fraud; use petty cash fund for small expenditures only; have proper segregation of duties and independent bank reconciliation function 16: Theft associated with EFT use — Controls: Access controls to the system; encryption of transmissions; time-stamp and number transmissions; control group should monitor all EFT activity 17: Loss of data — Controls: Use file labels, back up of all data files regularly; and, use access controls 18: Poor performance — Controls: Preparation and review of performance reports

Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) How can using RFID tags or bar codes on goods or products provide significant benefit in the expenditure cycle? Answer: RFID tags and bar codes can significantly improve the process of receiving goods from suppliers for several reasons. First, they can easily be scanned electronically. Electronically capturing the unique number of a product not only provides identification and quantity data about the product; it can also provide specific production information such as date and time of manufacture, production run information, etc. Electronically encoding such information into an integrated AIS provides up-to-the-minute inventory counts, as well as counts of units sold, and returns for use in a perpetual inventory system. Also, both vendor and customers can read tags and bar codes, and certain formats are universal in nature. This allows goods to be sold virtually anywhere in the world, allowing for easier global marketing efforts to be made by businesses. It also eliminates the need for human data entry and reduces the risk of stockouts. Concept: Expenditure cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the following controls can minimize the threat of stockouts and excess inventory? A) The use of positive pay. B) Do not inform receiving employees about quantity ordered. C) The use of ERS. D) Perpetual inventory system. Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 14) Which of the following controls can minimize the threat of check alteration? A) The use of positive pay. B) Do not inform receiving employees about quantity ordered. C) The use of ERS. D) Perpetual inventory system. Answer: A Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

15) Which of the following controls can minimize the threat of mistakes in counting incoming inventory? A) The use of positive pay. B) Do not inform receiving employees about quantity ordered. C) The use of ERS. D) Perpetual inventory system. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) Which of the following controls can minimize the threat of errors in supplier invoices? A) The use of positive pay. B) Do not inform receiving employees about quantity ordered. C) The use of ERS. D) Perpetual inventory system. Answer: C Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain the process and key decisions involved in ordering goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats. 1) The Gwallter Reece Chihuahua Sweater Co. (GRCCo) was established in 2013. It recently signed a large contract with PetCo pet stores. GRCCo will be required to track and forecast sweater sales by linking in to PetCo's sales database. GRCCo will then be responsible for shipping products to PetCo as needed. The relationship between GRCCo and PetCo is an example of A) sales force automation. B) electronic data interchange. C) optical character recognition. D) vendor-managed inventory. Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

2) The traditional approach to inventory management to ensure sufficient quantity on hand to maintain production is known as A) safety stock. B) just-in-time production. C) economic order quantity. D) optimal inventory quantity. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Economic Order Quantity (EOQ) includes several variables that must be taken into consideration when calculating the optimal order size. One variable, the costs associated with holding inventory, is referred to as A) ordering costs. B) carrying costs. C) the reorder point. D) stockout costs. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 4) The specifies the point at which inventory is needed. A) company inventory policies B) reorder point C) economic order quantity D) stockout point Answer: B Concept: Operational audits of an AIS Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) Which electronic files are either read or updated when goods are ordered from a vendor? A) inventory, vendors, and accounts payable B) vendors and accounts payable C) inventory, vendors, and open purchase orders D) open purchase orders and accounts payable Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 8

6) What is a key feature of materials requirements planning (MRP)? A) minimize or entirely eliminate carrying and stockout costs B) reduce required inventory levels by scheduling production rather than estimating needs C) determine the optimal reorder point D) determine the optimal order size Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 7) Materials requirements planning (MRP) A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry large levels of inventory. B) is able to compute exactly the cost of purchasing by taking into account all costs associated with inventory carrying. C) requires vendors to deliver inventory to the production site exactly when needed and in the correct quantities. D) None of the above is correct. Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 8) attempts to minimize or eliminate carrying and stockout costs. A) Just-in-time inventory B) Materials requirements planning C) Economic order quantity D) Evaluated receipt settlement Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 9) Just-In-Time (JIT) inventory is best characterized by A) frequent deliveries of large quantities to be held at the work centers. B) frequent deliveries of smaller quantities of items to the work centers. C) less frequent deliveries of large quantities of goods to central receiving. D) infrequent bulk deliveries of items directly to work centers. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 9

10) What is the key difference between the MRP and JIT inventory management approaches? A) Only JIT reduces costs and improves efficiency. B) MRP is especially useful for products such as fashion apparel. C) JIT is more effectively used with products that have predictable patterns of demand. D) MRP schedules production to meet estimated sales needs; JIT schedules production to meet customer demands. Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 11) When would an MRP inventory approach be preferred to a JIT inventory approach? A) when a product has a short life cycle B) when demand for inventory is fairly predictable C) when demand for inventory is very unpredictable D) MRP is always a preferred method over JIT. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 12) Which of the following is least likely to be a major criterion in vendor selection? A) prices of goods B) credit rating of the vendor C) quality of goods D) ability to deliver on time Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 13) Once a vendor is selected for a product, the vendor's identity is recorded in the A) purchase requisition transaction file. B) purchase requisition master file. C) inventory transaction file. D) inventory master file. Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

14) Duc An Incorporated provides free coffee to employees. Starbucks delivers coffee packages, sugar, creamer, and filters each week. Every month, Starbucks sends Duc An an invoice. This arrangement is best described as a A) set purchase order. B) fixed purchase order. C) blanket purchase order. D) standard purchase order. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 15) A major cost in the purchasing function is the number of purchase orders processed. One technique that may reduce purchasing-related expenses is to have suppliers compete with each other to meet demand at the lowest price. The name of this technique is A) an EDI auction. B) a trading exchange. C) a reverse auction. D) a supplier consortium. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO, Ngai proudly announced that he had negotiated a(n) with a client that represented the customer's long-term commitment to buy components from Hung. A) purchase order B) evaluated receipt settlement C) voucher D) blanket purchase order Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

17) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO, Ngai proudly announced that he had received a from a client. The client had just requested a large quantity of components from Hung. A) blanket purchase order B) voucher C) purchase order D) purchase requisition Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 18) Define and describe the EOQ approach to inventory management. Answer: EOQ (economic order quantity) is the traditional inventory control method to maintain sufficient inventory levels so production can continue without interruption. EOQ should take into account a situation where inventory use is greater than expected. EOQ calculates the optimal order size to minimize the sum of ordering, carrying, and stockout costs. Ordering costs — all expenses associated with processing purchasing transactions. Carrying costs — costs associated with holding inventory. Stockout costs — costs from inventory shortages, such as lost sales or production costs. Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19) Discuss the differences between EOQ, MRP, and JIT. Answer: Economic Order Quantity (EOQ) is the traditional approach to managing inventory. EOQ is used to find the optimal order size. Ordering costs, carrying costs, and stockout costs are considered in finding the EOQ. The MRP (Materials Requirements Planning) inventory method seeks to reduce inventory levels by scheduling production, based on estimated sales, rather than by estimating needs (which EOQ does). A just-in-time inventory system (or JIT) attempts to minimize, if not totally eliminate, both carrying and stockout costs through the frequent delivery of small amounts of materials, parts, and supplies when they are needed. JIT does not attempt to estimate needs or schedule production based on estimated sales, as it is based on customer demand at a given time. A JIT system almost eliminates finished goods inventory. Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

20) a) What is the major cost driver in the purchasing function? b) Describe how information technology can be used to control this cost driver. Answer: a) The major cost driver in the purchasing function is the number of purchase orders processed. b) The number of purchase orders can be reduced or streamlined by: Electronic data interchange (EDI) for transmitting purchase orders to vendors. Use procurement cards for small dollar and small quantity purchases of non-inventory items. Reduce clerical costs by using the Internet to perform certain purchasing functions. Use vendor-managed inventory programs to reduce purchasing and inventory costs. Implement reverse auctions and pre-award audits. Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 21) Under what conditions is MRP more suitable than JIT and vice versa? Answer: MRP systems schedule production based on estimated sales, and JIT systems schedule production based on customer demand. The choice between these two systems is based on the types of products a company sells. For example, products that have predictable patterns of demand and a long life cycle are more suitable for MRP systems. In this case, sales can be forecast with greater accuracy. Conversely, if the product has an unpredictable pattern of demand and a shorter life cycle, then a JIT system is more suitable. JIT is able to adapt better to continuously changing production levels. Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 22) Identify the department below that should not be able to submit a purchase requisition. A) Marketing B) Production C) Inventory Control D) None of the above Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

23) Once a purchase request is approved, what is the next step? A) The system creates a purchase order. B) The accounts payable department approves the purchase request, creating a purchase order. C) The inventory master file is accessed to find the preferred supplier(s). D) The department that created the purchase request may buy the requested item(s). Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 24) The traditional approach to inventory management generally involves A) high stockout costs. B) minimizing item cost. C) receiving goods or services just prior to the time they are needed. D) maintaining inventory levels so that production can continue even if inventory use is greater than expected. Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 25) Under the EOQ inventory approach, carrying costs are usually ignored for low-cost/lowusage items. Answer: TRUE Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 26) The EOQ approach to managing inventory has been gaining popularity in recent years. Answer: FALSE Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

27) Although there are some similarities between JIT and MRP, identify one major difference below. A) production scheduling B) reducing the opportunity for inventory theft C) reducing inventory carrying costs D) requires more analysis than EOQ Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 28) Ideally, inventory purchases occur in response to A) customer demand B) optimal demand C) forecast demand D) supplier demand Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

in a JIT inventory system.

29) A JIT inventory system would be especially useful for a company that manufactures A) toys associated with new movie releases. B) toothpaste. C) alarm clocks. D) motor oil. Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 30) Which of the following factors is not of key importance when selecting inventory suppliers? A) product price B) vendor corporate structure C) product quality D) vendor delivery dependability Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

31) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses the EOQ inventory management approach. Which of the following factors would likely be least important when selecting inventory suppliers? A) product price B) product quality C) vendor delivery dependability D) All would be equally important. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 32) MacDougalKids is a mid-sized manufacturer of organic baby food. MacDougalKids uses a JIT inventory management approach. Which of the following factors would likely be least important when selecting inventory suppliers? A) product price B) product quality C) vendor delivery dependability D) All would be equally important Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 33) What is the best control to mitigate the threat of paying prices that are too high for goods ordered? A) Require the receiving department to verify the existence of a valid purchase order. B) Use only approved suppliers and solicit competitive bids. C) Only pay invoices that are supported by the original voucher package. D) Use bar-code technology to eliminate data entry errors. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

34) The management at Barks-a-Million is considering a new inventory control system. The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials — resulting in markdowns and high carrying costs. The new system will focus on ensuring that these costs are minimized. The new inventory control system will likely employ A) a reorder point. B) a just-in-time inventory system. C) the economic order quantity. D) materials requirements planning. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 35) The management at Barks-a-Million is considering a new inventory control system. The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials — resulting in markdowns and high carrying costs. The new system will focus on ensuring that orders are placed with sufficient lead time to prevent stockouts by using A) a just-in-time inventory system. B) the economic order quantity. C) materials requirements planning. D) a reorder point. Answer: D Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 36) The management at Barks-a-Million is considering a new inventory control system. The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials — resulting in markdowns and high carrying costs. The new system, which will focus on forecasting demand for their products, will likely employ A) a just-in-time inventory system. B) the economic order quantity. C) materials requirements planning. D) a reorder point. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

37) The management at Barks-a-Million is considering a new inventory control system. The current system is inadequate because it frequently causes stockouts that interrupt production and lead to excess stock of other materials — resulting in markdowns and high carrying costs. The new system will focus on reducing or completely eliminating carrying costs, most likely employing A) a just-in-time inventory system. B) a reorder point. C) materials requirements planning. D) the economic order quantity. Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 38) Which of the controls below would be least effective at preventing a company from ordering goods at a price higher than market? A) Only place orders with vendors on an approved vendor list. B) Variance analysis of actual expenses to budgeted expenses C) For high-dollar goods, solicit competitive bids from possible vendors. D) Frequent review of, and update to, vendor price lists stored in the AIS Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 39) Identify possible problems associated with receiving goods and appropriate actions in response to the problems. Answer: When a shipment of goods arrives, the quantity of goods received may not be the same as the quantity ordered; the goods may have been damaged in shipment and therefore are not suitable for use; and, goods may be received that are inferior in quality and fail an inspection. Whenever any of these problems occur, the purchasing department should deal with the vendor and issue a debit memo to record an adjustment to the order. The vendor should then issue a credit memo in acknowledgment of the problem and the pending adjustment. Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

40) Identify one way to improve the accuracy of inventory records that use a perpetual inventory approach A) use of an ERP system B) require the accounting department to calculate cost of goods sold periodically C) use IT to eliminate the need for manual data entry D) use of an MRP inventory system Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 41) Why would a firm perform ABC cost analysis? A) to identify the best inventory supplier B) to reconcile accounts payable C) to prioritize physical inventory counts D) to verify production quality Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking 42) It is important to physically count inventory, at least periodically, even in a perpetual inventory system. Answer: TRUE Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 43) What is the main reason a list of potential alternative suppliers be maintained? A) in case the primary supplier is out of stock B) so the firm can sample different suppliers C) in case the primary supplier is more expensive D) to segregate purchasing suppliers Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

44) Identify the most accurate statement below. A) Several purchase requisitions are often created to fill one purchase order. B) Several purchase orders are often created to fill one purchase requisition. C) Every purchase requisition should lead to the creation of one purchase order. D) Every purchase order should lead to the creation of one purchase requisition. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 45) Identify the item below that is the biggest purchasing function cost driver. A) the number of purchase requisitions processed B) the number of suppliers used C) the number of purchase orders processed D) the quantity of items ordered Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 46) A reverse auction would likely be best suited to the purchase of A) central processing units (CPUs). B) soybeans. C) designer clothing. D) automobiles. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking 47) One way a firm could reduce the risk of problems with supplier dependability is to A) purchase inventory from only U.S.-based suppliers. B) use an ERP system for purchases. C) require suppliers to be ISO 9000 certified. D) automate the purchasing function. Answer: C Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

48) An important control that can be used to reduce the risk of employee kickbacks is A) surveillance cameras. B) job rotation. C) off-site restrooms. D) use of ID badges. Answer: B Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 49) Restricting access to the approved supplier list can A) help reduce the risk of fraudulent disbursements. B) cause purchase order approval delays. C) eliminate the risk of duplicate payment. D) improve the efficiency of the expenditure cycle. Answer: A Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking 50) In a supplier audit, what are some of the red flags that could indicate potential supplier's problems? Answer: (1) A large percentage of the supplier's gross sales was to the company conducting the supplier audit. (2) The supplier's pricing methods differ from standard industry practice. (3) The supplier does not own the equipment it rents but is itself renting that equipment from a third party. (4) Entertainment expenses are high in terms of a percentage of the supplier's gross sales. (5) The supplier submits altered or fictitious third-party invoices. (6) The supplier's address on its invoices is fictitious. Concept: Ordering goods and services Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

3 Explain the process and key decisions involved in receiving goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats. 1) Which of the following is generally not shown on a receiving report? A) price of the items B) quantity of the items C) purchase order number D) counted and inspected by Answer: A Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) A receiving clerk notes that a delivery of 10 units has been received, but the purchase order specified 12 units. A debit memo will need to be prepared to adjust for the difference between the quantity ordered and received. Who should prepare this document? A) the receiving clerk B) the controller C) the vendor D) the purchasing department manager Answer: D Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 3) Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo. A) quantity different from that ordered B) damage to the goods C) goods that fail inspection for quality D) All of the above are possible scenarios. Answer: D Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4) What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items? A) requiring all suppliers to have the carrier verify quantities and item numbers before shipment B) requiring all suppliers to include RFID tags on their items C) requiring all suppliers to use EDI to expedite the receiving department function D) requiring all delivery trucks to have satellite data terminals to expedite the receiving department function Answer: B Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) Ngai Nhung is the sales manager at Hung Technologies. At lunch with the company CEO, Ngai complained that a recent shipment from a vendor had been unsatisfactory and was returned. As a result, Hung's purchasing manager needed to send a to the supplier. A) debit memo B) purchase order C) blanket purchase order D) receiving report Answer: A Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) Comparing quantities on a vendor invoice to quantities on the receiving report would not prevent or detect which of the following situations? A) receiving and accepting inventory not ordered B) theft of inventory by receiving department employees C) update of wrong inventory items due to data entry error D) order for an excessive quantity of inventory Answer: A Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

7) What is the best way to prevent the acceptance of goods that were never ordered? A) Order only from approved vendors. B) Enforce an appropriate conflict of interest policy in place. C) Match the packing slip to a purchase order before accepting delivery. D) Require specific authorization from the purchasing manager before accepting any goods. Answer: C Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the following is not a common control for ensuring inventory is secure and inventory counts are accurate? A) control of physical access to the inventory storage areas B) transfers of inventory with proper documentation C) sending "blind" copies of purchase orders to inventory control for data entry D) making physical counts of inventory at least once per year Answer: C Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 9) Which of the following would be the best control to prevent receiving department employees from stealing inventory and claiming the ordered quantity wasn't received from the vendor? A) Reconcile quantity on packing slip to physical count when accepting delivery. B) Restrict physical access to the receiving area. C) Require all deliveries be made at the receiving area. D) Require dual signatures on the move ticket when receiving delivers the inventory to the warehouse. Answer: A Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

10) Usually the supplier will give the buyer permission to correct the invoice for any discrepancies in quantity. In the case of damaged or poor-quality goods, a document called a(n) is prepared after the supplier agrees to take back the goods or to grant a price reduction. A) credit memo B) debit memo C) adjustment memo D) return memo Answer: B Concept: Receiving goods and services Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4 Explain the process and key decisions involved in approving supplier invoices for goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats. 1) Vendor invoices are approved by the A) purchasing department; controller B) accounts payable department; treasurer C) purchasing department; treasurer D) accounts payable department; controller Answer: D Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

, which reports to the

2) The disbursement voucher and supporting documents are sent to the prior to the due date. A) cashier B) treasurer C) controller D) accounts payable department Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

for payment

3) A(n) system posts an approved invoice to the vendor account and stores it in an open invoice file until payment is made by check. A) nonvoucher B) voucher C) cycle D) evaluated receipt settlement Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 4) A disbursement voucher contains A) a list of outstanding invoices. B) the net payment amount after deducting applicable discounts and allowances. C) the general ledger accounts to be debited. D) All of the above are correct. Answer: D Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) One objective of accounts payable is to authorize payment only for goods or services actually ordered and received. The best way to process supplier invoices is to use A) electronic funds transfer for small, occasional purchases from suppliers. B) a nonvoucher system. C) EDI for all small, occasional purchases from suppliers. D) a disbursement voucher system. Answer: D Concept: Approving supplier invoices Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) What is not an advantage of using disbursement vouchers? A) Disbursement vouchers reduce the number of checks written. B) Disbursement vouchers can be prenumbered which simplifies the tracking of all payables. C) Disbursement vouchers facilitate separating the time of invoice approval from the time of invoice payment. D) There are no disadvantages to using disbursement vouchers. Answer: D Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 26

7) Which of the following is not an advantage of a voucher system? A) Several invoices may be included on one voucher, reducing the number of checks. B) Disbursement vouchers may be pre-numbered and tracked through the system. C) The time of voucher approval and payment can be kept separate. D) It is a less expensive and easier system to administer than other systems. Answer: D Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 8) A voucher package should include A) a purchase requisition, vendor invoice, and receiving report. B) a purchase order, vendor invoice, and receiving report. C) a purchase requisition, purchase order, and receiving report. D) a bill of lading and vendor invoice. Answer: B Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 9) When purchasing miscellaneous supplies, companies can reduce costs, improve efficiency, and combat employee fraud by A) using procurement cards. B) implementing a JIT inventory system. C) requiring employees to personally purchase items then reimbursing employees at the end of each month. D) paying amounts out of petty cash. Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 10) If available, a 1% discount for payment within 10 days instead of 30 days represents an approximate savings of % annually. A) 1 B) 12 C) 18 D) 36 Answer: C Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 27

11) To minimize the number of checks that need to be written to pay vendor invoices, a company should use A) a voucher system. B) a just-in-time inventory system. C) a nonvoucher system. D) an evaluated receipt settlement system. Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 12) Evaluated receipt settlement increases efficiency by A) eliminating the need for receiving reports. B) eliminating the need for vendor invoices. C) eliminating the need for purchase orders. D) eliminating the need to prepare and mail checks. Answer: B Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 13) Procurement cards differ from corporate credit cards in which of the following ways? A) Credit limits can be set for procurement cards, but not corporate credit cards. B) Credit cards can be used to make purchases without an explicit sign off by supervisors, but procurement cards require a sign off. C) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere. D) Procurement card invoices are sent separately for each card, whereas corporate credit cards are consolidated into a single invoice. Answer: C Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

14) How can information technology be used to improve the vendor invoice approval process? Answer: EDI eliminates the need to enter invoice data and the matching of payment documents — all of this can be done using computers and network technologies. Technology can eliminate the need for vendor invoices by approving payment upon receipt of the goods. Imaging systems can eliminate paper flow, and universal languages such as XML can provide a paperless means of receiving and storing vendor invoices. Use of procurement cards, credit cards, and electronic expense forms can improve the efficiency of non-inventory purchases. ERS, which is invoiceless, is a means to replace the traditional three-matching process (vendor invoice, receiving report and purchase order) with a two-way match of the purchase order and receiving report. Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 15) Which of the following would probably be the least effective control to mitigate the risk of paying a phony invoice payable for inventory purchases that were never made? A) Only pay from original invoices. B) Require three-way match for all inventory purchase invoices. C) Cancel all invoices and supporting documentation when paid. D) Establish strict access and authorization controls for the approved vendor master file. Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 16) Which of the following controls would be the least effective in preventing paying the same invoice twice? A) Only pay from original invoices. B) Cancel each document in the voucher package once the check is prepared and mailed. C) Only pay vendor invoices that have been matched and reconciled to a purchase order and a receiving report. D) Allow only the accounts payable department to authorize payment for vendor invoices and allow only the cash disbursements department to cut and mail checks to vendors. Answer: D Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

17) Evaluated receipt settlement approves payment of vendor invoices after reconciling the purchase order and the A) receiving report. B) vendor invoice. C) sales invoice. D) disbursement voucher. Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 18) What control would best mitigate the threat of paying an invoice twice? A) never authorizing payment of a photocopy of an invoice B) double-checking mathematical accuracy of invoices C) approval of purchase orders D) maintaining adequate perpetual inventory records Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 19) Which control would best prevent payments made to fictitious vendors? A) Allow payments only to approved vendors. B) Restrict access to any payment or approval documents. C) Have an independent bank reconciliation. D) Make sure all documents are in order before approving payments. Answer: A Concept: Approving supplier invoices Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5 Explain the process and key decisions involved in making cash disbursements to suppliers, identify the threats to those activities, and describe the controls that can mitigate those threats. 1) In the expenditure cycle, Financial Electronic Data Interchange (FEDI) increases efficiency by A) eliminating the need for receiving reports. B) eliminating the need for vendor invoices. C) eliminating the need for purchase orders. D) eliminating the need to prepare and mail checks. Answer: D Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 30

2) EFT payments are generally performed by A) the treasurer. B) a cashier. C) an accounts payable clerk. D) a credit manager. Answer: B Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 3) If duties are properly segregated, the authorization function is performed by recording function is performed by , and cash handling is performed by the A) accounts payable; purchasing; cashier B) purchasing; accounts payable; cashier C) purchasing; cashier; accounts payable D) purchasing; accounts payable; treasurer Answer: B Concept: Cash disbursements Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

, the .

4) In the expenditure cycle, good control dictates that expenditures should be paid by check. This may not be feasible when minor purchases are made. To facilitate quick payment for minor purchases, a(n) should be set up and maintained using . A) special bank account; disbursement vouchers B) imprest fund; vouchers C) cash box; small denomination bills D) petty cash fund; procurement cards Answer: B Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

5) A surprise count of an imprest petty cash fund should find the total of amount authorized for the fund. A) cash and credit memos B) cash and vouchers C) cash D) cash and checks Answer: B Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

equal to the

6) What control should be put in place that assigns responsibility for EFT payments made to vendors? A) Encrypt all EFT transmissions. B) Time stamp all EFT transactions. C) Establish a control group to monitor EFT transactions for validity and accuracy. D) Number all EFT transactions. Answer: C Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 7) Anong Mali is the purchasing manager at Wattana Technologies. She has responsibility for reviewing and authorizing purchase orders. She also reviews receiving reports, approves or corrects them, and authorizes the cashier to pay vendor invoices. Which of the following would correct control weaknesses related to these activities? A) Controls are adequate under the current system. B) Vendor invoices should be reviewed by accounts receivable and then cancelled when paid. C) Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct. D) Accounts payable should reconcile purchase orders, receiving reports, and invoices. Answer: D Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

8) Anong Mali is the purchasing manager at Wattana Technologies. She has responsibility for reviewing and authorizing purchase orders. Receiving reports are prepared by shipping and receiving based on the relevant purchase order(s). Purchase orders, receiving reports, and vendor invoices are reconciled by accounts payable, which authorizes payment. Which of the following would correct control weaknesses related to these activities? A) Controls are adequate under the current system. B) Accounts payable should authorize purchase orders. C) Receiving reports should be reviewed and corrected by the purchasing manager. D) Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct. Answer: A Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 9) The receiving clerk at Wattana Technologies examines incoming shipments and reconciles their contents with the relevant purchase orders. A receiving report is then sent to accounts receivable and the vendor's invoice is approved for payment. Which of the following would correct control weaknesses related to these activities? A) Accounts payable should reconcile the purchase order and the receiving report. B) The invoice should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled. C) Invoices, purchase orders, and receiving reports should be reconciled by the receiving clerk. D) Controls are adequate under the current system. Answer: A Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 10) The receiving clerk at Wattana Technologies examines incoming shipments and checks their purchase order numbers. A receiving report is then sent to accounts payable, where it is reconciled with the relevant purchase orders and invoices and payment is authorized. Which of the following would correct control weaknesses related to the clerk's activities? A) Controls are adequate under the current system. B) Vendor invoices should be approved for payment by the purchasing manager. C) Purchase orders and receiving reports should be reconciled by the purchasing manager. D) Vendor invoices should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled. Answer: A Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

11) In the expenditure cycle, the majority of payments made are by check. What are some control issues related to payment of vendors by check? Answer: Key control problems in the area of payment by check can give rise to fraudulent activity. Fraudulent disbursements made by check to fictitious suppliers are one of the most common types of fraud. Control over checks can be strengthened in a number of ways. First, all checks should be sequentially pre-numbered and kept under lock and key until use. The internal auditor should randomly audit the supply of unused checks and verify that none are missing. Use of the voucher system will also provide control over paying a "phantom" supplier, since several supporting documents must be present in the voucher packet in order to have a check issued. The cashier and/or treasurer should be the only parties authorized to sign checks. Two signatures should be required on all checks in excess of a predetermined dollar amount to provide independent review of large expenditures. Also, signed checks should not be returned to accounts payable, but should be mailed by the cashier or treasurer. When a check is issued, all documents in the voucher package should be cancelled so that the voucher cannot be resubmitted for payment. To provide another independent review of checking account activity, someone not connected with either accounts payable or the treasurer's office should reconcile all bank accounts. To help circumvent check alteration and forgery, check protection machines should be used to write the dollar amount of the check as well as the date. The paper the check is printed on should have some special watermark or identifying mark that is readable at a certain angle as well. Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 12) Describe the function of an imprest fund. Answer: An imprest fund has two characteristics: it is set at a fixed amount, such as $100, and it requires vouchers for every disbursement. At all times, the sum of cash plus vouchers should equal the preset fund balance. When the fund balance gets low, the vouchers are presented to accounts payable for replenishment. After accounts payable authorizes this transaction, the cashier then writes a check to restore the petty cash fund to its designated level. As with the supporting documents used for regular purchases, the vouchers used to support replenishment of the petty cash fund should be canceled at the time the fund is restored to its preset level. Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 13) The operation of an imprest petty cash fund technically violates the principle of segregation of duties. Answer: TRUE Concept: Cash disbursements Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 14 The Production Cycle 1 Describe the major business activities and key decisions that must be made in the production cycle, the threats to accomplishing production cycle objectives, and the controls that can mitigate those threats. 1) The AIS compiles and feeds information among the business cycles. What is the relationship between the revenue and production cycles regarding the exchange of information? A) The revenue cycle provides sales forecast and customer order information to the production cycle, but the production cycle sends information back to revenue about finished goods production. B) The revenue cycle receives information from the production cycle about raw materials needs. C) The production cycle sends cost of goods manufactured information back to the revenue cycle. D) The production cycle does not exchange information with the revenue cycle. Answer: A Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2) The production cycle differs from the revenue and expenditure cycles for all the following reasons except A) cost accounting is involved in all activities. B) not all organizations have a production cycle. C) there are no direct external data sources or destinations. D) very little technology exists to make activities more efficient. Answer: C Concept: Product design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 3) What specific control can help restrict the rights of authorized users to only the portion of a database needed to complete their specific job duties? A) an access control matrix B) passwords and user IDs C) closed-loop verification D) specific authorization Answer: A Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) An organization can implement which of the following controls to reduce the threat of inventory theft or damage? A) review and approval of fixed asset acquisitions B) improved and more timely reporting C) better production and planning systems D) document all movement of inventory through the production process Answer: D Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5) The best control procedure for accurate data entry is A) the use of on-line terminals. B) an access control matrix. C) passwords and user IDs. D) automation of data collection. Answer: D Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) Which of the following organization controls should be implemented and maintained to counteract the general threat that the loss of production data will greatly slow or halt production activity? A) Store key master inventory and production order files on-site only to prevent their theft. B) Back up data files only after a production run has been physically completed. C) Access controls should apply to all terminals within the organization. D) Allow access to inventory records from any terminal within the organization to provide efficient data entry. Answer: C Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) The threat of loss of data exposes the company to A) the loss of assets. B) ineffective decision making. C) inefficient manufacturing. D) All of the above are correct. Answer: D Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2

8) Describe five threats in the production cycle and the applicable control procedures used to mitigate each threat. Answer: Threat 1: Unauthorized transactions — Controls: Accurate sales forecasts, maintaining accurate inventory records; authorizing production; restricting access to the production planning program; and review and approval of capital expenditures Threat 2: Theft or destruction of inventories and fixed assets — Controls: Restrict physical access to inventories; document internal physical flow of assets; proper segregation of duties; periodic physical count and reconciliation of inventory; document and authorize materials requests and disposal of fixed assets; and have adequate insurance Threat 3: Recording and posting errors — Controls: Automate data collection procedures; online data entry edit controls; and conduct periodic physical inventory and fixed asset counts Threat 4: Loss of data — Controls: Regularly back up files; keep additional master files; use internal and external file labels; restrict access; and keep logs of all activities Threat 5: Inefficiencies and quality control problems — Controls: Prepare regular performance reports; highlight exception reports and variances; compare actual performance to budgeted performance; measure throughput; and measure the cost of quality control Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 9) Discuss two measures that can address the threats of inefficiencies and quality controls problems. Answer: Throughput represents the number of good (nondefective) units produced in a given period of time. It consists of three factors, (productive capacity, productive processing time, and yield), each of which can be separately controlled as shown in the formula: Throughput = (total units produced/processing time) × (processing time/total time) × (good units/total units). Knowing about quality costs can help companies determine the effects of actions taken to improve yield and identify areas for further improvement. The main objective of quality control is to minimize the sum of the four types of costs recognizing the trade-offs between costs. These costs are: prevention costs, inspection costs, internal failure costs, and external failure costs. Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) Identify one control that can be used to mitigate the threat of poor product design that results in excess costs. A) production planning systems B) analysis of warranty and repair costs C) encryption D) insurance Answer: B Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3

11) Identify one control that can be used to mitigate the threat of under-production. A) production planning systems B) analysis of warranty and repair costs C) encryption D) insurance Answer: A Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) The risks associated with over-production are likely of greatest concern to which company below? A) a cereal manufacturer B) a manufacturer that produces designer clothing C) a manufacturer of printer paper D) a mailbox manufacturer Answer: B Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) To control for risks associated with the threat of inventory loss, who should have primary responsibility for work-in-process inventories? A) a factory supervisor B) the inventory stores department C) purchasing D) the receiving department Answer: A Concept: Production cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 14) Which of the following controls can minimize the threat of over- and underproduction? A) The use of innovative performance metrics. B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities. C) The use of encryption. D) The use of production planning systems. Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 4

15) Which of the following controls can minimize the threat of unauthorized disclosure of sensitive information? A) The use of innovative performance metrics. B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities. C) The use of encryption. D) The use of production planning systems. Answer: C Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) Which of the following controls can minimize the threat of theft of inventory? A) The use of innovative performance metrics. B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities. C) The use of encryption. D) The use of production planning systems. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) Which of the following controls can minimize the threat of misleading reports? A) The use of innovative performance metrics. B) The use of periodic physical counts of inventory and reconciliation of those counts to recorded quantities. C) The use of encryption. D) The use of production planning systems. Answer: A Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

2 Explain the key decisions and information needs in product design, the threats to those activities, and the controls that can mitigate those threats. 1) Which of the following is not a product design objective? A) Design a product that meets customer requirements. B) Design a quality product. C) Minimize production costs. D) Make the design easy to track for cost accounting purposes. Answer: D Concept: Product design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) The operations list shows A) the labor and machine requirements. B) the steps and operations in the production cycle. C) the time expected to complete each step or operation. D) all of the above Answer: D Concept: Product design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Yasamin Roshni owns and operates a small deli in Miami, Florida.. She maintains a file that lists the steps required to make each of her famous subs. These step-by-step instructions are examples of a(n) A) operations list. B) bill of materials. C) production order. D) materials requisition. Answer: A Concept: Product design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

4) Identify and discuss the two documents that are the result of product design activities. Answer: The two documents that are the result of product design activity are the bill of materials and the operations list. The bill of materials specifies the part number, description, and quantity of each component used in a finished product. The operations list specifies the labor and machine requirements needed to manufacture the product. The operations list is sometimes also called a routing sheet, since it indicates how a product moves through the factory. Concept: Product design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 5) How can CAD software help improve the efficiency and effectiveness of the product design process? A) It can eliminate the costs associated with creating and destroying physical prototypes. B) It can simulate how new products will be manufactured. C) It can store all the data associated with all products. D) All of the above Answer: A Concept: Product design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Information Technology 6) How can PLM software improve the efficiency and effectiveness of the product design process? A) It can eliminate the costs associated with creating and destroying physical prototypes. B) It can simulate how new products will be manufactured. C) It can store all the data associated with all products. D) All of the above Answer: A Concept: Product design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Information Technology 7) What issue did Airbus encounter when using CAD software to help design the A380 Superjumbo airliner? A) The actual A380 was heavier than the CAD model. B) The actual A380 was not able to carry as much weight as the CAD model. C) Design teams used different versions of the same CAD software, resulting in key information loss. D) The CAD software was not advanced enough to help design the A380. Answer: C Concept: Product design Objective: Learning Objective 2 Difficulty: Challenging AACSB: Information Technology 7

8) What is PLM and how management can use it to improve product design? Answer: PLM software can help improve the efficiency and effectiveness of the product design process. PLM software consists of three key components: computer-aided design (CAD) software to design new products, digital manufacturing software that simulates how those products will be manufactured, and product data management software that stores all the data associated with products. The potential benefits of PLM software are enormous. For example, General Motors estimates that it costs approximately $500,000 to run crash tests with real cars and hopes that CAD software can reduce the number of such tests by 85%. Concept: Product design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Information Technology 9) 65% to 80% of product costs are determined at the product design stage of the production process. Answer: TRUE Concept: Product design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3 Explain the key decisions and information needs in planning and scheduling production, the threats to those activities, and the controls that can mitigate those threats. 1) Identify a key feature associated with materials requirements planning. A) determining economic order quantity for all materials B) minimizing or eliminating carrying and stockout costs C) determining the optimal reorder points for all materials D) reducing required inventory levels by scheduling production, rather than estimating needs Answer: D Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) How does an MRP inventory system reduces inventory levels? A) by reducing the uncertainty regarding when materials are needed B) by receiving materials exactly when needed and in exact quantities C) by computing the exact costs of purchasing and carrying inventory D) none of the above Answer: A Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8

3) "Push manufacturing" is also known as A) manufacturing resource planning (MRP). B) just-in-time manufacturing system (JIT). C) the economic order quantity (EOQ) system. D) ahead-of-time production implementation (ATPI). Answer: A Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4) "Pull manufacturing" is also known as A) manufacturing resource planning (MRP). B) just-in-time manufacturing system (JIT). C) the economic order quantity (EOQ) system. D) ahead-of-time production implementation (ATPI). Answer: B Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) What is the main difference between MRP-II and JIT manufacturing systems? A) The length of the planning horizon B) JIT uses long-term customer demand for planning purposes, but MRP-II uses short-term customer demand for planning purposes. C) MRP-II relies on EDI, but JIT does not. D) There are no significant differences between MRP-II and JIT. Answer: A Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 6) A master production schedule is used to develop detailed A) timetables of daily production and determine raw material needs. B) reports on daily production and material usage. C) daily reports on direct labor needs. D) inventory charts. Answer: A Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

7) The is the production cycle document that specifies the quantity of each product to be produced and when production should begin. A) receiving report B) bill of lading C) master production schedule D) operations list Answer: C Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) What information is necessary to create the master production schedule? A) engineering department specifications and inventory levels B) engineering department specifications and sales forecasts C) special orders information and engineering department specifications D) sales forecasts, special orders information, and inventory levels Answer: D Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9) The authorizes the transfer of raw materials from the storeroom to the production floor. A) bill of materials B) production order C) materials requisition D) move ticket Answer: C Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) is an efficient way to track and process information about raw materials used in production. A) A just-in-time inventory system B) Identifying materials with bar codes or RFID tags C) A materials resources planning inventory system D) Job-order costing Answer: B Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 10

11) Yasamin Roshni owns and operates a small deli in Miami, Florida. Each morning she prepares a list that describes the quantity and variety of subs that will be prepared during the day. This list is an example of a(n) A) bill of materials. B) operations list. C) materials requisition. D) production order. Answer: D Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 12) Yasamin Roshni owns and operates a small deli in Miami, Florida. Each afternoon, she prepares a shopping list that describes the quantity and variety of ingredients that she will purchase in the evening from her wholesaler. The shopping list is an example of a(n) A) bill of materials. B) materials requisition. C) operations list. D) production order. Answer: B Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 13) Sule Technologies initiated a just-in-time inventory system in 2013. Now the production manager, Chan Ziaou, wants to apply the same principles to the entire production process. His recommendation is that Sule adopt a A) master production scheduling system. B) lean manufacturing system. C) manufacturing resource planning system. D) computer-integrated manufacturing system. Answer: B Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

14) This document appears to be a

A) Materials Requisition. B) Production Order. C) Bill of Materials. D) Move Ticket between production and warehouse functions. Answer: A Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 15) Identify and discuss the two common methods of production planning. Answer: The two common methods of production planning are manufacturing resource planning (MRP-II) and just-in-time (JIT,) or lean, manufacturing. MRP-II seeks to balance the existing production capacity and raw materials required to meet forecasted sales demand. MRP-II systems are referred to as push manufacturing, since products are made in expectation of customer demand. JIT manufacturing seeks to minimize or eliminate inventories of raw materials, work in process, and finished goods. A JIT manufacturing system only produces a product in response to customer demands. JIT systems are called pull manufacturing systems, since goods are produced only in response to customer demands. Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

16) MRP-II is to MRP, as lean manufacturing is to A) EOQ. B) JIT. C) push manufacturing. D) reorder point. Answer: B Concept: Planning and scheduling Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 17) Which process or activity relates to overproduction? A) product design B) planning and scheduling C) production operations D) cost accounting Answer: B Concept: Planning and scheduling Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4 Explain the key decisions and information needs in production operations, the threats to those activities, and the controls that can mitigate those threats. 1) The use of various forms of information technology in the production process is referred to as A) computerized investments and machines. B) computerized integration of machines. C) computer-integrated manufacturing. D) computer intense manufacturing. Answer: C Concept: Production operations Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 2) Using technology such as robots and computer-controlled machinery to shift from mass production to custom order manufacturing is referred to as A) computer integrated manufacturing (CIM). B) lean manufacturing. C) Six Sigma. D) computer-aided design (CAD). Answer: A Concept: Production operations Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 13

3) Explain what CIM means and its benefits. Answer: CIM is the acronym that stands for computer integrated manufacturing. It incorporates various forms of information technology in the production process such as the use of robots and computer-controlled machinery. The benefit of CIM is that it can significantly reduce production costs. Concept: Production operations Objective: Learning Objective 4 Difficulty: Easy AACSB: Information Technology 4) For replacement of inventories and assets destroyed by fire or other disasters, an organization needs A) stand-by facilities. B) adequate insurance coverage. C) source data automation. D) All of the above are correct. Answer: B Concept: Production operations Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 5) The acronym "RFP" stands for what? A) Request for Project B) Request for Processing C) Request for Proposal D) Request for Purchase Answer: C Concept: Production operations Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 6) The VP of Manufacturing at Roshanak Incorporated wants to buy a new die cast machine for production. The die cast machine is expected to cost around $1,000,000. Which document will most likely be used to solicit bids from suppliers? A) RFP B) eVoice C) RFJ D) RFB Answer: A Concept: Production operations Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 14

7) Maintaining physical custody of the raw materials and finished goods inventories is the responsibility of the accounting department. Answer: FALSE Concept: Production operations Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 8) What is a RFP and how can management use it to improve its production operations? Answer: A request for proposal specifies the desired properties of the asset, is sent to each prospective supplier. The capital investments committee should review the responses and select the best bid. Once a supplier has been selected, the acquisition of the asset may be handled through the regular expenditure cycle process. Specifically, a formal purchase order is prepared, receipt of the asset is formally documented using a receiving report, and a disbursement voucher is used to authorize payment to the supplier. The same set of processing controls and edit checks employed for other purchases also should be used for fixed-asset acquisitions. Concept: Production operations Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5 Explain the key decisions and information needs for accurate cost accounting, threats to those activities, and the controls that can mitigate those threats. 1) Which objective listed below is not a cost accounting objective for the production cycle? A) Provide information for planning, controlling, and evaluating the performance of production operations. B) Provide cost data about products used in pricing and product mix decisions. C) Collect and process the information used to calculate inventory and cost of goods sold amounts that appear in the financial statements. D) Provide tests of audit control functions as part of the AIS. Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

2) Which type of information below should not be maintained by the AIS in accounting for fixed assets? A) Identification/serial number . B) Cost. C) Improvements. D) Market value. Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 3) Detailed data about reasons for warranty and repair costs is considered an applicable control used to mitigate the threat of A) underproduction. B) overproduction. C) poor product design. D) suboptimal investment of fixed assets. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 4) What is the primary drawback to using a volume-driven base, such as direct labor or machine hours, to apply overhead to products in a traditional cost accounting system? A) The cost accountant may not fully understand how to track direct labor or machine hours. B) It is difficult for an AIS to incorporate such a measurement into its system. C) It is difficult for an ERP to incorporate such a measurement into its integrated system. D) Many overhead costs are incorrectly allocated to products since they do not vary with production volume. Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 5) identifies costs with the corporation's strategy for production of goods and services. A) Activity-based costing B) Job-order costing C) Process costing D) Manufacturing costing Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 16

6) In an Activity-Based Costing (ABC) system, a cause-and-effect relationship is known as a A) cost stimulator. B) overhead stimulator. C) cost driver. D) cost catalyst. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 7) What does the first term in the throughput formula, productive capacity, represent? A) The maximum number of units that can be produced given current technology. B) The percentage of total production time used to manufacture a product. C) The percentage of "good" units produced given current technology. D) The minimum number of units that can be produced given current technology. Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 8) are incurred to ensure that products are created without defects the first time. A) External failure costs B) Inspection costs C) Internal failure costs D) Prevention costs Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 9) are associated with testing to ensure that products meet quality standards. A) External failure costs B) Inspection costs C) Internal failure costs D) Prevention costs Answer: B Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

10) The cost of a product liability claim can be classified as a(n) A) prevention cost. B) inspection cost. C) internal failure cost. D) external failure cost. Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 11) Grizzly Delivery determines the cost per delivery by summing the average cost of loading, unloading, transporting, and maintenance. What costing approach does Grizzly Delivery use? A) job-order B) unit-based C) process D) activity-based Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 12) Grizzly Delivery determines the cost per delivery by averaging total cost over the number of deliveries. What costing approach does Grizzly Delivery use? A) unit-based B) job-order C) process D) activity-based Answer: B Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 13) Grizzly Delivery calculates the cost per delivery by identifying variables as cost drivers, and allocating overhead accordingly. What costing approach does Grizzly Delivery use? A) job-order B) activity-based C) unit-based D) process Answer: B Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 18

14) In activity-based costing, expenses associated with the purchase of health care insurance for employees are overhead. A) batch-related B) product-related C) company wide D) expenditure-based Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 15) In activity-based costing, the expenses associated with planning and design of new products are overhead. A) batch-related B) product-related C) company wide D) expenditure-based Answer: B Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 16) At the end of each production run, preventive maintenance is done on the assembly line. The expenses associated with this maintenance are overhead. A) batch-related B) product-related C) company wide D) department-based Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 17) Which of the following is not a benefit of activity-based costing? A) Lower cost. B) Better decisions. C) Improved cost management. D) Identification of cost drivers. Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 19

18) What types of data are accumulated by cost accounting? What is the accountant's role in cost accounting? Answer: There are four types of cost data accumulated in a cost accounting system: raw materials; direct labor; machinery and equipment; and, manufacturing overhead. The role of the accountant is to control costs by assessing how product mix changes affect total manufacturing overhead and by identifying factors that drive changes in costs. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 19) What role does the AIS play in the production cycle? Answer: A company's AIS plays a vital role in the production cycle. Accurate and timely cost accounting information is essential input to decisions about the following: Product mix (what to produce), Product pricing, Resource allocation and planning (e.g., whether to make or buy a product, relative profitability of different products), Cost management (planning and controlling manufacturing costs, evaluating performance). These decisions require much more detailed information about costs than the data needed to prepare financial statements in accordance with generally accepted accounting principles (GAAP). Thus, the design of a company's production cycle AIS must go beyond merely meeting external financial reporting requirements. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Challenging AACSB: Analytical Thinking 20) What are the two major types of cost accounting systems and what are the differences between the two? Answer: Most companies will use either job-order or process costing to assign production costs in the production of products. Job-order costing is designed to assign costs to specific production batches, or jobs (hence the name "job-order"). It is used in a production process where a product is specifically, discreetly identifiable (such as a custom-built home or office building). It should be noted that job-order costing can also be successfully used in the service sector by law or accounting firms to calculate and track the costs incurred in legal cases and audits, respectively. Process costing differs in that it assigns costs to each process, or work center, in the production cycle, and then averages these costs across the number of units produced. Process costing is useful whenever similar or homogeneous goods are produced in mass quantities, such as laundry detergent, some types of food items, or soft drinks. Costs can be assigned at each stage in the production process for these items, and then an average total unit cost for the product can be calculated based on output. Process costing has also been incorporated by mutual funds to find the average cost of handling customer deposits and withdrawals. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

21) Discuss the criticisms of traditional cost accounting methods. Answer: There can be an inappropriate allocation of overhead costs. The factors contributing to this problem are: A volume-driven form used for activity-driven overhead costs assigned to products. Overhead cost is either over- or understated due to allocation method used. The system may distort costs across products, especially if manufacturing is highly automated and performance measures do not accurately reflect the effects of factory automation: Measures collected are not integrated with performance measures. Lack of information about standard costs, variance, and functioning of production process. Lack of information about defect rates, breakdown frequency, percentage for finished goods completed without rework, etc. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 22) What is activity-based costing (ABC)? How does it compare with the traditional costing methods? What are the benefits of activity-based costing? Answer: Activity-based costing (ABC) traces costs to the activities that created them and then allocates those costs to products or shipments thereby linking the costs to a corporate strategy. ABC versus traditional cost systems: ABC attempts to directly trace most costs to products, ABC uses more cost pools to accumulate manufacturing overhead instead of lumping all overhead costs together as in the traditional approach. For example: 1) Batch-related overhead results in larger quantities having lower batch-related costs than smaller quantities; 2) Product-related overhead results in costs being allocated to only the product(s) that are linked to the cost; and 3) Company-wide overhead results in such overhead costs (e.g., rent) being allocated based on department or plant rates. ABC uses cost drivers that have a cause-and-effect relationship on the products in order to allocate the costs instead of using the traditional financial variables. Advantages of ABC systems: Better decisions can be made with an ABC system because product cost data is more accurate and data is used to improve product design. Improved cost management is seen due to four reasons: 1) There are clearer measures of managerial actions on profitability. 2) The consumption of resources is measured in addition to the amount spent on acquiring resources. 3) The cost of activity capability = Cost of activity used + Cost of unused capacity. 4) Performance reports help direct managerial attention to the effect of policy decision on all costs. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Challenging AACSB: Analytical Thinking

23) Traditionally, what did manufacturing firms use to track the amount of time a worker spends on each specific task? A) Job-time ticket. B) Sign-in sheet. C) Punch card. D) RFID tags. Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 24) Manufacturing overhead is best described as A) costs that cannot be traced directly to specific jobs or processes. B) costs that are economically feasible to trace directly to specific jobs or processes. C) costs that are not economically feasible to trace directly to specific jobs or processes. D) costs that management has decided not to trace directly to specific jobs or processes. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 25) Identify the cost below most likely to be classified as manufacturing overhead. A) Production workers' pay. B) Raw materials used in production. C) Insurance cost. D) Research and development cost. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 26) ERP systems make it easier for an organization to implement an activity based costing approach. Answer: TRUE Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

27) Which of the following is not proposed to be an advantage of activity-based costing? A) Better product mix decisions. B) Better product pricing decisions. C) Less complex than traditional cost systems. D) Better decision. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 28) Implementing a modern costing approach often results in short-term declines in profitability. Answer: TRUE Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 29) Discuss the role the accountant can play in the production cycle. Answer: The accountant can play a role and provide meaningful input into each area of the production cycle. Accountants should participate in product design since 65 to 80% of product costs are determined at this stage of the production process. Accountant analysis of cost behavior and variations in product design can prove invaluable to the organization in this stage of production. In the planning and scheduling stage, accountants can help a company choose whether MRP-II or JIT is more appropriate for planning and scheduling. The accountant also should verify that the AIS collects and reports costs in a manner consistent with the production planning techniques it has chosen to use. In production operations, the accountant should develop a working knowledge of CIM in order to understand its effect on the AIS. The accountant will also be integrally involved with the cost accounting system, whether it is a traditional cost accounting system or an activity-based cost accounting system. Accountants can provide excellent insight into the cost aspect of the production process, which is key to the profitability and success of the organization. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytical Thinking 30) Identify the role below that accountants can play in the production cycle. A) participate in product design B) perform cost analysis C) help an organization choose an inventory control system D) all of the above Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 23

31) Why might an organization find it most beneficial to involve accountants in product design? A) Because generally at least 65% of product costs are determined in the design stage and accountants can help minimize product costs B) Because accountants are generally able to improve the quality of new products C) Because involving accountants in product design boosts firm morale D) Because accountants are generally able to identify what consumers want in a new product Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 32) Direct labor must be tracked and accounted for as part of the production process. Traditionally, direct labor was tracked using but an AIS enhancement is to use to record and track direct labor costs. A) job-time tickets; coded identification cards B) move tickets; coded identification cards C) employee earnings records; job-time tickets D) time cards; electronic time entry terminals Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 33) Yasamin Roshni owns and operates a small deli in Miami, Florida. She maintains a file that contains the ingredients used to make each of her famous subs. The ingredients needed to make a specific sub are most similar to a(n) A) operations list. B) production order. C) bill of materials. D) materials requisition. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

34) Labor productivity is measured by the quantity produced divided by the labor time required to produce it. All other things held constant, an increase in labor productivity will increase throughput by A) increasing productive capacity. B) increasing productive processing time. C) increasing yield. D) increasing all components of throughput. Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 35) Sule Technologies installed a new production monitoring system that will reduce system breakdowns by 35%. The new system will increase throughput by A) increasing productive capacity. B) increasing yield. C) increasing productive processing time. D) increasing all components of throughput. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 36) Gulshan Parvana operates a machine shop in Istanbul, Turkey. She places bids on small projects in the metropolitan area. Which of the following is most likely to be a cost driver that should be considered when determining how to allocate utility costs? A) number of projects completed B) number of units produced C) number of labor hours D) sales revenue Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

37) How many side panels should the company budget for use in week two? Bill of Materials Finished Product: DVD Player Part Number Description 105 Control Unit 125 Back Panel 148 Side Panel 155 Top/Bottom Panel 173 Timer 195 Front Panel 199 Screw

Quantity 1 1 2 2 1 1 6

Operations List for: Create Side Panel Operation Number Description Machine Number 105 Cut to shape ML15-12 106 Corner cut ML15-9 124 Turn and shape S28-17 142 Finish F54-5 155 Paint P89-1

Standard Time (m:s) 2:00 3:15 4:00 7:10 9:30

Answer: 600 (2 per finished unit × 300 units scheduled to be produced) Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

38) How many labor hours should the company budget in week three to produce all side panels needed? Round to the nearest hour, if necessary. Bill of Materials Finished Product: DVD Player Part Number Description 105 Control Unit 125 Back Panel 148 Side Panel 155 Top/Bottom Panel 173 Timer 195 Front Panel 199 Screw

Quantity 1 1 2 2 1 1 6

Operations List for: Create Side Panel Operation Number Description Machine Number 105 Cut to shape ML15-12 106 Corner cut ML15-9 124 Turn and shape S28-17 142 Finish F54-5 155 Paint P89-1

Standard Time (m:s) 2:00 3:15 4:00 7:10 9:30

Answer: 213 hours ((25.55 minutes per finished unit × 2 panels per finished unit × 250 units scheduled to be produced)/60 minutes per hour ) Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

39) The expenses associated with a product recall are A) prevention B) inspection C) internal failure D) external failure Answer: D Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

costs.

40) costs are expenses associated with quality assurance activities. A) Prevention B) Inspection C) Internal failure D) External failure Answer: B Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 41) The expenses associated with the use of clean rooms in the production of computer hard drives are costs. A) prevention B) inspection C) internal failure D) external failure Answer: A Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 42) The expenses associated with disposal of defective products are A) prevention B) inspection C) internal failure D) external failure Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

costs.

43) In addition to identifying and dealing with defective products before they reach customers, quality management is concerned with initiating process changes that will reduce the number of defective units produced. All other things held constant, a decrease in the number of defective units will increase throughput by A) increasing productive capacity. B) increasing productive processing time. C) increasing yield. D) increasing all components of throughput. Answer: C Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 44) Discuss the three categories of overhead costs in an activity-based costing system. Answer: The three separate categories of overhead are: (1) Batch-related overhead. Examples include setup costs, inspections, and materials handling. Activity-based cost systems accumulate these costs for a batch and then allocate them to the units produced in that batch. Thus, products produced in large quantities have lower batch-related overhead costs per unit than products produced in small quantities. (2) Product-related overhead. These costs are related to the diversity of the company's product line. Examples include research and development, expediting, shipping and receiving, environmental regulations, and purchasing. Activity-based cost systems try to link these costs to specific products when possible. For example, if a company produces three product lines, one of which generates hazardous waste, an activity-based cost system would charge only that one set of products for all the costs of complying with environmental regulations. Other costs, such as purchasing raw materials, might be allocated across products based on the relative number of purchase orders required to make each product. (3) Companywide overhead. This category includes such costs as rent or property taxes. These costs apply to all products. Thus, activity-based cost systems typically allocate them using departmental or plant rates. Concept: Cost accounting Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 15 The Human Resources Management and Payroll Cycle 1 Describe the major business activities, key decisions, and information needs in the HRM/payroll cycle, the general threats to those activities, and the controls that can mitigate those threats. 1) Which activity below is not performed by Human Resources management (HRM)? A) Product design. B) Training. C) Job assignment. D) Recruitment and hiring. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) Which department should have the sole ability to provide information to the AIS about hiring, terminations, and pay rate changes? A) Accounting. B) Benefit. C) Production. D) HRM. Answer: D Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is generally not a major source of input to a payroll system? A) Payroll rate changes. B) Time and attendance data. C) Checks to insurance and benefits providers. D) Withholdings and deduction requests from employees. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) Who does the payroll system issue checks to? A) Employees and to banks participating in direct deposit. B) The company's payroll bank account. C) Insurance companies. D) All of the above are correct. Answer: D Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Experts estimate that, on average, the costs associated with replacing an employee are about the employee's annual salary. A) 0.5 time B) 1 time C) 1.5 times D) 2 times Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) For recording time spent on specific work projects, manufacturing companies usually use a A) job time ticket. B) time card. C) time clock. D) labor time card. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

7) Which of the following statements is false regarding the use of incentives, commissions and bonuses in the payroll system? A) Using incentives, commissions, and bonuses requires linking the payroll system and the information systems of sales and other cycles in order to collect the data used to calculate bonuses. B) Bonus/incentive schemes must be properly designed with realistic, attainable goals that can be objectively measured. C) Incentive schemes can result in undesirable behavior. D) Incentive schemes can create fraud. Answer: D Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 8) Identify the item below that is not a desired result of an employee bonus system. A) Employees may recommend unnecessary services to customers in order to exceed set sales quotas and earn a bonus. B) Employees may look for ways to improve service. C) Employees may analyze their work environment and find ways to cut costs. D) Employees may work harder and may be more motivated to exceed target goals to earn a bonus. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) are used to transmit time and attendance data directly to the payroll processing system. A) Badge readers B) Electronic time clocks C) Magnetic cards D) RFID tags Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

10) Payroll deductions fall into the broad categories of A) payroll tax withholdings; voluntary deductions B) unemployment; social security taxes C) unemployment taxes; income taxes D) voluntary deductions; income taxes Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

and

11) Which of the following is not classified as a voluntary deduction? A) Pension plan contributions. B) FICA. C) Health insurance premiums . D) Deductions for a charity organization Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) Which type of payroll report contains information such as the employees' gross pay, payroll deductions, and net pay in a multicolumn format? A) Payroll register. B) Deduction register. C) Employee earnings statement. D) Federal W-4 form. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) Which type of payroll report lists the voluntary deductions for each employee? A) Payroll register. B) Deduction register. C) Employee earnings statement. D) Federal W-4 form. Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

14) Which type of payroll report includes the details of the current paycheck and deductions as well as year-to-date totals? A) Payroll register. B) Deduction register. C) Employee earnings statement. D) Federal W-4 form. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 15) An effective way an organization can eliminate paper paychecks while maintaining adequate accounting records is to A) pay in cash only. B) pay with money orders. C) use direct deposit. D) use Electronic Funds Transfer. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) Many companies offer their employees a "cafeteria" approach to voluntary benefits in which employees can pick and choose the benefits they want. This plan is normally called a(n) A) elective plan. B) menu options benefit plan. C) flexible benefit plan. D) buffet plan. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 17) Pay rate information should be stored in A) employees' personnel files. B) employee subsidiary ledgers. C) the payroll master file. D) electronic time cards. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5

18) The payroll transaction file should contain A) entries to add new hires. B) time card data. C) changes in tax rates. D) All of the above are correct. Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 19) The document that lists each employee's gross pay, payroll deductions, and net pay in a multicolumn format is called A) an employee earnings statement. B) the payroll register. C) a deduction register. D) an employee time sheet summary. Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 20) As each payroll transaction is processed, the system should also A) allocate labor costs to appropriate general ledger accounts B) use cumulative totals generated from a payroll to create a summary journal entry to be posted to the general ledger C) both A and B above D) The HRM system should not perform either activity A or B. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

21) Direct deposit of employee paychecks is one way an organization can improve efficiency and reduce payroll-processing costs. Which statement regarding direct deposit is false? A) The cashier does not authorize the transfer of funds from the organization's checking account to a payroll checking account. B) The cashier does not have to sign employee paychecks. C) Employees who are part of a direct deposit program receive a copy of their paycheck indicating the amount deposited. D) Employees who are part of a direct deposit program receive an earnings statement on payday rather than a paper check. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 22) The employer pays a portion of some payroll taxes and employee benefits. Both the employee and employer pay which benefit or tax listed below? A) Social security taxes. B) Federal income taxes. C) State income taxes. D) Municipal taxes. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) Identify the following item that should contribute to the efficiency of a payroll system. A) Segregation of check distribution from payroll duties. B) Prompt redeposit of unclaimed paychecks. C) Use a separate payroll bank account. D) Direct deposit of checks. Answer: D Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

24) Which of the following documents would be likely to yield the greatest cost saving by converting from paper to electronic? A) Payroll register. B) Employee's earnings statement. C) Deduction register. D) Time card. Answer: D Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 25) Describe the basic activities in an HRM/payroll cycle. Answer: The HRM/payroll cycle is a recurring set of business activities and related data processing operations associated with effectively managing the employee work force. Important activities in the HRM/payroll cycle include the following tasks: Recruitment and hiring of new employees. Training. Job assignment. Compensation (payroll). Performance evaluation. Discharge. Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 26) Identify the two types of payroll deductions and give two examples of each type. Answer: Payroll deductions include: Payroll tax withholdings such as federal, state, and local income taxes, social security taxes, unemployment taxes; Voluntary deductions such as contributions to a pension plan, premium for group life, etc. Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 27) Why are accurate cumulative earnings records important? Answer: Accurate records of cumulative earnings are necessary because social security and other deductions have maximum earnings amounts upon which taxes are paid; and the appropriate amount of income and payroll taxes should be remitted to the government agencies. At the end of each calendar year, businesses must prepare and mail summary earnings statements to every employee with earnings that year. Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

28) Explain the functions of the payroll register, deduction register, and earnings statement. Answer: The payroll register is a report that lists each employee's gross pay, payroll deductions, and net pay for each pay period. The deduction register lists the voluntary deductions for each employee. The earnings statement lists the amount of gross pay, deductions, and net pay for the current period, as well as providing year-to-date totals. Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 29) Discuss the various types and sources of input into the HRM/payroll cycle. Answer: An HRM/payroll system relies on input from various sources. Employees provide input when they make changes in their discretionary deductions (contributions to charities or retirement plans); various departments provide data about the actual hours employees work. The HRM department provides information about employees who have been hired or terminated, pay-rate changes, and promotions. Government agencies provide tax rates and various instructions for meeting regulatory requirements. Insurance companies and other organizations provide instructions for calculating and remitting various withholding amounts. Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 30) A growing number of companies require some of their upper level executives to spend time performing job duties of rank-and-file employees. When the CEO of Loews Hotels assumed the role of bellman, he discovered A) that the company's polyester uniform caused him to sweat a great deal. B) evidence of fraud in several hotel locations. C) instances where company employees fell asleep on the job. D) situations where employees were not treating customers properly. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking

31) A growing number of companies require some of their upper level executives to spend time performing job duties of rank-and-file employees. When the vice president of DaVita Inc., a major provider of dialysis treatment, spent three days working in one of the company's clinics, she understood A) that the company's polyester uniform caused her to sweat a great deal. B) evidence of fraud in several clinic locations. C) how the need to respond to life-threatening emergencies can result in delays in completing corporate-mandated reports. D) situations where employees were treating customers properly. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 32) Executive immersion experiences are important because A) CEOs often have no idea what rank-and-file employees do on a daily basis. B) employees who have positive attitudes contribute to increasing company profits. C) many employees feel upper management is out of touch. D) it is important for organizations to take social responsibility seriously. Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 33) The HRM department should immediately delete records of employees who quit to prevent other employees from assuming their identities. Answer: FALSE Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 34) Involving accountants in executive compensation plans is often especially helpful A) in keeping track of the executive compensation plan. B) in identifying the appropriate metrics to use when linking compensation to performance. C) in reducing the total amount of compensation paid to executives. D) in suggesting the appropriate amount of compensation executives should be paid. Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

35) Accountants can help executive compensation plan boards A) comply with legal and regulatory requirements. B) by identifying the best ways to keep the details of compensation plans out of the hands of external parties. C) avoid paying excessive amounts of "perks" to executives. D) distribute information regarding how well each executive is performing their job. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 36) Which of the following controls can minimize the threat of theft or fraudulent distribution of paychecks? A) Redepositing unclaimed paychecks and investigating cause. B) Issuing earnings statements to employees. C) Using biometric authentication. D) Conducting criminal background investigation checks of all applicants for finance related positions. Answer: A Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 37) Which of the following controls can minimize the threat of inaccurate time and attendance data? A) Redepositing unclaimed paychecks and investigating cause. B) Issuing earnings statements to employees. C) Using biometric authentication. D) Conducting criminal background investigation checks of all applicants for finance related positions. Answer: C Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

38) Which of the following controls can minimize the threat of hiring unqualified or larcenous employees? A) Redepositing unclaimed paychecks and investigating cause. B) Issuing earnings statements to employees. C) Using biometric authentication. D) Conducting criminal background investigation checks of all applicants for finance related positions. Answer: D Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 39) Which of the following controls can minimize the threat of errors in processing payroll? A) Redepositing unclaimed paychecks and investigating cause. B) Issuing earnings statements to employees. C) Using biometric authentication. D) Conducting criminal background investigation checks of all applicants for finance related positions. Answer: B Concept: HRM/payroll cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain the payroll cycle activities, key decisions, and information needs, the threats to those activities, and the controls that can mitigate those threats. 1) The sales department administrative assistant has been assigning phone order sales to her brother-in-law, a company sales person. Company policy is to pay commissions only on orders directly received by sales people, not on orders received over the phone. The resulting fraudulent commission payments might best have been prevented by requiring that A) sales commission statements be supported by sales order forms signed by the customer and approved by the sales manager. B) sales order forms be prenumbered and accounted for by the sales department manager. C) sales orders and commission statements be approved by the accounting department. D) disbursement vouchers for commission payments be reviewed by the internal audit department and compared to sales commission statements and sales orders. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

2) Because many HRM / payroll master databases typically contain only descriptive information (such as which employees possess which skills), many firms have deployed to more effectively leverage employees knowledge and skills. A) relational databases B) knowledge management systems C) talent management systems D) cardinality systems Answer: B Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) Identify the firm below where employees' knowledge is likely to be more valuable than the value of a company's tangible assets. A) An international airline company. B) A law firm. C) An automobile manufacturer. D) A grocery store. Answer: B Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4) Batch processing continues to be widely used to process payroll transactions. Answer: TRUE Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) Knowledge management systems (KMS) permit organizations to A) store employee solutions to specific problems in a shared database. B) learn from individuals external to the organization. C) perform background checks on potential employees. D) gain competitive business intelligence on competitors. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

6) Why is a separate payroll account used to clear payroll checks? A) For internal control purposes, to help limit any exposure to loss by the company. B) To make bank reconciliation easier. C) To separate payroll and expense checks. D) All of the above are correct. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) Which of the following control can reduce the distribution of fraudulent paychecks? A) Have internal audit investigate unclaimed paychecks. B) Allow department managers to investigate unclaimed paychecks. C) Immediately mark "void" across all unclaimed paychecks. D) Match up all paychecks with time cards. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 8) When using electronic documents, A) access controls B) separation of duties C) general controls D) application controls Answer: D Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

increase(s) the accuracy of data entry.

9) The most vital control in preventing unauthorized changes to the payroll master file is A) segregation of duties between the preparation of paychecks and their review. B) segregation of duties between the preparation of paychecks and their distribution. C) segregation of duties between the authorization of changes and the physical handling of paychecks. D) having the controller closely review and then approve any changes to the master file. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

10) Which of the following is not a potential effect of inaccurate data on employee time cards? A) Increased labor expenses. B) Erroneous labor expense reports. C) Damaged employee morale. D) Inaccurate calculation of overhead costs. Answer: D Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 11) Which control would be most appropriate to address the problem of inaccurate payroll processing? A) Segregation of duties: HRM department updates master data, but only payroll department issues paychecks. B) Redepositing unclaimed paychecks and investigating cause. C) Cross-footing of the payroll register. D) An imprest payroll checking account. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 12) The purpose of a general ledger payroll clearing account is A) to check the accuracy and completeness of payroll recording and its allocation to cost centers. B) to make the bank reconciliation easier. C) to make sure that all employees are paid correctly each week. D) to prevent the cashier from having complete control of the payroll cycle. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 13) A "zero balance check" refers to which of the following control procedures? A) The ACH clearing account shows a zero balance once all entries are posted. B) cross-footing the payroll register C) The payroll clearing account shows a zero balance once all entries are posted. D) trial balance showing that debits equal credits Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

14) All of the following are controls that should be implemented in a payroll process, except A) supervisors distribute paychecks since they should know all employees in their department. B) someone independent of the payroll process should reconcile the payroll bank account. C) sequential numbering of paychecks and accounting for the numbers. D) restrict access to blank payroll checks and documents. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) What is the best control to reduce the risk of losing payroll data? A) Passwords. B) Physical security controls. C) Backup and disaster recovery procedures. D) Supervisory review. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 16) The threat of violation of employment laws relates directly to which activity? A) Payroll processing. B) The collection employee time data. C) Hiring and recruiting. D) Benefit processing. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17) What is a potential threat to the specific activity of payroll processing? A) Hiring unqualified employees. B) Poor system performance. C) Violations of employment laws. D) Unauthorized changes to the payroll master file. Answer: D Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

18) The results of an internal audit finds that there is a problem with inaccurate time data being entered into the payroll system. What is an applicable control that can help prevent this event from occurring in the future? A) Proper segregation of duties. B) Automation of data collection. C) Sound hiring procedures. D) Review of appropriate performance metrics. Answer: B Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 19) Which of the following is a control that can be implemented to help prevent paychecks being issued to a "phantom" or "ghost" employee? A) The cashier should sign all payroll checks. B) Sequentially prenumber all payroll checks. C) Use an imprest account to clear payroll checks. D) Paychecks should be physically distributed by someone who does not authorize time data or record payroll. Answer: D Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 20) The average annual management salary at Iyov Management is $100,000. If the average turnover rate for employees is six per year, what is the approximate average annual cost of turnover? A) $100,000. B) $400,000 C) $600,000. D) $900,000. Answer: D Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

21) Which of the following will limit a firm's potential loss exposure from paycheck forgery? A) Segregation of check distribution from payroll duties. B) Prompt redeposit of unclaimed paychecks. C) A separate payroll bank account. D) Direct deposit of checks. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 22) Which of the following is a control that addresses the threat of unauthorized changes to the payroll master file? A) Restriction of access to the EFT system. B) Biometric authentication. C) Segregation of duties. D) Sound hiring procedures. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 23) For the payroll register below, all the following data entry controls would be useful except

A) Validity check on Fed. Tax. B) Sequence check on Employee No. C) Limit check on Hours. D) Field check on Pay Rate. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

24) For the payroll register below, all the following processing controls would be useful except

A) Concurrent update control. B) Cross-footing balance test. C) Mathematical accuracy test. D) Hash total on Employee No. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 25) Describe benefits and threats of incentive and bonus programs. Answer: Sales staffs are often paid either on a straight commission basis or a combination of a salary plus commissions. This is done to keep sales at a certain level or to increase sales. The HRM/payroll system will need input from the sales and other cycles to properly calculate commissions and bonuses for such employees. It is important that an incentive and bonus system sets realistic, attainable goals that are congruent with corporate objectives. It is also important that managers monitor incentive and bonus goals and ensure that the attainment of such goals is appropriate for the organization and does not lead to undesirable behavior, which can result from poorly designed incentive schemes. Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 26) Explain benefits to companies and to employees using electronic direct deposit for payroll. Answer: Direct deposit of paychecks provide a savings to employers because the costs of purchasing, processing, and distributing paper checks is eliminated. Using direct deposit also reduces postage and bank fees. The cashier's time can be better spent because paychecks do not have to be signed. Employees save time as well as they do not have to make a physical trip to the bank to cash their checks. Direct deposit is safer as it eliminates misplaced paychecks and reduces the possibility of the theft of checks. Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

27) What factors should be considered in outsourcing payroll to a payroll service bureau? Discuss the advantages and disadvantages of using a payroll service bureau to process a payroll. Answer: The following questions should be considered: How much does the service cost? How would the data be submitted—online or hand carried? What kind of reports and documents could be obtained from the service bureau? How would the service interface with the existing general ledger system? What resources are now being devoted to payroll and how could these resources be re-deployed into other areas? Could security and control be improved by the outsourcing? What would be the time length of a contract for outsourcing services? Could the service bureau system be integrated so that an online query could be made by the organization? What kind of track record does the service bureau have with other clients? Are there new technologies and approaches that would become available to the company via the service bureau? Advantages: No need to deal with complexity and changes in tax codes. No need to worry about what to do if equipment crashes. Less chance of employees accessing the payroll files (confidentiality). Possible efficiency and cost reductions. Wider range of benefits. Freed-up computer resources. Disadvantages: Less control over the payroll files because they are stored off-site. Extra costs for any special reports. Slower response to ad hoc queries. Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 28) Discuss the threat of unauthorized changes to the payroll master file and its consequences. Answer: Many problems may result when there are unauthorized changes to the payroll master file. Unauthorized changes may be made to employee pay rates, resulting in the company paying too much in wages. "Ghost" or "phantom" employees may be added to the payroll master to divert funds to dishonest employees through the issuance of paychecks to such "employees." Likewise, terminated employees may still be paid, resulting in the fraudulent diversion of payroll funds. Two controls that should be implemented and maintained to provide overall control of the payroll master file: proper segregation of duties and controlling access to the file. Good internal control dictates that only authorized HRM personnel be allowed to update the payroll master file for any hiring, termination, pay raise, and promotion. HRM personnel, who have such access to the payroll master file, should never be allowed to directly participate in actual payroll processing or paycheck distribution. This way an adequate control is created to match actual paychecks (or earnings statements when direct deposit is in place) with employees when a manager, supervisor, or other third party hand out the checks (or earnings statements). Also, a different individual should approve all changes to the payroll master file in writing other than the individual who recommends or initiates the changes. User IDs and passwords should always be used to control access to the payroll master file, and an access control matrix should be established to define what actions each authorized employee is allowed to make and confirms the files the employee may access. Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking

29) What controls are available to address the threat of payroll errors? Answer: Three types of controls can be used to circumvent payroll errors in an HRM/payroll system. Batch totals are used to verify totals entered into the system both at the time of data entry and at each stage in the processing. Hash totals are particularly useful in this regard, since hash totals calculated at the time of original data entry and again at each stage in the process can be compared. When the comparisons match throughout the process, three conclusions can be made: 1) all payroll records have been processed; 2) the data input was accurate; and 3) no bogus time cards were entered at any point after initial input. Upon completion of a payroll, the payroll register should be cross-footed to verify that the totals of the net pay column and other deduction columns equal the total of the gross pay column. A third control is the use of a payroll clearing account. This is a general ledger account that can be used as part of a two-step accuracy and completeness process. First, the payroll control account will be debited for the amount of the gross pay for the pay period; cash and other various withholding liability accounts are credited. Second, the cost accounting process distributes labor costs to various expense categories and credits the payroll control account for the total amount of the debits made to the other accounts. The result is that the payroll control account will have a zero balance. This becomes an internal check known as a zero balance check, indicating that the proper postings have been made to all of the accounts associated with payroll for a given pay period. Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 30) Using financial incentives requires organizations to A) pay employees less than they would have to if pay was a fixed salary. B) better monitor employee attendance. C) link the payroll system to other cycles to calculate incentive payments. D) better monitor employee effort. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 31) Source data automation is often effective in reducing A) unintentional errors. B) intentional errors. C) accuracy. D) theft. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

32) A payroll clearing account is used to A) check the accuracy of payroll costs. B) speed up payroll transaction processing. C) reduce the transaction costs associated with payroll transaction processing. D) eliminate the need to manually record payroll transactions. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 33) All of the following regarding payroll checks is correct except A) access to payroll checks should be restricted. B) payroll checks should be sequentially pre-numbered. C) payroll checks should be drawn on the organization's regular bank account(s). D) the cashier should sign payroll checks. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 34) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM / payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding payroll disbursement processes. For strongest segregation of duties, the should distribute paychecks. A) accounts payable department B) cashier C) internal audit department D) external auditor Answer: B Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

35) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM / payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding payroll disbursement processes. For strongest segregation of duties, the should record payroll. A) accounts payable department B) cashier C) internal audit department D) external auditor Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 36) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM / payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding payroll disbursement processes. For strongest segregation of duties, the should periodically observe the paycheck distribution process. A) accounts payable department B) cashier C) internal audit department D) external auditor Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 37) Form 941 A) is filed each quarter to reconcile monthly tax payments with total tax liability for the quarter. B) is used in preparing labor-related reports for government agencies. C) is used for employee information and annual payroll reports. D) is used to document compliance with applicable regulations. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

38) A report of income paid to independent contractors is called A) form W-2. B) form W-3. C) form 1099-Misc. D) form 941. Answer: C Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 39) A report of wages and withholdings for each employee is called A) form W-2. B) form W-3. C) form 1099-Misc. D) form 941. Answer: A Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 40) A report of employer's quarterly federal tax return (showing all wages subject to tax and amounts withheld for income tax and FICA) is called A) form W-2. B) form W-3. C) form 1099-Misc. D) form 941. Answer: D Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 41) A workforce inventory report A) is filed each quarter to reconcile monthly tax payments with total tax liability for the quarter. B) is used in preparing labor-related reports for government agencies. C) is used for employee information and annual payroll reports. D) is used to document compliance with applicable regulations. Answer: B Concept: Payroll cycle activities Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytical Thinking

3 Discuss and evaluate the options for outsourcing HRM/payroll cycle activities. 1) Companies that specialize in processing payroll are known as A) paycheck distribution companies. B) payroll service bureaus. C) professional employer organizations. D) semi-governmental organizations. Answer: B Concept: HRM/payroll outsourcing options Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Which organization provides payroll processing as well as other HRM services, like employee benefit design and administration? A) title companies B) payroll service bureau C) professional employer organization D) paycheck distribution companies Answer: C Concept: HRM/payroll outsourcing options Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is not a benefit of using a payroll service bureau or a professional employer organization? A) freeing up of computer resources B) increased internal control C) reduced costs D) wider range of benefits Answer: B Concept: HRM/payroll outsourcing options Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4) What is the difference between a payroll service bureau and a professional employer organization? Answer: A payroll service bureau is a company that can be hired as an independent contractor to maintain the payroll master file and perform the payroll processing activities for an organization. A professional employer organization is a company that provides not only full payroll services but also provides HRM services such as employee benefit design and administration. Concept: HRM/payroll outsourcing options Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 25

5) Professional employer organizations (PEOs) are especially attractive to small and mid-sized businesses for all of the following reasons except A) reduced costs. B) wider range of benefits. C) freeing up computer resources. D) improved service quality. Answer: D Concept: HRM/payroll outsourcing options Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 6) Discuss the reasons small and midsized businesses are attracted to payroll service bureaus and PEOs. Answer: Payroll service bureaus and PEOs are especially attractive to small and midsized businesses for the following reasons: (1) Reduced costs. Payroll service bureaus and PEOs benefit from the economies of scale associated with preparing paychecks for a large number of companies. They can charge fees that are typically less than the cost of doing payroll in-house. A payroll service bureau or PEO also saves money by eliminating the need to develop and maintain the expertise required to comply with the constantly changing tax laws. (2) Wider range of benefits. PEOs pool the costs of administering benefits across all their clients. Consequently, a PEO enables smaller companies to offer the same wide range of benefits that large companies typically provide. (3) Freeing up of computer resources. A payroll service bureau or PEO eliminates one or more accounting information system (AIS) applications (payroll and benefits management). The freed-up computing resources can then be used to improve service in other areas, such as sales order entry. Concept: HRM/payroll outsourcing options Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 16 General Ledger and Reporting System 1 Describe the activities, information needs, and key decisions made in the general ledger and reporting system, explain the general threats in the cycle, and describe the controls that can be used to mitigate those threats. 1) The general ledger and reporting system consists of the general ledger and reports. A) business transactions; updating; processing B) data processing; business transactions for; printing C) information processing; updating; creating D) business transactions; data processing; preparing Answer: C Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

involved in

the

2) Which item below is not considered a major input to the general ledger and reporting system? A) summary entries from the major subsystems B) reports from managers C) adjusting entries D) financing and investing activities Answer: B Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following user groups generally receive information produced by the general ledger and reporting system? A) internal users B) external users C) inquiry processing by internal or external users D) all of the above Answer: D Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) The general ledger system of an organization should be designed to serve the information requirements of both internal and external users. This means that the system should support A) producing expansive regular periodic reports to cover all information needs. B) the real-time inquiry needs of all users. C) producing regular periodic reports and respond to real-time inquiry needs. D) access by investors and creditors of the organization to general ledger balances. Answer: C Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5) Identify the most correct statement with regard to how the various accounting subsystems update the general ledger. A) Individual journal entries for each accounting subsystem transaction update the general ledger every 24 hours. B) Summary journal entries that represent the results of all transactions for a certain time period are used to update the general ledger. C) The controller or treasurer must approve accounting subsystem journal entries before any updating may occur. D) Nonroutine transactions are entered into the system by the treasurer's office. Answer: B Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 6) When updating the general ledger, sales, purchases, and production are examples of entries, and issuance or retirement of debt and the purchase or sale of investment securities are examples of entries. A) adjusting; controller originated B) accounting subsystem; treasurer originated C) adjusting; special journal D) controller generated; special journal Answer: B Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

7) Which of the following are used to document entries made to update the general ledger? A) general journal B) subsidiary journal C) subsidiary ledgers D) journal vouchers Answer: D Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the following controls can minimize the threat of inaccurate or invalid general ledger data? A) Training and experience in applying IFRS and XBRL. B) Responsibility accounting. C) Backup and disaster recovery procedures. D) Restriction of access to general ledger. Answer: D Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 9) Which of the following controls can minimize the threat of loss or destruction of data? A) Training and experience in applying IFRS and XBRL. B) Responsibility accounting. C) Backup and disaster recovery procedures. D) Restriction of access to general ledger. Answer: C Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following controls can minimize the threat of poorly designed reports and graphs? A) Training and experience in applying IFRS and XBRL. B) Responsibility accounting. C) Backup and disaster recovery procedures. D) Restriction of access to general ledger. Answer: B Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

11) Which of the following controls can minimize the threat of inaccurate financial statements? A) Training and experience in applying IFRS and XBRL. B) Responsibility accounting. C) Backup and disaster recovery procedures. D) Restriction of access to general ledger. Answer: A Concept: Revenue cycle information system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) Describe three threats in the general ledger and reporting system and identify corresponding controls for each threat. Answer: THREAT 1: Errors in updating the general ledger because of inaccurate/incomplete journal entries or posting of journal entries — Controls: (1) Input, edit, and processing controls over summary entries from subsystems. (a) Validity check over existence of general ledger accounts. (b) Field check over numeric data in amount field. (c) Zero-balance check ensures equality of debits and credits (d) Completeness test — all pertinent data are entered (e) Redundant data check — closed loop verification to see if on account numbers and descriptions, to ensure that the correct general ledger account is being accessed (f) Standard adjusting entry file for recurring entries — improves accuracy of the process (g) Sign check on debit and credit entries (h) Calculation of run-to-run totals can verify the accuracy of journal voucher batch processing (2) Reconciliation and control reports — can detect errors made during updating and processing; trial balances, clearing, and suspense accounts are examples (a) Balancing of control and subsidiary accounts (b) Control reports can help identify the source of errors in the general ledger update process — listings of journal vouchers and general journal entries will show entries posted to the general ledger and ensures equality of debits and credits (3) The audit trail — the path of transactions through the system-should be able to perform the following tasks: (a) Trace any transaction from its original source document to the general ledger; any other document or report using that data (b) Trace any item from a report or an output document to the general ledger and thence to the source document (c) Trace all changes in the general ledger balances from their beginning balance to their ending balance. THREAT 2: Loss or unauthorized disclosure or alteration of financial data — Controls: (1) User IDs, passwords, and access controls should be used (2) Enforce segregation of duties (3) Adjusting entries only from the controller's area (4) Valid authorization for journal voucher submission. THREAT 3: Loss or destruction of the general ledger — Controls: (1) Use of internal and external file labels to protect from accidental data loss (2) Make regular backup copies of the general ledger, one copy stored off-site (3) A good disaster recovery plan and (4) access and processing integrity controls to ensure confidentiality and accuracy of data transmitted to branch offices or externally. THREAT 4: Poor performance — Controls: (1) XBRL, (2) redesign business processes, and (3) redesign metrics used to report results of business activities. Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 4

13) Identify one way "rainbow tables" are often used. A) To discover plaintext passwords associated with a hash. B) To integrate different tables into one, master table. C) To perform a zero-balance check. D) To ensure referential integrity of all the associated tables. Answer: A Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 14) What system privileges should an employee involved in the general ledger and reporting system be given? A) General privileges to create, delete, update, or modify data. B) No privileges permitting the creation, deletion, updating, or modification of data. C) Only the specific privileges necessary to perform an employee's assigned duties. D) Read-only privileges. Answer: C Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 15) What control procedure(s) should be used to reduce the risk of unauthorized disclosure of the financial statements? A) Multifactor authentication. B) Physical security. C) Encryption. D) All of the above. Answer: D Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) What control procedure(s) should be used to reduce the risk of the destruction of financial statement master data? A) Multifactor authentication. B) Backup and disaster recovery. C) Encryption. D) All of the above. Answer: B Concept: General ledger and reporting system Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5

2 Explain the process for updating the general ledger, the threats to that process, and the controls that can be used to mitigate those threats. 1) A listing of journal vouchers by numerical sequence, account number, or date is an example of A) a general ledger control report. B) a budget report. C) a batch to be processed. D) responsibility accounting. Answer: A Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 2) Who generally is responsible for providing the accounting department with information about financing and investing activities to create the appropriate general ledger journal entries? A) The budget department. B) The CFO. C) The treasurer. D) The CEO. Answer: C Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Explain the purpose of a journal voucher file. Answer: A journal voucher is a form on which journal entries to update the general ledger are documented. The individual entries are stored in the journal voucher file. This file is equivalent to the general journal in a manual AIS. The journal voucher file forms an important part of the audit trail as well. Various internal controls must be implemented in order to maintain adequate security and access control over the file, because it provides a way to alter and change the data contained in the general ledger. Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

4) If you believe not all adjusting entries were posted in the general ledger, you should prepare a general ledger control report listing journal vouchers in A) numerical sequence. B) chronological order. C) general ledger account number order. D) any order, since you have to review them all anyway. Answer: A Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 5) If you believe a general ledger account was not adjusted properly or at all, you should prepare a general ledger control report listing journal vouchers in A) numerical sequence. B) chronological order. C) general ledger account number order. D) any order, since you have to review them all anyway. Answer: C Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 6) Which of the following are appropriate controls for the general ledger and reporting system? A) Using well-designed documents and records. B) Online data entry with the use of appropriate edit checks. C) Prenumbering documents and accounting for the sequence numbers. D) All of the above are appropriate. Answer: D Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 7) Which of the following tasks are facilitated by maintaining a strong and secure audit trail? A) Tracing a transaction from original source document to the general ledger to a report. B) Tracing an item in a report back through the general ledger to the original source document. C) Tracing changes in general ledger accounts from beginning to ending balances. D) All of the above are facilitated by the audit trail. Answer: D Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

8) How is an audit trail used in the general ledger and reporting system? Answer: An audit trail shows the path of a transaction through the accounting system. It can provide information needed to trace any changes made to the general ledger by tracing either to or from an original source document to the general ledger. It helps in tracing all changes in general ledger accounts from beginning balances to ending balances as well as any adjustments made to the accounts. Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) It is important to verify that all temporary accounts have a zero balance at least two times during the time period covered by the financial statements. Answer: FALSE Concept: Updating the general ledger Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3 Explain the purpose and nature of posting adjusting entries, the threats to that process, and the controls that can be used to mitigate those threats. 1) Who should provide the adjusting entries in a well-designed general ledger and reporting system? A) Various user departments. B) The treasurer department. C) Anyone who has access to the other major AIS subsystems. D) The controller office. Answer: D Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Not all journal entries affect cash flow. Adjusting entries that reflect events that have already occurred, but have no effect on cash, are classified as A) accruals. B) deferrals. C) revaluations. D) corrections. Answer: A Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

3) Recording interest earned on an investment is an example of which type of adjusting journal entry? A) Accrual entry. B) Deferral entry. C) Closing entry. D) Correcting entry. Answer: A Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) Identify the adjusting entry that is made at the end of an accounting period to reflect an exchange of cash prior to the performance of a related event is classified as a(n) A) Accrual entry. B) deferral entry. C) Closing entry. D) Correcting entry. Answer: B Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) Depreciation expense and bad debt expense are examples of which type of adjusting journal entry? A) Deferrals. B) Accruals. C) Closing. D) Estimates. Answer: D Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) Adjusting entries that are made to reflect differences between the actual and recorded value of an asset or a change in accounting principle are called A) reconciliations. B) revaluations. C) estimates. D) accruals. Answer: B Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9

7) Adjusting entries that are made to counteract the effects of errors found in the general ledger are called A) accruals. B) corrections. C) deferrals. D) estimates. Answer: B Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) Corrections are entries made to correct errors found in A) all journals. B) special journals. C) the general ledger. D) the financial statements. Answer: C Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 9) Immediately after the adjusting entries are posted, the next step in the general ledger and reporting system is to prepare A) an adjusted trial balance. B) closing entries. C) financial statements. D) an unadjusted trial balance. Answer: A Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) Adjusting entries that are made to recognize revenue that has been received but not yet earned are classified as A) estimates. B) deferrals. C) accruals. D) revaluations. Answer: B Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 10

11) Adjusting entries that reflect a change in accounting principle used to value inventories are classified as A) corrections. B) estimates. C) deferrals. D) revaluations. Answer: D Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 12) A type of data entry control that would ensure that adjusting entries are posted to existing general ledger accounts is called a(n) check. A) validity B) existence C) closed loop verification D) reasonableness Answer: A Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 13) One way of ensuring that recurring adjusting journal entries are made each month would be to A) make all the entries a month in advance. B) rotate the responsibility among the accounting staff. C) program the entries to be made automatically. D) create a standard adjusting journal entry file. Answer: D Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

14) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "The account number referenced in your journal entry does not exist. Create a new account?" This is an example of a A) validity check. B) closed loop verification. C) zero-balance check. D) completeness test. Answer: A Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 15) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "Your journal entry must be a numeric value. Please reenter." This is an example of a A) validity check. B) field check. C) zero-balance check. D) completeness test. Answer: B Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "The amounts debited and credited are not equal. Please correct and try again." This is an example of a A) validity check. B) field check. C) zero-balance check. D) completeness test. Answer: C Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

17) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following error message while making an adjusting entry to the general ledger: "The data you have entered does not include a source reference code. Please enter this data before saving." This is an example of a A) validity check. B) field check. C) zero-balance check. D) completeness test. Answer: D Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 18) Periodic account reconciliations are a control that can be used to reduce the risk of employees creating unauthorized adjusting entries. Answer: FALSE Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 19) Cash is a component of the adjusting entry. Answer: FALSE Concept: Posting adjusting entries Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4 Explain the process of preparing financial statements, the threats to that process, the controls that can be used to mitigate those threats, and how IT developments such as XBRL can improve the efficiency and effectiveness of preparing financial statements. 1) Financial statements are prepared in a certain sequence. Which statement is prepared first? A) The adjusted trial balance. B) The income statement. C) The balance sheet. D) The statement of cash flows. Answer: B Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

2) Which of the following statements is not true regarding XBRL? A) XBRL is a variant of XML. B) XBRL is specifically designed for use in communicating the content of financial data. C) XBRL creates unique tags for each data item. D) XBRL's adoption will require accountants and systems professionals tag data for their clients. Answer: D Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Information Technology 3) The benefits of XBRL include A) organizations can publish financial information only once, using standard XBRL tags. B) tagged data is readable and interpretable by computers, so users don't need to re-enter data in order to work with it. C) Both are benefits of XBRL. D) Neither is a benefit of XBRL. Answer: C Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Information Technology 4) Communications technology and the Internet can be used to reduce the time and costs involved in disseminating financial statement information. Users of such financial information still struggle in that many recipients have different information delivery requirements and may have to manually reenter the information into their own decision analysis tools. The ideal solution to solve these problems and efficiently transmit financial information via the Internet is to use A) HTML. B) XML. C) ACH. D) XBRL. Answer: D Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Easy AACSB: Information Technology

5) Which of the following statements is not true about an XBRL instance document? A) An instance document includes instruction code as to how the document should be physically arranged and displayed. B) An instance document contains facts about specific financial statement line items. C) An instance document uses separate tags for each specific element. D) An instance document can be used to tag financial and nonfinancial elements. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Challenging AACSB: Information Technology 6) IFRS stands for A) International Financial Reporting Standards. B) International Forensic Response System. C) International and Financial Reporting Statements. D) International Financial Recovery System. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 7) Which of the following is true about IFRS? A) There is a global trend towards using IFRS for reporting purposes, though U.S. companies are not currently required to do so. B) The switch to IFRS is required by the Sarbanes-Oxley Act. C) IFRS is only slightly different than U.S. GAAP. D) The switch to IFRS is cosmetic only—there isn't any real impact on AIS. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

8) Which of the following scenarios will not be allowed under IFRS? A) A landscaping and garden retail store keeps piles of river rock, gravel, paving stones, and small decorative rocks in a fenced area on the side of the store. The store uses the most recent inventory costs when calculating cost of goods sold, since new inventory is piled on top of the older inventory. B) A grocery store strictly enforces a shelf rotation policy, so that older inventory is always at the front and sold first. The store uses the oldest inventory costs to calculate cost of goods sold. C) A farm chemical supplier maintains a large holding tank of chemicals, into which deliveries are periodically combined with the older chemicals. The supplier averages the cost of all inventory to calculate cost of goods sold. D) All of the above are acceptable under IFRS. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking 9) Which of the following is true about accounting for fixed assets? A) Depreciation expense under IFRS will likely be higher than under GAAP, because acquisitions of assets with multiple components must be separately depreciated under IFRS, whereas under GAAP assets could be bundled and depreciated over the longest of the useful life for any of the components. B) IFRS doesn't allow capitalization of any asset that separately accounts for less than 20% of total assets. C) Depreciation expense under IFRS will likely be less than under GAAP, because standards for depreciable lives on asset classes are much longer than under GAAP. D) IFRS and GAAP account for fixed assets in much the same way. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking 10) Explain the benefits of XBRL. Answer: XBRL (Extensible Business Reporting Language) is a variation of XML, which is designed to communicate the content of data. XML improves upon HTML by being able to describe the content of the data presented. However, XML is limited when communicating financial information. For financial purposes, XBRL identifies each piece of data, along with how the data should be processed and how the data relate to other data items. XBRL may soon become the universal standard computer language for communicating financial data. XBRL enables organizations to publish financial information only once, using standard XBRL tags. XBRL tagged information is interpretable and doesn't need to be re-entered by users. Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Challenging AACSB: Information Technology 16

11) Identify the year the SEC will require American companies to switch from U.S.-based GAAP to IFRS as the basis for preparing financial statements. A) 2016 B) 2018 C) 2020 D) At this point it is unclear when the SEC will require American companies to implement IFRS, though the SEC remains committed to requiring U.S. companies use IFRS at some point. Answer: D Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 12) A major way in which IFRS differs from GAAP that will affect the design of a company's general ledger and reporting system is an IFRS principle known as A) componentization. B) monetization. C) securitization. D) centralization. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking 13) At a minimum, a switch to IFRS from GAAP will affect companies' accounting information system by A) requiring companies to increase the processing power of their existing accounting information systems. B) requiring IT departments to hire programmers that are fluent in languages besides English. C) requiring the creation of additional fields in research and development (R&D) records to capture information about the stage of research and development that costs are incurred in. D) requiring firms to completely redesign their existing accounting information systems because current systems are not compatible with IFRS accounting principles. Answer: C Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking

14) XBRL stands for A) extensible business reporting language. B) external business reporting ledgers. C) external business reporting language. D) extensive business report logic. Answer: A Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 15) The SEC requires U.S. companies to use XBRL when submitting their filings. Answer: TRUE Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 16) Each specific data item in an XBRL document is called a(n) A) taxonomy. B) element. C) instance. D) schema. Answer: B Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 17) Standard XBRL taxonomies can cover most accounting situations. Answer: FALSE Concept: Preparing financial statements Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

5 Describe the process for producing various managerial reports, the threats to that process, and how tools like responsibility accounting, the balanced scorecard, and well-designed graphs can help mitigate those threats. 1) The is the managerial report that shows planned cash inflows and outflows for major investments or acquisitions. A) journal voucher list B) statement of cash flows C) operating budget D) capital expenditures budget Answer: D Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 2) The operating budget A) compares estimated cash flows from operations with planned expenditures. B) shows cash inflows and outflows for each capital project. C) depicts planned revenues and expenditures for each organizational unit. D) is used to plan for the purchase and retirement of property, plant, and equipment. Answer: C Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 3) Budgets used for internal planning purposes and performance evaluation should be developed on the basis of A) responsibility accounting. B) generally accepted accounting principles. C) financial accounting standards. D) managerial accounting standards. Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

4) Performance reports for cost centers should compare actual versus budget A) controllable B) uncontrollable C) fixed D) variable Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

costs.

5) Performance reports for sales departments should compare actual revenue versus budgeted A) revenue. B) cost. C) return on investment. D) profit. Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 6) Departments that mostly provide services to other units and charge those units for services rendered should be evaluated as centers. A) cost B) profit C) investment D) revenue Answer: B Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 7) As responsibility reports are rolled up into reports for higher level executives, they A) become less detailed. B) become more detailed. C) become narrower in scope. D) become wider in scope. Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking

8) Variances for variable costs will be misleading when the planned output differs from budgeted output. A solution to this problem would be A) to use a stricter budgeting process. B) to use flexible budgeting. C) to better predict the final output. D) to allow more judgement involve in the budgeting process. Answer: B Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 9) Which of the following balanced scorecard dimensions provides measures on how efficiently and effectively the organization is performing key business processes? A) Financial. B) Internal operations. C) Innovation and learning. D) Customer. Answer: B Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following balanced scorecard dimensions provides measures on how well the organization is generating sales? A) Financial. B) Internal operations. C) Innovation and learning. D) Customer. Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

11) Which of the following balanced scorecard dimensions provides measures on how well the organization is developing new products and training its workforce to continuously improve service and results? A) Financial. B) Internal operations. C) Innovation and learning. D) Customer. Answer: C Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 12) Which of the following balanced scorecard dimensions provides measures on how well the organization is working to improve customer satisfaction and become the preferred supplier for key customers? A) Financial. B) Internal operations. C) Innovation and learning. D) Customer. Answer: D Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the following is not one of the principles of proper graph design for bar charts? A) Include data values with each element. B) Use 3-D rather than 2-D bars to make reading easier. C) Use colors or shades instead of patterns to represent different variables. D) Use titles that summarize the basic message. Answer: B Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

14) Which of the following statements is true about the chart below?

A) The x-axis is in reverse chronological order, which violates a principle of proper graph design. B) The chart appears to conform to the principles of proper graph design. C) The vertical axis doesn't appear to start at the origin (zero). D) The chart used 2-D bars instead of 3-D, which violates a principle of proper graph design. Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 15) What is responsibility accounting? Answer: Responsibility accounting involves the reporting of financial results on the basis of managerial responsibilities within an organization. Reports show actual amounts and variances to budget for the current month and year to date for items controllable at that level. Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

16) How is a balanced scorecard used to assess organizational performance? Answer: The balanced scorecard contains four perspectives of measurement of the organization. The perspectives are financial, internal operations, innovation and learning, and customer. Together these different perspectives provide a dimensional overview of organizational performance that is greater than financial measures alone. A scorecard that has been properly designed will measure key aspects of the organization's strategy as well as show important links across the perspectives or dimensions. Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 17) Discuss the value and role of budgets as managerial reports. Answer: Budgets are managerial reports that can be extracted from the general ledger and reporting system. Budgets are used for planning and evaluating the organization's performance. There are several different types of budgets that an organization may use in this regard. The operating budget shows the planned revenues and expenditures for each organizational unit. Cash flow budgets compare the estimated cash inflows from operations with planned expenditures, and they are particularly useful to determine the borrowing needs of the organization. A capital expenditure budget shows the projected cash inflows and outflows for a given project. Budgetary reports should be tailored to the nature of the unit or department being evaluated, and they should show actual versus projected budget amounts. Unfortunately, many budget amounts are viewed as fixed targets, and they are therefore static and inflexible. Such an approach may either reward or penalize managers for factors that are beyond their control. A solution to this problem is to develop a flexible budget, in which variable budgeted amounts change in relation to some measure of organizational activity, such as labor hours, or a percentage of sales. A flexible budget may also break amounts into their respective fixed and variable components. Variable amounts can then be adjusted for fluctuations in sales or production. Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 18) The balanced scorecard attempts to solve what major issue associated with traditional accounting reports? A) Traditional accounting reports focus too narrowly on financial performance. B) Traditional accounting reports are not easily understood by non-accountants. C) Traditional accounting reports are expensive to produce. D) Traditional accounting reports are produced too slowly to provide value. Answer: A Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

19) Which of the following is not a perspective reflected in the balanced scorecard? A) Customer perspective. B) Internal operations perspective. C) Financial perspective. D) Efficiency perspective. Answer: D Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 20) Organizations should set their balanced scorecard targets to reflect industry benchmark values. Answer: FALSE Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 21) Which type of graph is the most commonly used to display trends in financial data? A) Pie chart. B) Scatterplot chart. C) Bar chart. D) Stochastic chart. Answer: C Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 22) Which of the following balanced scorecard dimensions provides measures on new products? A) Financial. B) Internal operations. C) Innovation and learning. D) Customer. Answer: C Concept: Producing managerial reports Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 17 Database Design Using the REA Data Model 1 Discuss the steps for designing and implementing a database system. 1) Which of the following statements about REA modeling and REA diagrams is false? A) REA is an acronym for Resources, Entities, and Agents. B) REA data modeling does not include traditional accounting elements such as ledgers, chart of accounts, debits and credits. C) REA data modeling could be referred to as an events-based model. D) REA diagrams must include at least two activities, which together represent a give-get economic exchange. Answer: A Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2) The REA data model approach facilitates efficient operations by all the following except A) standardizing source document format. B) identifying non-value added activities. C) storing financial and nonfinancial data in the same database. D) organizing data to simplify data retrieval and analysis. Answer: A Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3) The process of defining a database so that it faithfully represents all aspects of the organization including its interactions with the external environment is called A) data modeling. B) data designing. C) data development. D) data definition. Answer: A Concept: Database design process Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) In which stage(s) of the database design process does data modeling occur? A) During the systems analysis stage. B) During the design stage. C) During both the systems analysis and design stages. D) After the design stage. Answer: C Concept: Database design process Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Data modeling is an element of A) systems analysis. B) conceptual design. C) system analysis and conceptual design. D) system analysis and physical design. Answer: C Concept: Database design process Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6) consists of translating the internal-level schema into the actual database structures that will be implemented in the new system. A) Systems analysis B) Conceptual design C) Physical design D) Implementation and conversion Answer: C Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) includes all the activities associated with transferring data from existing systems to the new database AIS, testing the new system, and training employees how to use it. A) Systems analysis B) Conceptual design C) Physical design D) Implementation and conversion Answer: D Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2

8) includes carefully monitoring system performance and user satisfaction to determine the need for making system enhancements and modifications. A) Operation and maintenance B) Conceptual design C) Physical design D) Implementation and conversion Answer: A Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 9) Describe data modeling. Answer: Data modeling is the process of defining a database so that it faithfully represents all aspects of the organization, including its interaction with the external environment. Concept: Database design process Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 10) Explain specifically what is meant by the following statement: "Accountants can and should participate in all stages of the database design process." Answer: Accountants are in a unique position within a business organization. They are intimately acquainted with the many business transactions that occur in an organization and they are knowledgeable about the policies and practices of the business itself as well as the environment within which it operates. The knowledge base and skill sets of the accountant should be put to good use in the development of database design to the fullest extent possible (although some accountants may not possess AIS coding and development skill sets). Consider that during the planning stage accountants provide some of the information used to evaluate the feasibility of the proposed project and they participate in making the decision itself. Accountants can identify user information needs and develop logical schema during the requirement analysis and design stages. Accountants can also help test the accuracy of the new database and application programs during the implementation stage of development. Accountants can also act as "subject matter experts" since they are knowledgeable users of the new system. They can also serve as managers of the system once it is up and running. Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

11) In which stage(s) of the database design process is the completed data model used? A) only in the systems analysis stage B) only in the conceptual design stage C) in both the systems analysis and design stages D) neither the systems analysis nor the design stages Answer: D Concept: Database design process Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) In which stage(s) of the database design process should accountants participate? A) the systems analysis stage B) the conceptual design stage C) the implementation and conversion stage D) in all of the stages above Answer: D Concept: Database design process Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) With regards to the database design process, accountants may provide the greatest value to their organization by participating in A) implementation and conversion. B) data modeling. C) database operation and maintenance. D) system auditing. Answer: B Concept: Database design process Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 2 Explain the nature and use of Entity-Relationship (E-R) diagrams. 1) A(n) diagram graphically depicts a database's contents by showing entities and relationships. A) data flow B) flowchart C) entity-relationship D) REA Answer: C Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4

2) In creating an entity-relationship diagram, wants to collect and store information. A) a data model B) an entity C) a schema D) a tuple Answer: B Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

is anything about which an organization

3) An entity-relationship diagram represents entities as them as lines and . A) circles; squares B) squares; diamonds C) rectangles; diamonds D) rectangles; circles Answer: C Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

and the relationships between

4) An entity-relationship diagram A) can represent the contents of any database. B) is only used in conjunction with REA models. C) can show a limited number of entities and relationships. D) is used only to design new databases. Answer: A Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) Besides modeling entities as rectangles, there are no industry standards for entity-relationship diagrams. Answer: TRUE Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

6) It is industry standard to model entities as rectangles on entity-relationship diagrams. Answer: TRUE Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 7) It is industry standard to model relationships as A) rectangles B) ovals C) diamonds D) There is no industry standard. Answer: D Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 8) It is industry standard to model attributes as A) rectangles B) ovals C) diamonds D) There is no industry standard. Answer: D Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

in entity-relationship diagrams.

9) A graphical depiction of a database's contents showing the various entities being modeled and the important relationships among them is called a(n) A) REA diagram. B) data diagram. C) ERP diagram. D) ER diagram. Answer: D Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 10) E-R diagrams can be used to represent the contents of any kind of database. Answer: TRUE Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 6

11) Describe what is a E-R diagram and provide an example. Answer: An entity-relationship (E-R) diagram is a graphical technique for portraying a database schema. It is called an E-R diagram because it shows the various entities being modeled and the important relationships among them. Students' answer may vary depending on the example they use. Concept: Entity-relationship diagrams Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 3 Explain the content and purpose of the REA data model. 1) The REA data model A) is used in many areas of business and science. B) was developed specifically for use in designing accounting information systems. C) classifies data into relationships, entities and accounts. D) is a graphical technique for portraying a database schema. Answer: B Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 2) Which of the following is not one of the rules in creating an REA data model? A) Each event is linked to at least one resource that it affects. B) Each event is linked to at least one other event. C) Each event is linked to at least two participating agents. D) All of the above are important rules. Answer: D Concept: The REA data model Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 3) Which is a true statement about the REA data model? A) The REA data model classifies entities into three distinct categories. B) The term REA is an acronym that stands for resources, entities, and agents. C) Using an REA data model is not helpful when creating an R-E diagram. D) The term REA is an acronym that stands for resources, entities, and activities. Answer: A Concept: The REA data model Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

4) Relationships that affect the quantity of a resource are sometimes referred to as relationships. A) commitment B) exchange C) stockflow D) duality Answer: C Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) The "give" event represents an activity which A) includes a promise to engage in future economic exchanges. B) increases the organization's stock of an economic resource. C) reduces the organization's stock of a resource that has economic value. D) reduces the organization's liabilities. Answer: C Concept: The REA data model Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) The "get" event represents an activity which A) includes a promise to engage in future economic exchanges. B) increases the organization's stock of an economic resource. C) reduces the organization's stock of a resource that has economic value. D) increases the organization's liabilities. Answer: B Concept: The REA data model Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) Describe an REA data model. Answer: The REA data model is a conceptual modeling tool specifically designed to provide structure for designing an AIS database. The REA data model identifies what entities should be included in the AIS database and prescribes how to structure relationships among the entities in the AIS database. REA stands for resources, events, and agents. Resources are defined as those things that have economic value to the organization. Events are the various business activities about which management wants to collect information for planning and control purposes. Agents are the people and organizations that participate in events and about which information is desired for planning, control, and evaluation purposes. Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 8

8) REA models are usually depicted in which diagramming form? A) Entity-relationship diagrams. B) Economics-relationship diagrams. C) Entity-resource diagrams. D) Stock-flow diagrams. Answer: A Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 9) Identify the item below that would be classified as a resource by the REA data model. A) An IOU from a customer. B) The customer. C) A customer sale. D) A loan from a vendor. Answer: A Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) Identify the item below that would be classified as an event by the REA data model. A) An IOU from a customer. B) The customer. C) A customer sale. D) A loan from a vendor. Answer: C Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) Identify the item below that would be classified as an agent by the REA data model. A) An IOU from a customer. B) The customer. C) A customer sale. D) A loan from a vendor. Answer: B Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

12) What is the minimum number of agents that must participate in each REA event? A) 0 B) 2 C) 1 D) 3 Answer: C Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) What is the minimum number of external agents that must participate in each REA event? A) 0 B) 2 C) 1 D) 3 Answer: A Concept: The REA data model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 14) Assume that you are looking at a REA diagram that depicts only one event. Which of the following must be on the REA diagram? A) An external agent. B) An internal agent. C) both A and B D) neither A nor B Answer: B Concept: The REA data model Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 4 Use the REA data model to design an AIS database. 1) Identify the notation often used to represent cardinality information. A) Dotted lines. B) Greek characters. C) Crow's feet. D) Color coding. Answer: C Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking 10

2) Identify the notation below that is not used to represent cardinality information. A) UML. B) (Min, Max). C) DFD. D) Maximums only. Answer: C Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking 3) Every citizen in the United States has one social security number, but no two citizens have the same social security number. Thus, the cardinality that exists between social security numbers and citizens is A) one-to-one. B) one-to-many. C) many-to-many. D) many-to-none. Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 4) Every person in the world has a birthdate, but no person has more than one birthdate. Thus, the cardinality that exists between birthdate and people is A) one-to-one. B) one-to-many. C) many-to-many. D) many-to-none. Answer: B Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 5) Every person in the world can have more than one friend, and each person in the world can be a friend to more than one person. Thus, the cardinality that exists between friends and people is A) one-to-one. B) one-to-many. C) many-to-many. D) many-to-none. Answer: C Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 11

6) Every company can have more than one banking relationships, and each bank can have a business relationship with more than one company. Thus, the cardinality that exists between company and bank is A) one-to-one. B) one-to-many. C) many-to-many. D) many-to-none. Answer: C Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 7) An REA diagram must link every event to at least one A) resource; agents B) agent; resources C) transaction; entities D) resource; relationships Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

and two

8) What is the standard cardinality pattern for a relationship between an event and an agent? A) 1:1. B) 0:1. C) 0:N. D) 1:N. Answer: D Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking 9) Each event in an REA model will in most cases have at least one agent involved with the event. A) internal; resource B) external; entity C) internal; employee D) internal; external Answer: D Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 12

agent and one

10) Which of the following statements is true about the development of an REA model? A) Events that pertain to the entry of data are included in the REA model. B) The objective is to model basic value-chain activities. C) REA diagrams model individual transactions and data collections. D) Information retrieval events are modeled as events in the REA model. Answer: B Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 11) The first step in developing an REA diagram for a specific transaction cycle begins with identifying A) relevant events. B) agents involved. C) resources affected. D) relationship cardinalities. Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 12) Identify the statement below that is false with respect to cardinalities. A) Cardinalities describe the nature of the relationship between two entities. B) No universal standard exists for representing information about cardinalities in REA diagrams. C) The minimum cardinality can be zero or one. D) The maximum cardinality can be zero, one, or many. Answer: D Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 13) Identify the minimum cardinality of any REA diagram relationship. A) 0 or 1. B) 0 or N. C) 1 or N. D) none of the above. Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 13

14) The maximum cardinality of any REA diagram relationship is A) zero or one. B) one or many. C) zero or many. D) many or none. Answer: B Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 15) How many types of relationships are possible between entities? A) One. B) Two. C) Three. D) Four. Answer: C Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 16) Identify the most likely relationship where cardinalities have zero minimums and N maximums. A) Agent-event relationship. B) Resource-event relationship. C) Event-event relationship. D) Agent-agent relationship. Answer: B Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 17) Which of the following statements is false regarding REA diagrams? A) Each organization will have its own unique REA diagram. B) An REA diagram for a given organization will change over time. C) Data modeling and REA diagram development involve complex and repetitive processes. D) Redrawing an REA diagram several times during development is uncommon. Answer: D Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

18) What is Cardinalities? Answer: Cardinalities describe the nature of the relationship between two entities by indicating how many instances of one entity can be linked to each specific instance of another entity. Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 19) Which of the following graphical symbols represents a minimum cardinality of zero and a maximum cardinality of one? A) B) C) D) Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 20) Which of the following graphical symbols represents a minimum cardinality of zero and a maximum cardinality of many? A) B) C) D) Answer: C Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

21) Which of the following graphical symbols represents a minimum cardinality of one and a maximum cardinality of one? A) B) C) D) Answer: B Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 22) Which of the following graphical symbols represents a minimum cardinality of one and a maximum cardinality of many? A) B) C) D) Answer: D Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

23) A relationship is diagrammed below using the [Min, Max] notation. Which of the diagrams below represents the same relationship using the "crow's feet" notation?

Answer: D Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking

24) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Consider Helge's processes regarding the purchasing inventory and supplies, renting display space, and paying for purchased items. A well-designed REA diagram would A) include eight unique entities. B) include nine unique entities. C) include seven unique entities. D) include ten unique entities. Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking

25) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Consider Helge's processes regarding the purchasing inventory and supplies, renting display space, and paying for purchased items. A well-designed REA diagram would A) reflect nine 1:N relationships. B) reflect two M:N relationships. C) reflect ten 1:N relationships. D) include two 1:1 relationships. Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking

26) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Consider Helge's processes regarding the purchasing inventory and supplies, renting display space, and paying for purchased items. A well-designed REA diagram would A) reflect minimum cardinalities of 1 for the relationship between Vendor and Cash Disbursement entities. B) reflect the same number of 0 and 1 minimum cardinalities. C) reflect more maximum cardinalities of M than of 1. D) reflect maximum cardinalities of M for the relationship between Inventory and Purchase entities. Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking

27) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Consider Helge's processes regarding the purchasing inventory and supplies, renting display space, and paying for purchased items. In a well-designed REA diagram, what entities would reflect economic duality? A) Purchases and Cash Disbursements B) Display Space Rental and Cash Disbursements C) Inventory and Purchases D) Cash and Cash Disbursements Answer: A Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking

28) Prescott Dolls sells porcelain dolls exclusively at antique shows. Prescott Dolls purchases inventory from individuals at garage sales, flea markets, antique malls, and estate sales. Each time Dahlia Prescott (the owner) makes a purchase, she records the person's name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Dahlia cleans, researches and prices the inventory for sale to customers. She assigns an inventory number to each item and records the "asking" price. Dahlia buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are immediately paid for using cash or with company checks from a bank account in Prescott Doll's name. Cash received from customer sales are also deposited in this account. Three times a year, Dahlia rents a booth at antique shows. A deposit is always required, with the balance due at the start of the show. Dahlia records the deposit and final payment, along with the show organizer's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Draw an REA diagram for Prescott Dolls, related to purchasing inventory and supplies, renting booths, and paying for all items. Answer:

Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Challenging AACSB: Reflective Thinking

29) Define cardinality. Answer: The cardinality of the relationship indicates how many occurrences of the entity on the other side of the relationship can be linked to a single occurrence of the entity on this side of the relationship. In relational database terms, cardinality provides information about how many rows in the other table can be linked to each row in this table. Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 30) Describe the three basic rules that apply to the REA model pattern. Answer: Each event is linked to at least one resource that it affects. Each event is linked to at least one other event. Each event is linked to at least two participating agents. Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 31) Describe the steps in developing an REA diagram. Answer: Developing an REA diagram involves three steps. First, identify the basic events of interest (any activity about which management wants to collect information in order to plan, control, and evaluate performance). Second, identify the resources affected by and the agents who participate in those events. Third, use knowledge about the organization's business practices to add relationship cardinality information to the diagram. Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 32) Explain how an AIS system can be viewed as a set of "give-to-get" exchanges. Answer: An AIS system can be viewed as a set of "give-to-get" exchanges because such exchanges reflect the nature of the five transaction cycles: revenue, expenditure, human resources, production, and financing. In each cycle the organization "gives" some resource in exchange for another resource (the "get" part of the transaction). The goal is that the "give" part of the exchange is of lesser value than the "get" portion, thus generating a profit for the organization. The AIS should capture, record, and organize information relating to any transaction that occurs within a cycle. Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

33) Define minimum and maximum cardinalities. Answer: A minimum cardinality indicates the number of instances of that entity that must be associated with at least one instance of the other entity. Minimum cardinalities can be 0 or 1. A maximum cardinality indicates the number of instances of that entity that can be linked to at most one instance of the other entity. Maximum cardinalities can be 1 or N (many). Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 34) Describe the possible relationships between entities, in terms of cardinalities. Answer: There are three types or relationships possible between entities depending upon maximum cardinality. These are: A one-to-one relationship exists when the maximum cardinality of each entity is 1. A one-to-many relationship exists when the maximum cardinality on one entity is 1 and maximum cardinality of the other entity is N. A many-to-many relationship exists when the maximum cardinality of both entities is N. Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

35) A dental office employs three dentists and five dental hygienists. One of the dentists is a very recent dental school graduate and can't yet see patients on her own until she passes boards and obtains a license. Dentists perform all procedures personally, except for regular cleaning and xrays, which are performed exclusively by dental hygienists. Three of the five dental hygienists perform only regular cleaning and x-rays. The other two hygienists each assist a specific dentist during procedures, as well as performing regular cleaning and x-rays. One of the hygienists will be assigned to the new dentist when she begins seeing patients. Hygienists usually 'shadow' other hygienists and dentists for two weeks prior to seeing patients. Patients schedule appointments directly with dentists and hygienists, depending on the type of dental service needed. Patients do not have to choose a dentist until they need service other than routine cleaning or x-rays. Patients are assigned to a specific dental hygienist when they schedule their first appointment. The customer master file has 549 records. Diagram the agents described, relationships between agents, and the cardinality pairs for each relationship. Answer:

Concept: Developing an REA diagram Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

5 Read an REA diagram and explain what it reveals about the business activities and policies of the organization being modeled. 1) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory. B) A shoe store sells products to consumers. C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it on Amazon.com. D) Netflix sells movies to consumers through its online downloading service. Answer: B Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 2) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory. B) A shoe store sells products to consumers. C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it on Amazon.com. D) Netflix sells movies to consumers through its online downloading service. Answer: A Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

3) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory. B) A shoe store sells products to consumers. C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it on Amazon.com. D) Netflix sells movies to consumers through its online downloading service. Answer: C Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 4) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory. B) A shoe store sells products to consumers. C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it on Amazon.com. D) Netflix sells movies to consumers through its online downloading service. Answer: D Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

5) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases. B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the dealer. C) A consulting firm that offers a variety of consulting services to other businesses. D) A department store that allows customers to carry a balance and to make installment payments, if they choose. Answer: A Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 6) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases. B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the dealer. C) A consulting firm that offers a variety of consulting services to other businesses. D) A department store that allows customers to carry a balance and to make installment payments, if they choose. Answer: B Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

7) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases. B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the dealer. C) A consulting firm that offers a variety of consulting services to other businesses. D) A department store that allows customers to carry a balance and to make installment payments, if they choose. Answer: C Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 8) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases. B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the dealer. C) A consulting firm that offers a variety of consulting services to other businesses. D) A department store that allows customers to carry a balance and to make installment payments, if they choose. Answer: D Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

9) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt. B) A single purchase of inventory is paid for with multiple payments. C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept or allow installment payments. D) Some inventory purchases are paid for with multiple payments and some payments may apply to multiple purchases. Answer: B Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 10) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt. B) A single purchase of inventory is paid for with multiple payments. C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept or allow installment payments. D) Some inventory purchases are paid for with multiple payments and some payments may apply to multiple purchases. Answer: C Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking

11) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt. B) A single purchase of inventory is paid for with multiple payments. C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept or allow installment payments. D) Some inventory purchases are paid for with multiple payments and some payments may apply to multiple purchases. Answer: D Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 12) Which of the following transactions is represented by the diagram below?

13) Which of the following transactions is represented by the diagram below?

15) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order, and there is a time lag between the time an order is taken and delivery of the product. B) Each sale can be comprised of multiple orders, and each order can be associated with multiple sales or no sales. C) Each sale can be comprised of multiple orders, and each order can be associated with one or more sales. D) Each sale is associated with a single order, and there is no time lag between the time an order is taken and delivery of the product. Answer: D Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 16) The choice of cardinalities is often arbitrary to reflect facts about the organization being modeled and its business practices. Answer: FALSE Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 17) Explain why users should participate in data modeling? Answer: Data modeling is not an easy task. The same term meant different things to different people. For example, a company accounting department may use the term orders to refer to the total dollar amount of orders per time period, whereas the sales department may use the term to refer to individual customer orders. To solve these problems, different user groups should actively participate in the data modeling process. The first step was to convince all users of the need for and benefits of creating a data model for their function. Then it was necessary to carefully define the scope of the modeling effort. The key step is in getting the different user groups to actively participate in the data modeling process. Otherwise, the resulting data model would not have been as accurate or widely accepted. Concept: REA diagram and the organization Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 18 Implementing an REA Model in a Relational Database 1 Integrate separate REA diagrams for individual business cycles into a single, comprehensive, organization-wide REA diagram. 1) Integrating separate REA diagrams developed for individual transaction cycles into a single, comprehensive enterprise-wide data model A) is possible. B) requires understanding what the cardinalities in each separate diagram reveal about the organization's business policies and activities. C) provides a single comprehensive enterprise-wide model of the organization. D) All of the above are true. Answer: D Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2) An integrated REA diagram merges multiple copies of retains multiple copies of entities. A) resource; event; agent B) event; agent; resource C) resource; agent; event D) event; resource; agent Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) An integrated REA diagram could contain multiple copies of A) customers. B) sales. C) inventory. D) sales-inventory. Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

and

entities but

4) An integrated REA diagram merges multiple copies of some entities in order to A) minimize the repetition of agent entities. B) maximize the legibility of the diagram by avoiding the need to have relationship lines cross one another. C) keep the diagram less complex. D) maintain a clear representation of the activities that are represented by the diagram. Answer: B Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 5) Combining REA diagrams for individual transaction cycles into a single, enterprise-wide model adds three more rules to the three basic principles for drawing REA diagrams. Which of the following is not one of those two new rules? A) Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource. B) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the minimum cardinality between that event and every other event with which it may be associated must be 0. C) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the maximum cardinality between that event and every other event with which it may be associated must be 0. D) All of the above are new rules for drawing integrated REA diagrams. Answer: C Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) Which of the following statements is not true with regards to a correctly drawn enterprisewide REA diagram? A) Every event must be linked to at least one resource. B) Merging two transaction cycles on a common event may affect the minimum cardinalities between the merged event and the other events. C) Events can only be merged if they share the same resources and events. D) Creating a set of tables from an REA diagram automatically results in a well-structured relational database. Answer: C Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

7) Which of the below statements is false with respect to REA diagrams for individual transaction cycles? A) They depict basic give-to-get economic duality relationships. B) They usually provide only a partial view of resources. C) They need to be combined in order to provide a comprehensive enterprise-wide data model. D) They show both how resources are acquired and how they are used. Answer: D Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the statements below is false with respect to enterprise-wide REA diagrams? A) Merging two or more REA diagrams that contain the same resource entity does not require any changes to the cardinality pairs in the individual diagrams. B) Merging two or more diagrams that contain a common event entity, however, often requires changing the minimum cardinalities associated with the other events to 0, to reflect the fact that the merged event may be connected to any one of several different events, but not to all of them simultaneously. C) The minimum cardinalities associated with agents may also have to be changed to 0. D) All of the above are true. Answer: D Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 9) When combining two REA diagrams by merging common entities, changes in the cardinality of the merged entity is needed when it is a(n) A) agent. B) event. C) relationship. D) resource. Answer: B Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

10) Integrating separate REA diagrams into a single comprehensive enterprise-wide model of the organization requires understanding what the in each separate diagram reveal about the organization's business policies and activities. A) cardinalities B) data C) events D) transactions Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 11) When integrating separate REA diagrams, A) common resources are placed between the events that affect them. B) each resource is connected to two agents. C) resources are duplicated to show the give and get of economic duality relationships. D) resources are merged if both events in the stockflow relationship are modeled. Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) Which entity is most likely to be part of both the revenue cycle and the expenditure cycle? A) Receive Goods. B) Customer. C) Receive Cash. D) Inventory. Answer: D Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) Which entity is most likely to be part of both the payroll cycle and the expenditure cycle? A) Receive Goods. B) Customer. C) Disburse Cash. D) Inventory. Answer: C Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

14) Which entity is most likely to be part of both the payroll cycle and the revenue cycle? A) Cash. B) Customer. C) Receive Goods. D) Inventory. Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 15) Which entity is most likely to be part of the payroll cycle, expenditure cycle, and the revenue cycle? A) Customer. B) Cash. C) Supplier. D) Inventory. Answer: B Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) Which of the following is a redundant entity that would be merged when two cycles are combined? A) Customer. B) Employee. C) Vendor. D) Inventory. Answer: D Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 17) In an integrated REA diagram, every event must be linked to A) at least two resources. B) at least two agents. C) at least one other event. D) at least two other events. Answer: B Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

18) In an integrated REA diagram, every resource must be linked to A) at least two events. B) at least two agents. C) at least one other resource. D) at least two other resources. Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 19) In an integrated REA diagram, every agent must be linked to A) at least one resource. B) at least two resources. C) at least one event. D) at least two events. Answer: C Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 20) Describe the rules that are necessary to correctly draw an integrated REA diagram. Answer: A correctly drawn, integrated REA diagram must satisfy these six rules: 1. Every event must be linked to at least one resource. 2. Every event must be linked to two agents who participate in that event. 3. Every event that involves the disposition of a resource must be linked to an event that involves the acquisition of a resource. (This reflects the economic duality underlying "give to-get" economic exchanges.) 4. Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource. 5. If event A can be linked to more than one other event, but cannot be linked simultaneously to all of those other events, then the REA diagram should show that event A is linked to a minimum of 0 of each of those other events. 6. If an event can be linked to any one of a set of agents, but cannot be simultaneously linked to all those agents, then the REA diagram should show that event is linked to a minimum of 0 of each of those agents. Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

21) When integrating multiple REA diagrams into an integrated REA diagram, merging redundant resources A) always affects minimum cardinalities associated with the merged event. B) sometimes affects minimum cardinalities associated with the merged event. C) never affects minimum cardinalities associated with the merged event. D) none of the above Answer: C Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 22) In an REA diagram, resource entities A) can be linked to event entities in Business Cycle A and to event entities in Business Cycle B. B) cannot be linked to event entities in Business Cycle A and to event entities in Business Cycle B. C) cannot be linked to agent entities. D) none of the above Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 23) When integrating multiple REA diagrams into an integrated REA diagram, to merge an event that appears in both business cycle REA diagrams, A) the event that appears in both business cycle REA diagrams may be linked to either an event that is part of one business cycle or to an event that is part of another business cycle. B) the event that appears in both business cycle REA diagrams may be linked to an event that is part of one business cycle and to an event that is part of another business cycle. C) One cannot merge an event that appears in both business cycles. D) none of the above Answer: A Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking

24) In a complete REA model of any organization, every resource must be connected to at least one that increases that resource and to at least one event that decreases it. A) resource B) event C) agent D) activity Answer: B Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 25) REA diagrams for individual business cycles may include some events that also appear in the REA diagrams of another cycle. Answer: TRUE Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 26) Merging redundant resources will affect cardinalities. Answer: FALSE Concept: Integrating REA diagrams Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Build a set of tables to implement an REA model of an AIS in a relational database. 1) The primary key for a Purchase-Inventory table that consists of the Purchase Order Number and the Inventory Item Number, is known as a A) concatenated key. B) foreign key C) primary key. D) dual key. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

2) When using an REA diagram to develop a database, a many-to-many relationship must be A) broken into two, one-to-one relationships. B) combined into a single one-to-one relationship. C) combined into a one-to-many relationship. D) broken into two, one-to-many relationships. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) The type of relationship between two entities is determined by A) maximum cardinalities only. B) minimum cardinalities only. C) minimum and maximum cardinalities. D) median cardinalities. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 4) Which of the following is not one of the steps in implementing an REA diagram in a relational database? A) Implement many-to-many relationships with foreign keys. B) Create tables for entities. C) Assign attributes to tables and identify primary keys. D) Implement one-to-many relationships with foreign keys. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) Which of the following is not one of the three steps to implementing an REA diagram in a relational database? A) Assign attributes to appropriate tables. B) Create a table for each distinct entity in the diagram and for each many-to-many relationship. C) Link every event to at least one resource. D) Use foreign keys to implement one-to-one and one-to-many relationships. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

6) Why might the same REA diagram result in different relationship cardinalities? A) Different organizations might have different business policies. B) Different designers might implement an REA diagram differently. C) Different consultants might draw an REA diagram differently. D) Errors occur in the REA diagram. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 7) What is the first step to implementing an REA diagram in a relational database? A) Assign attributes to appropriate tables. B) Create a table for each distinct entity in the diagram and for each many-to-many relationship. C) Identify cardinalities. D) Use foreign keys to implement one-to-one and one-to-many relationships. Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the following is true with regards to REA diagrams and relational databases? A) A well-designed relational database is the starting point for creating an REA diagram. B) A well-designed REA diagram minimizes update, insert or delete anomaly problem when the diagram is implemented into a relational database. C) REA diagrams and database design are generic across organizations. D) The design of a relational database is specific to the organization being modeled. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

9) Which of the following is false with regards to creating database tables from an REA diagram? A) A properly designed relational database has a table for each distinct entity in an REA diagram. B) A properly designed relational database has a table for each many-to-many relationship in an REA diagram. C) To reduce confusion, table names should not duplicate REA diagram entities' names. D) Many-to-many relationships will be shown in tables with hyphenated concatenations of the entities' names. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) When assigning attributes to each table, A) the database designer must interview users to identify which facts should be included in the database. B) the database designer must interview management to identify which facts should be included in the database. C) the database designer must use the REA diagram to help determine in which tables those facts belong. D) the database designer must do all of the above. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) The primary key for 1:1 relationship tables A) is a single attribute. B) always consists of two attributes. C) is the primary key of the most important entity linked to that relationship. D) does not exist. Many-to-many relationship tables only use foreign keys. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

12) The primary key for M:N relationship tables A) is a single attribute. B) always consists of two attributes. C) is the primary key of the most important entity linked to that relationship. D) does not exist. Many-to-many relationship tables only use foreign keys. Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 13) Two or more primary keys of other database tables that, together, become the unique identifier or primary key of an M:N relationship table are called A) two attributes keys. B) concatenated keys. C) connecteated keys. D) conjoined keys. Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 14) Attributes other than the primary key are A) included to satisfy transaction processing requirements. B) included to meet management's information needs. C) both A and B D) none of the above Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 15) Which of the statements below is false with regards to the tables for M:N relationships? A) Non-key attributes may be included. B) Multiple attribute primary keys are used. C) Single attribute primary keys may be used. D) Concatenated keys are used. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

16) Which of the statements below is false with regards to creating database tables from an REA diagram? A) M:N relationships must be implemented as separate tables. B) 1:N relationships are implemented with the primary key of the 1 side becoming a foreign key on the N side. C) 1:1 relationships are implemented with the primary key of either entity included as a foreign key in the table representing the other entity. D) All of the above are true. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17) Which of the following is not part of a "final accuracy check" when creating relational tables from an REA diagram? A) Every attribute in every table is single-valued (i.e., each table is a flat file). B) Every event must be linked to at least one resource. C) Every table must have a primary key. D) Other non-key attributes in each table must be either a fact about the thing designated by the primary key or foreign keys used to link that table to another table. Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 18) Concatenated keys are A) used when combining two or more REA diagrams. B) foreign keys used to implement 1:N or 1:1 relationships. C) multiple attribute keys used to implement 1:M relationships. D) used to implement M:N relationships. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

19) How many tables are needed to implement an REA data model that has six distinct entities, three M:N relationships and four 1:N relationships in a relational database? A) 6 B) 9 C) 11 D) 13 Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 20) How many tables are needed to implement an REA data model that has five distinct entities, two M:N relationships and three 1:N relationships in a relational database? A) 5 B) 7 C) 8 D) 10 Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 21) How many tables are needed to implement an REA data model that has five distinct entities, five M:N relationships and three 1:N relationships in a relational database? A) 5 B) 7 C) 8 D) 10 Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 22) How many tables are needed to implement an REA data model that has three distinct entities, two M:N relationships and two 1:N relationships in a relational database? A) 5 B) 7 C) 8 D) 10 Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 14

23) Which table is most likely to have a concatenated key? A) Inventory. B) Sales. C) Sales-inventory. D) Accounts receivable. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 24) In which of the following cases is the number of tables required to represent the relationship equal to three? A)

Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

25) In which of the following cases is the relationship between entities not implemented by foreign keys? A)

Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 26) Which of the following attributes would typically be included in the table that stores data about the Customer entity in a relational database? A) Invoice number. B) Credit limit. C) Product code. D) Backorder. Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 27) In a relational database, which of the following attributes would typically be included in the table that stores data about the Vendor entity? A) Invoice number. B) Outstanding balance. C) Product code. D) Inventory. Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

28) In a relational database, which of the following attributes would typically be represented by a foreign key in the table that stores data about a Receive Inventory entity? A) Purchase order number. B) Payment terms. C) Product code. D) Date. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 29) In a relational database, which of the following attributes would typically be represented by a foreign key in the table that stores data about a Disburse Cash entity? A) Amount. B) Date. C) Vendor number. D) Product number. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

30) Implementation of this REA diagram into a relational database would require how many tables?

A) 12 B) 13 C) 8 D) 9 Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

31) Which of the following would be true when implementing this REA diagram into a relational database?

A) The primary key for Employee would be a foreign key for Cash Receipts. B) The primary key for Cash Receipts would be a foreign key for Cash. C) The primary key for Parts would be a foreign key for Service Request. D) The primary key for Sales would be a foreign key for Service Request. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

32) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Which of the following would not be an attribute in the Purchases table? A) Address where purchase was made. B) Person's name or company name from whom the purchase was made. C) Date of purchase. D) Total amount of purchase. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking

33) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Which of the following would not be an attribute in the Inventory table? A) Total amount of purchase. B) Price paid for inventory. C) Asking price. D) Inventory number. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking

34) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge purchases inventory from distributors at trade conventions. Each time Helge makes a purchase, the company records the suppliers name, address, date, specific items purchased, price paid for each, and the total amount spent. Helge later researches the inventory items to set the customer price. The company assigns an inventory number to each item purchased and records the customer price for each item. Helge buys price tags and display supplies from Alwin Incorporated, a company that sells them at all trade conventions. All inventory and supplies purchases are immediately paid for with cash or with checks from a bank account in Helge's name. All cash received from sales are also deposited to the same bank account. Several times a year Helge rents display space at dealer conventions. A deposit is always required, and the entire fee is due the day the convention starts. Helge records the deposit and final payment, along with the convention's name and address, in the same worksheet on which purchases of inventory and supplies are recorded. Which of the following would be an attribute in the table for Display Space Rental? A) Convention name. B) Deposit paid. C) Balance paid. D) Convention address. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 35) Explain a completeness check. Answer: The list of attributes that users and management want included in the database provides a means to check and validate the implementation process. Every attribute in that list should appear in at least one table, as either a primary key or "other" attribute. Checking this list against the table column names may reveal not only the fact that a particular attribute has not been assigned to the appropriate table in the database but may even indicate the need to modify the REA diagram itself. Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

36) Constructing a well-structured, well-developed REA diagram eliminates which anomaly problem(s)? A) Update. B) Insert. C) Delete. D) All of the above. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 37) How many tables are needed to implement an REA data model that has four distinct entities, three M:N relationships and one 1:N relationships in a relational database? A) 5 B) 7 C) 8 D) 10 Answer: B Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 38) How many tables are needed to implement an REA data model that has three distinct entities, two M:N relationships and two 1:N relationships in a relational database? A) 5 B) 7 C) 8 D) 10 Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 39) Identify the attribute below that would not make a good primary key. A) Birthdate. B) Social security number. C) A unique number automatically generated by the system. D) Cell phone number. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 23

40) Identify the attribute below that would not make a good primary key. A) Adjusted gross income. B) Social security number. C) A unique number automatically generated by the system. D) Cell phone number. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 41) Identify the attribute below that would not make a good primary key. A) Postal code. B) Social security number. C) A unique number automatically generated by the system. D) Cell phone number. Answer: A Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 42) From the choices below, identify the attribute below that would make the best primary key. A) Product number. B) Date of first purchase. C) Postal code. D) Customer telephone number. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 43) From the choices below, identify the attribute below that would make the best primary key. A) Last name. B) Date of entry. C) Airport code. D) Passport control number. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

44) From the choices below, identify the attribute below that would make the best primary key. A) On campus mailbox number. B) GPA. C) Credit hours. D) Student ID number. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 45) Rebus Fashions provides haircuts to men and women. Rebus uses an REA database to record information that is important to the firm. Rebus has a table named "Employee" where it keeps information about its hair stylists. Identify the attribute below that most likely does not belong in the Employee table. A) Stylist phone number. B) Stylist hair cut specialties. C) Number of haircuts provided by a stylist on a given day. D) All of the above are appropriate attributes for the Employee table. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 46) Rebus Fashions provides haircuts to men and women. Rebus uses an REA database to record information that is important to the firm. Rebus has a table named "Customer" where it keeps information about its customers. Identify the attribute below that most likely does not belong in the Customer table. A) Customer hair color. B) Customer hair style. C) Customer address. D) All of the above are appropriate attributes for the Customer table. Answer: D Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

47) Rebus Fashions provides haircuts to men and women. Rebus uses an REA database to record information that is important to the firm. Rebus has an M:N table named "Customer-Sale" where it keeps information about customer sales. Identify the attribute below that most likely does not belong in the Customer-Sale table. A) Date of sale. B) Time hair cut was started. C) Name of customer. D) All of the above are appropriate attributes for the Customer table. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 48) Rebus Fashions provides haircuts to men and women. Rebus charges $10 per haircut, no matter what type of haircut the customer selects. Rebus uses an REA database to record information that is important to the firm. Rebus has an M:N table named "Customer-Sale" where it keeps information about customer sales. Identify the attribute below that most likely does not belong in the Customer-Sale table. A) Date of sale. B) Time hair cut was finished. C) Price of haircut. D) All of the above are appropriate attributes for the Customer table. Answer: C Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 49) Describe the three steps to the implementation of an REA diagram in a relational database. Answer: Three steps to implementing an REA diagram in a relational database are: 1. Create a table for each distinct entity in the diagram and for each many-to-many relationship. 2. Assign attributes to appropriate tables. 3. Use foreign keys to implement one-to-one and one-to-many relationships. Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

50) Describe the steps that should be taken as a final accuracy check for designing a wellstructured relational database. Answer: Steps that should be taken as a final accuracy check are: 1. Every table must have a primary key. 2. Other nonkey attributes in each table must be either a fact about the thing designated by the primary key or foreign keys used to link that table to another table. 3. Every attribute in every table is single-valued (i.e., each table is a flat file). Concept: Implement an REA in a relationship database Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3 Use the REA data model to write queries to retrieve information from an AIS relational database. 1) Nonfinancial information should be collected because A) it may indicate events that may affect resources. B) it can be used to plan other activities. C) it can be used in transaction processing. D) both A and B Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 2) When comparing REA diagrams used to design an AIS with a traditionally designed AIS, A) traditional AIS information, such as journals and ledgers no longer exist. B) similar information is present as in a traditional AIS, but stored in a different format. C) queries are used to input data into the AIS. D) an REA designed AIS cannot recreate a traditional journal. Answer: B Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

3) Which of the following is/are true with regards to using REA diagrams to retrieve information from a database? A) Although neither journals nor ledgers appear explicitly in an REA diagram, each can be created through appropriate queries. B) The information normally found in a journal is contained in the tables used to record data about events. C) Much of the information about an organization's assets that is traditionally recorded in ledgers is stored in resource tables in an REA-based relational database. D) All of the above Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) Much of the information about an organization's assets that is traditionally recorded in ledgers is stored in tables in an REA-based relational database. A) Account B) Agent C) Event D) Resource Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) In an REA-based relational database, the information normally found in a contained in the tables used to record data about . A) journal; events B) journal; resources C) ledger; events D) ledger; resources Answer: A Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

6) Which of the following is false with regards to REA models? A) Many financial statement accounts are represented as resources in the REA model. B) Accounts such as Accounts Receivable show up as entities in the REA model. C) Some accounts represent an imbalance between two related events in the REA model. D) Much of the information about an organization's assets that is traditionally recorded in ledgers is stored in resource tables in an REA-based relational database. Answer: B Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) Because information about temporal imbalances between two , such as accounts receivable and accounts payable, is needed so frequently, such calculated values are sometimes stored as in the appropriate tables. A) events; agents B) events; attributes C) resources; agents D) resources; attributes Answer: B Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the statements below is false with regards to generating financial statements from an REA-based relational database? A) It is possible to use a completed REA diagram to guide the writing of queries to produce the information that would be included in financial statements. B) Many financial statement items can be displayed by querying a single table. C) It is unnecessary to understand the REA data model to know which tables need to be included in each query to generate the correct answers to financial statement questions. D) A major advantage of the REA data model is that it integrates non-financial and financial data. Answer: C Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

9) Which of the statements below is false when comparing the REA model to the traditional AIS model? A) Traditional AISs contain only data about the financial aspects of transactions. B) A major advantage of the REA data model is that it integrates non-financial and financial data in the AIS and makes both types of data easily accessible to management. C) In the REA model, many financial statement items can be displayed by querying a single table. D) Accounts in the traditional AIS are analogous to resources in the REA-based relational database. Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) The major benefits of using the REA model as the basis for designing an AIS include all of the following except A) the REA data model integrates non-financial and financial data in the AIS. B) the REA data model makes both non-financial and financial data easily accessible to management. C) the REA data model provides the basis for building the kind of flexible AIS that is responsive to management's changing information needs. D) the REA data model reduces the need for accountants to understand the underlying accounting journals and ledgers. Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 11) Information traditionally found in journals is stored where in an REA database? A) Event entity. B) Agent entity. C) Relationship. D) Resource entity. Answer: A Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

12) A query that extracts, for a given time period, the total amount of all sales events for which there is no corresponding receive cash event will yield A) a cash account ledger. B) a credit sales journal. C) an accounts receivable ledger. D) an accounts payable journal. Answer: C Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 13) A query that extracts, for a given time period, all sales events for which there is no corresponding receive cash event on the date of the sales event will yield A) a cash account ledger. B) a credit sales journal. C) an accounts receivable ledger. D) an accounts payable journal. Answer: B Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 14) A query that extracts, for a given time period, all purchases for which there is no corresponding disburse cash event will yield A) a cash account ledger. B) a credit sales journal. C) an accounts receivable ledger. D) an accounts payable journal. Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 15) Explain where in the REA model you can find the information normally found in a ledger. Answer: In traditional AISs, ledgers are master files that contain cumulative information about specific accounts. In a relational database designed according to the REA data model, resource and agent entities contain permanent information that is carried over from one fiscal year to the next. Thus, much of the information about an organization's assets that is traditionally recorded in ledgers is stored in resource tables in an REA-based relational database. Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 31

16) Explain where in the REA model you can find the information normally found in a journal. Answer: In traditional AISs, journals provide a chronological listing of transactions. In a relational database designed according to the REA data model, event entities store information about transactions. Thus, the information normally found in a journal is contained in the tables used to record data about events. For example, each row in the Sales event table contains information about a particular sales transaction. Thus, a sales journal can be produced by writing a query that displays the appropriate entries in the sales table for a given period. In a similar manner, queries of the Order Inventory event and Cash Disbursements event tables can be used to generate purchases and cash disbursements journals. Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 17) What are the advantages of the REA data model over the traditional AIS model? Answer: A major advantage of the REA data model is that it integrates non-financial and financial data in the AIS and makes both types of data easily accessible to management. In contrast to the REA data model, the general ledger in traditionally designed AISs uses the chart of accounts to store and organize data based on the structure of financial statements. Consequently, traditional AISs contain only data about the financial aspects of transactions. Other information that may be of use to management, such as the time of day a sale occurred or the reason why a customer was purchasing a specific item, would have to be stored in a separate database or information system. The existence of separate systems makes it more difficult for management to easily and quickly access the information it needs. It also provides opportunities for data entry errors to create inconsistencies between systems, thereby reducing the utility of any reports that are generated. Thus, a major benefit of using the REA model as the basis for designing an AIS is the ability to easily integrate information that traditionally appears in financial statements with other, non-financial information necessary to effectively manage operations and evaluate performance. It is vitally important that an organization's AIS be capable of storing both traditional financial measures and other operational performance measures. Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 18) Which of the following elements found in a traditional AIS system are not represented as entities in an REA relational database, but rather must be retrieved through the use of queries? A) accounts receivable B) the general ledger C) accounts payable D) all of the above Answer: D Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 32

19) In a relational database designed according to the REA model, where is information about transactions stored? A) Resource entities. B) Agent entities. C) Event entities. D) All of the above. Answer: C Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20) In a relational database designed according to the REA model, where is information about an organization's liabilities generally stored? A) Resource entities. B) Agent entities. C) Event entities. D) All of the above. Answer: A Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 21) In a relational database designed according to the REA model, where is information about accounts receivable stored? A) Event entities. B) Agent entities. C) Both A and B. D) None of the above. Answer: C Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 22) Queries need to be created every time to retrieve information from a database. Answer: FALSE Concept: Information retrieval with an REA Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 19 Special Topics in REA Modeling 1 Create REA data models for the revenue and expenditure cycles of other types of organizations besides retail. 1) Many companies sell software, music, or digital photographs over the Internet. They provide each customer with a digital copy of those resources, but not the actual resource itself. How will this company's REA model differ from those selling tangible inventory? A) These companies do not need an Inventory table. B) The structure of Inventory table is completely different from that of mass-produced merchandise. C) The Inventory table is only different in that it doesn't need attributes such as quantity-onhand, quantity-available, reorder point, and standard reorder quantity. D) The Inventory table need not include information about the standard list price of each item and its description. Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2) Sales order number is most likely to be a foreign key in which entity of an expanded revenue cycle REA diagram? A) Call on Customers. B) Fill Customer Order. C) Ship Order. D) Take Customer Order. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3) Sales order number is most likely to be a primary key in which entity of an expanded revenue cycle REA diagram? A) Call on Customers. B) Fill Customer Order. C) Ship Order. D) Take Customer Order. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) Customer number is least likely to be a foreign key in which entity of an an expanded revenue cycle REA diagram? A) Call on Customers. B) Customers. C) Fill Customer Order. D) Take Customer Order. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) Picking ticket number is most likely to be a primary key in which entity of an expanded revenue cycle REA diagram? A) Call on Customers. B) Fill Customer Order. C) Ship Order. D) Take Customer Order. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) Picking ticket number is most likely to be a foreign key in which entity of an expanded revenue cycle REA diagram? A) Customers. B) Fill Customer Order. C) Ship Order. D) Take Customer Order. Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) In an REA model, rental transactions differ from sales transactions in that A) each rental has a part number. B) each rental has a unique serial number. C) rental transactions require completely different REA models than sales transactions. D) each rental has a renter number. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2

8) Concerning the relationship from the Rent Item to the Receive Cash events: The minimum cardinality is because customers typically pay first, prior to taking possession of the item. The maximum cardinality is because there may be additional charges imposed when the item is returned. A) 0; 1 B) 1; 1 C) 1; N D) N; M Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 9) The relationship between the Rent Item and Return Item events is most likely 1:1 for all except which of the following reasons? A) A return must be for a rented item. B) A rented item can only be returned once. C) Rented items are accounted for separately. D) All rented items must be returned. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 10) In an expenditure cycle diagram, which of the following is an example of an event that larger organizations might want to include in their extended REA model? A) Request. B) Order. C) Ship Order. D) Fill Order. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

11) Using an REA database design, which of the below is false with regards to cost data? A) Cost information is stored in several tables. B) Standard cost is stored as an attribute of the Inventory table because it is the same for all units of a given inventory item for a fiscal year. C) In contrast, the actual cost of inventory is stored in a relationship table because prices can vary over time. D) Actual cost can be stored as an attribute of the Inventory table for organizations that value inventory based on the most recent amount paid. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) Using an REA database design, which is the most likely primary key for the Inventory– Request_Goods table? A) Product number. B) Product number - Purchase order number. C) Product number - Purchase requisition number. D) Purchase order number. Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) Using an REA database design, which is the most likely primary key for the Pay for Goods table? A) Cash transaction number. B) Check number. C) Invoice number. D) Receiving report number. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

14) For a service business, the minimum cardinalities between Sales event and Inventory entity are most likely both 0 for all except which of the following reasons? A) Service businesses don't sell inventory, they only use inventory to perform services. B) A sale doesn't have to include any inventory. C) Inventory can exist that hasn't been part of a sale yet. D) Some services only require labor. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 15) The minimum cardinality from the Sales event to the Services entity is most likely 1 because A) every sale includes performing a service. B) a service is only recorded once a sale has occurred. C) only 1 service is provided for each sale. D) the minimum cardinality is always set to be 1. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) A dental office would likely model the relationships between the Sales event and both the Services and Supplies Resource entities as A) M:N. B) 1:1. C) 1:N. D) 1:M. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) In a relational database, details about activities such as Cleaning, X-Rays, Fillings, Root Canals, Crowns, and Extractions would all be stored in which table? A) Services. B) Sales. C) Inventory. D) Patient. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5

18) Since the same inventory items may be stored in several different warehouses, the maximum cardinality from Inventory to Warehouse is most likely A) 0. B) N. C) 1. D) M. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 19) Warehouse number is most likely to be a foreign key in A) Order Inventory. B) Disburse Cash. C) Receive Inventory. D) Inventory. Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 20) Supplier number is least likely to be a foreign key in A) Order Inventory. B) Disburse Cash. C) Receive Inventory. D) Warehouse. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 21) Financial Institution number is most likely to be a foreign key in A) Cash. B) Disburse Cash. C) Receive Inventory. D) Warehouse. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

22) The cardinality pair from the Financial Institution entity to the Cash resource has a minimum and an maximum because companies will probably only keep information about financial institutions with which they have accounts but may have more than one account at the same financial institution. A) 0; N B) 0; 1 C) 1; N D) M; N Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) Supplier number is most likely to be a foreign key in A) Inventory–Request_Inventory. B) Receive Inventory. C) Supplier. D) Warehouse. Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 24) The temporal difference between Request Inventory and Order Inventory is reflected by the A) Request Inventory minimum cardinality of 1. B) Request Inventory maximum of N. C) Order Inventory maximum of N. D) Order Inventory minimum of 0. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Reflective Thinking 25) One of the benefits of an integrated enterprise-wide data model is that A) auditors can use it to guide the development of queries to validate the completeness and accuracy of transaction processing. B) journals and ledgers will be more accurate than in a traditional AIS data model. C) workers can understand information flows better. D) All of the above are benefits of an integrated enterprise-wide data model. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7

26) Which of the following diagrams represents a situation where a firm offers some services that have not ever been sold, offers other services that have been performed many times, and provides services sometimes performed together to clients? A)

Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 27) Which of the following diagrams represents a situation where a business that rents lawn mowers (not all of which get rented) writes separate rental agreements for each mower, so renters don't have to return all the rented items at the same time? A)

Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

28) Which of the following diagrams represents a situation where items rented by a customer must be returned intact, and several rented items could be returned at the same time? A)

Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 29) Which of the following diagrams represents a situation where deliveries are frequently made to the specific warehouse where the delivered goods will be stored? A)

Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

30) Which of the following diagrams represents a situation where one or more warehouses may be empty, and production of new products has been delayed due to difficulty obtaining materials? A)

Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 31) Which of the following diagrams represents the cardinality pairs in a situation where goods don't have to be requisitioned, but if they are, requisitions are approved and processed before purchase orders are issued? A)

Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking

32) Which of the following diagrams represents the cardinality pairs in a situation where customer orders are individually filled, but not all the items on a customer order are always available? A)

Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 33) Why is cost information stored in several relational tables? Answer: Cost information is stored in several tables. Standard cost is stored as an attribute of the Inventory table because it is the same for all units of a given inventory item for a fiscal year. In contrast, the actual cost of inventory is stored in the Inventory- Order_Goods table. This reflects the fact that purchase prices can vary over time. By storing the cost of each order with the quantity purchased, the system can calculate the actual cost of ending inventory and the cost of goods sold according to any accepted inventory valuation method (LIFO, FIFO, weightedaverage, or specific identification). If, on the other hand, actual cost were stored as an attribute of the Inventory table, it would necessitate using the weighted-average method because all units of a given inventory item would be assigned the same cost. In addition, cost data would be available only in this format; it would be impossible to compute alternative values for inventory because the detailed data about the cost associated with each purchase would not be stored in the database. Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

34) Identify the business activity below that cannot be modeled using an REA diagram. A) Purchase requisitions. B) Rental transactions. C) Intangible assets. D) All of the above can be modeled by an REA diagram. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 35) In which entity would an item's standard cost information most likely be maintained? A) Inventory entity. B) Order_Inventory entity. C) Inventory-Order_Inventory entity. D) Cost entity. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 36) In which entity would an item's actual cost information most likely be maintained? A) Inventory entity. B) Order_Inventory entity. C) Inventory-Order_Inventory entity. D) Cost entity. Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 37) Identify the inventory valuation method below that cannot be calculated in a database created using an REA modeling approach. A) LIFO. B) FIFO. C) Weighted Average. D) none of the above Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

38) If the actual cost of an inventory item is maintained as an attribute in the Inventory table, which inventory valuation method would an organization have to use? A) LIFO. B) FIFO. C) Weighted Average. D) Specific Identification. Answer: C Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 39) An organization that sells digital products, such as access to view online videos, does not need an inventory table in its database. Answer: FALSE Concept: The REA data model Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 40) Assume an organization sells digital photographs to customers through its website (the company only sells photographs in digital format, it does not provide a physical copy of any photograph). Identify the attribute below that the organization would not need in its Inventory entity. A) Reorder point. B) Price. C) Photograph description. D) Primary key. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 41) In addition to modeling Resources, Events, and Agents, identify the two additional concepts an organization will need to incorporate if it wishes to extend the REA to include information about firm policies. A) Type and Rules. B) Rules and Group. C) Group and Rules. D) Type and Group. Answer: D Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 13

42) A type entity is used to depict the A) is-a-kind-of B) is-a-member-of C) is-a-piece-of D) is-a-group-of Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

relationship.

43) A groups entity is used to depict the A) is-a-kind-of B) is-a-member-of C) is-a-piece-of D) is-a-group-of Answer: B Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

relationship.

44) Type and group entities are similar in that both are abstractions that represent sets of A) objects. B) semantics. C) attributes. D) tables. Answer: A Concept: The REA data model Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 45) What are the benefits of an integrated enterprise-wide data model? Answer: One of the benefits of an integrated enterprise-wide data model is that auditors can use it to guide the development of queries to validate the completeness and accuracy of transaction processing. In contrast, an integrated, enterprise-wide data model provides greater flexibility for analyzing data. Creating an integrated, enterprise-wide data model also facilitates the amalgamation of financial and non-financial information in the same database. Effective integration of financial and non-financial data also results in improved internal reporting. It can also significantly improve the support provided for managerial decision-making. Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

46) Digital assets will affect the REA models of the revenue and expenditure cycles. Answer: FALSE Concept: The REA data model Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Extend REA diagrams to include information about employee roles, M:N agentevent relationships, locations, and relationships between resources and agents. 1) Explicitly identifying the different employees who participate in each event by their job functions is helpful when verifying A) internal controls. B) job descriptions. C) proper supervision. D) segregation of duties. Answer: D Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 2) M:N agent-event relationships occur whenever an activity is performed by employee and management wants to retain the ability to monitor performance. A) more than one; group B) more than one; individual C) one; group D) one; individual Answer: B Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) The minimum cardinalities between a location, such as Warehouse, and a resource, like Inventory, will likely be 0 for all except which of the following reasons? A) One specific inventory item could be stored at several different warehouses. B) A warehouse could be currently empty. C) Not all kinds of inventory are stored at each warehouse. D) Inventory could include products not yet available for sale. Answer: A Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

4) Relationships between resources and agents, such as Inventory and Supplier, reflect the best practice of identifying preferred and alternative suppliers for specific inventory items. Similar relationships between resources and employees can be used to model and . A) cost; revenue B) performance; behavior C) responsibility; accountability D) segregation of duties; internal control Answer: C Concept: The REA data model Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 5) Give an example of an M:N Agent-Event relationship. Answer: Some deliveries are so large that several employees must work together to unload and store the items. M:N agent-event relationships occur whenever an activity is performed by more than one employee, yet management wants to retain the ability to monitor each individual's performance. Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 6) Why might an REA diagram show relationships between resources and agents? Answer: For example, the REA model for the expenditure cycle includes a relationship between the Inventory Resource entity and the Supplier Agent entity. This relationship reflects the common best practice of identifying preferred and alternative suppliers for specific inventory items. Similar relationships between resources and employees can be used to model responsibility and accountability. Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) The attributes of which type of entity would provide a way for the system to compare an employee's reimbursement request with the permissible range of the amount of reimbursement permitted? A) Resources B) Events C) Agents D) Type Answer: D Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16

8) Why might an REA diagram show relationships between agents? Answer: Relationships between internal agents may be created to model lines of responsibility. Relationships between internal and external agents can also occur. For example, some organizations that provide primarily services, such as banks and insurance companies, may assign customers to specific employees who are responsible for effectively managing the overall quality of the ongoing association with each customer. Relationships between external agents are rare but may sometimes be implemented to satisfy the requirements for a well-structured database. Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) A REA diagram can be used to verify whether job functions are properly segregated. Answer: TRUE Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) Information about job roles is simply another A) resource B) event C) agent D) attribute Answer: D Concept: Additional REA features Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

in the Employee table.

3 Understand and create an REA diagram for the production cycle. 1) While not required, connecting the Time Used entity to specific business events enables A) evaluating performance at a very detailed level. B) general performance evaluation. C) evaluating the quality of the services received. D) determining productivity of employees, such as how many customer calls were made, or how many sales were made. Answer: A Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking

2) An REA diagram for the production cycle models the relationships between the Perform Job Operations event and the Job Operations List entity as 1:N because A) time standards change over time. B) one specific activity has only one standard time for completion. C) activities are only performed once on work in process jobs. D) many activities are usually required for specific work in process jobs. Answer: B Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Challenging AACSB: Analytical Thinking 3) Data about actual raw materials used in production is most appropriately stored which of the entities below? A) Finished Goods. B) Raw Materials. C) Raw Materials Issuance. D) Work-in-Process. Answer: C Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4) The entity is used to collect and summarize data about the raw materials, labor, and machine operations used during production of inventory. A) Finished Goods Inventory B) Raw Materials C) Issue Raw Materials D) Work-in-Process Answer: D Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) In the table called Perform Machine Operations, which is the most likely primary key? A) Equipment Number. B) Job Operation Number. C) Machine Operation Number. D) Machine Operations List Number. Answer: C Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 18

6) Employee number is most likely to be a foreign key in A) Perform Job Operations. B) Perform Machine Operations. C) Machine Operations List. D) Work in Process. Answer: A Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 7) Which of the following is not one of the four main events in a typical production cycle REA diagram? A) Issuance of raw materials. B) Order raw materials. C) Use of labor in production. D) Use of machinery and equipment in production. Answer: B Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 8) Which of the following diagrams represents the cardinality pairs for a typical, hierarchical organization? A)

D) All of the above. Answer: B Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

9) Which of the following diagrams represents the cardinality pairs for a repair shop where supervisors place items that need repair in a common area where any available employee can work on the item? Naturally, employees are always repairing more than one item at a time, and more than one supervisor can drop off items that need repair. A)

D) All of the above. Answer: B Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following represents the cardinality pairs in a situation where a finished product requires one or more machine operations, and machines usage is tracked by specific production run(s)? A)

Answer: D Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20

11) Which of the following diagrams represents the cardinality pairs in a situation where a finished product requires one or more labor operations, and labor usage is recorded to specific production runs? A)

Answer: B Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

12) Which of the following diagrams represents the cardinality pairs in a situation where a specific production run results in a specific finished good, and a specific finished good is produced periodically? A)

Answer: C Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the following accurately represents typical cardinalities for two entities in the production cycle? A)

Answer: A Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22

14) Where are depreciation expenses recorded in a database created using an REA modeling approach? A) As a resource. B) As an event. C) As an agent. D) Depreciation expenses would not be modeled. Answer: D Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 15) In which entity would information about depreciation formula(s) and assumption(s) be stored in an REA model? A) Resource. B) Event. C) Agent. D) Both resource and agent. Answer: A Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 16) In an REA database model, the Bill of Materials entity contains information about what? A) The raw materials used to make a finished product. B) The actual cost of the raw materials used to make a finished product. C) The vendor from whom the raw materials was purchased D) All of the above. Answer: A Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 17) In a database created using an REA model, the Bill of Materials entity is most analogous to A) the "bill" that can be sent to the customer who order the finished good(s). B) the "recipe" needed to produce the finished good(s). C) the "receipt" for the purchase of specific raw materials. D) the "audit trail" that can be used to verify a finished good(s) was actually produced. Answer: B Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

18) Describe the four main events of interest included in a typical production cycle REA diagram. Answer: The four main events of interest included in a typical production cycle REA diagram are: 1. Issuance of raw materials. 2. Use of labor in production. 3. Use of machinery and equipment in production. 4. Production of new finished products, represented by the work-inprocess event. Concept: Production cycle REA model Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4 Understand and create an REA diagram for the HR/payroll cycle. 1) Identify the entity linked to almost every other entity in an REA diagram for HRM/payroll cycles. A) Employee. B) Job title. C) Payroll. D) Salary. Answer: A Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 2) A relationship between Skills and Employees is typically modeled as M:N in an REA database model since A) one employee may possess many skills, and one skill may be possessed by more than one employee. B) many employees possess skills, and many skills are possessed by employees. C) employees can be trained to learn all skills, and all skills are possessed by at least one employee. D) The relationship would be 1:N not M:N, because most employees are hired for a specific job that requires a specific skill, even though a specific job could be done by many employees. Answer: A Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking

3) Identify the entity that stores most of the data typically found in the employee master file. A) Time Worked. B) Employee. C) Salary. D) Payroll. Answer: B Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 4) In an REA diagram for the HR/Payroll cycle, the relationship between Employees and Training is typically M:N for all except which of the following reasons? A) One employee may attend the same training event more than once. B) Each employee may attend more than one training event. C) Each training event may have more than one employee attend. D) One training event may be offered more than once. Answer: A Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5) In an REA diagram for the HR/Payroll cycle, the relationship between Skills and Recruiting reflects the fact that one specific advertisement may list several specific skills and, over time, there may be several advertisements for one specific skill. A) 1:1 B) 1:N C) M:N D) 1:M Answer: C Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

6) The relationship between the Recruiting event and Job Applicants is modeled as being because many people typically apply for each job opening, but a given individual may also respond to more than one recruiting event. A) 1:1 B) 1:N C) M:N D) 1:M Answer: C Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 7) Employees and Training entities is , because a given employee will, over time, attend numerous training courses and, conversely, several employees may attend the same specific training class. A) 1:1 B) 1:N C) M:N D) 1:M Answer: C Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 8) The relationship between the Skills and Training entities is , because each course is designed to develop a specific skill, but each skill may be taught many different times. A) 1:1 B) 1:N C) M:N D) 1:M Answer: B Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

9) The Interview event stores detailed data about each job interview. Since hiring only happens once, but there may have been several interviews, Interview is linked to the Hire Employees event in a(n) relationship. A) 1:N B) 1:1 C) M:N D) 1:M Answer: A Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following diagrams represents the cardinality pairs in a situation where a specific skill is taught at training sessions, but training is not offered for all skills at each session? A)

Answer: A Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

11) Which of the following accurately represents typical cardinalities for two entities in the HR/Payroll cycle? A)

Answer: C Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 12) Which of the following diagrams represents the cardinality pairs in a situation where interviews are conducted individually, and job applicants are able to interview for one or more positions? A)

Answer: D Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

13) Which of the following diagrams represents the cardinality pairs in a situation where many people apply for a specific position, and some of the applicants have applied for the position in the past? A)

Answer: B Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 14) Which of the following diagrams represents the cardinality pairs in a situation where supervisors conduct individual performance evaluations with each of the employees they supervise? A)

Answer: A Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

15) Describe the relationships between Recruiting event and Skills, and between Recruiting event and Job Applicants. Answer: The Recruiting event entity stores data about activities performed to notify the public of job openings. The data recorded in this entity are useful for documenting compliance with employment laws and also for evaluating the effectiveness of various methods used to announce job opportunities. The M:N relationship between Skills and Recruiting reflects the fact that each advertisement may seek several specific skills and that, over time, there may be several advertisements for a given skill. The relationship between the Recruiting event and Job Applicants is modeled as being M:N because many people typically apply for each job opening, but a given individual may also respond to more than one recruiting event. Also, more than one employee may participate in each recruiting event, and, over time, a given employee may participate in many such events. Concept: HR/payroll cycle REA model Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5 Understand and create an REA diagram for the financing cycle. 1) The textbook explicitly identifies can yield tax benefits. A) meal and entertainment expenses B) salary expenses C) travel expenses D) depreciation expenses Answer: A Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

as situation where a properly designed database

2) When modeling the issuance of debt, the maximum cardinality from Disburse Cash to Issue Debt is 1 because A) interest is usually only paid at the maturity date. B) one check is written for the total interest due. C) The Issue Debt event is not related to Disburse Cash event; cash is received, not given. D) The minimum cardinality would be 1, but the maximum cardinality should be N. Answer: B Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Challenging AACSB: Analytical Thinking

3) The relationship between the Disburse Cash and Issue Stock events is modeled as being M:N for all except which of the following reasons? A) One dividend check could be paid to shareholders that purchased stock at different times. B) Shareholders could receive several dividend checks over time. C) Checks must be written to each shareholder for dividend payments. D) Stock can be issued more than once over a period of time. Answer: C Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 4) The relationship between the Acquire Services and Disburse Cash events is modeled as to reflect the common situation in which the organization obtains the use of a specific service for a particular period of time and makes a payment each month for the services it acquired and used that month. A) 1:1 B) 1:N C) M:N D) 1:M. Answer: A Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 5) The relationship between the Disburse Cash and Issue Stock events is modeled as being because each stock issuance may be linked to many dividend payments and, conversely, a particular dividend payment may be related to multiple different issuances of stock. A) 1:1 B) 1:N C) M:N D) 1:M. Answer: C Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

6) Which of the following accurately represents typical cardinalities for two entities in the finance cycle? A)

Answer: C Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 7) Which of the following accurately represents typical cardinalities for two entities in the finance cycle? A)

Answer: D Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

8) Why is the event Issue Debt often modeled as a separate event entity? Answer: The event Issue Debt is a special kind of cash receipt. It is often modeled as a separate event entity because it contains distinctly different attributes from those associated with cash receipts that arise from the Sales event, such as the face amount of debt issued, total amount received, date issued, maturity date, and interest rate. Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 9) Identify the event below where information associated with the event most likely will need to be retained for years. A) The actual cost associated with repairing a customer's car. B) The employee who answered a customer service phone call. C) The amount of cash received from issuing stock. D) A list of services offered by the company as of the start of a fiscal year. Answer: C Concept: Financing cycle REA model Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 20 Introduction to Systems Development and Systems Analysis 1 Explain the five phases of the systems development life cycle, and discuss the people involved in systems development and the roles they play. 1) A company that invests in a system in the hopes of improving product or service quality is attempting to use their information system to gain A) a competitive advantage. B) improved business processes. C) productivity gains. D) better systems integration. Answer: A Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) An information system used by an furniture maker took 48 hours to process an order received over the internet. After upgrading the system, processing time was reduced to sixty seconds. This is an example of A) productivity gains. B) a technological change. C) an improved business process. D) better systems integration. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) What is the correct sequence of the phases in the systems development life cycle? A) Conceptual design, physical design, system analysis, implementation and conversion, and operations and maintenance. B) Operations and maintenance, conceptual design, system analysis, physical design, implementation and conversion. C) System analysis, conceptual design, physical design, implementation and conversion, and operations and maintenance. D) System analysis, physical design, conceptual design, and operations and maintenance, implementation and conversion. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) In which phase of the systems development life cycle are the broad needs of the users converted into detailed specifics that are coded and tested? A) Conceptual design. B) Implementation and conversion. C) Physical design. D) Systems analysis. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5) In which phase of the systems development life cycle where analysts decide how to meet user needs, identify and evaluate design alternatives, and develop detailed specifications for what the system is to accomplish and how it is to be controlled? A) Conceptual design. B) Implementation and conversion. C) Physical design. D) Systems analysis. Answer: A Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 6) In which phase of the systems development life cycle where the company hires and trains employees, tests and modifies procedures, establishes standards and controls, completes documentation, moves to the new system, and detects and corrects design deficiencies? A) Conceptual design. B) Implementation and conversion. C) Physical design. D) Systems analysis. Answer: B Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

7) In which phase of the systems development life cycle where the information needed to purchase, develop, or modify a system is gathered? A) Conceptual design. B) Implementation and conversion. C) Physical design. D) Systems analysis. Answer: A Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 8) The purpose of systems analysis is to A) identify the problem to be solved by the new (or redesigned) system and the causes of the problem in the current system. B) determine design specifications for the new (or redesigned) system. C) communicate information needs to consider during business process reengineering. D) discover any violations of policies established by the information systems steering committee. Answer: A Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 9) Which of the following activities is performed during the systems development life cycle? A) Assessing the ongoing feasibility of the project. B) Managing the behavioral reactions to change. C) Planning. D) All of the above activities are performed during the life cycle. Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 10) The step of the systems development life cycle (SDLC) identifies and evaluates design alternatives and develops design specifications. A) conceptual design B) implementation and conversion C) physical design D) systems analysis Answer: A Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 3

11) The step of the systems development life cycle (SDLC) is where the system is periodically reviewed and necessary modifications and improvements are made. A) conceptual design B) implementation and conversion C) physical design D) operations and maintenance Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 12) All of the elements of the system come together in which step of the systems development life cycle? A) Conceptual design. B) Implementation and conversion. C) Physical design. D) Systems analysis. Answer: B Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 13) When would a company go through a systems development life cycle? A) When major changes are needed. B) When minor changes are needed. C) Anytime changes are needed. D) Usually a company only goes through one complete systems development life cycle, after which the only phase that is repeated is the operations and maintenance phase. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

14) Identify the main reasons why companies change existing systems? Answer: Changes in user needs or business needs due to growth, consolidation, a merger, new regulations, or changes in regional and global relationships. Technological changes due to advances, improvements, and lower costs. Improvement of business processes to eliminate inefficiency. Competitive advantage from increased quality, quantity, and speed of information will result in an improved product to be sold at a lower price. Productivity gains that automate clerical and repetitive tasks and decrease performance time. Outgrowing old systems requires upgrades or the installation of completely new systems. Downsizing — moving from mainframes to networked PCs to get a better price/performance ratio. Systems age and need to be replaced. Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 15) Describe the physical design stage of the systems development life cycle. Answer: The physical design stage of the systems development life cycle (SDLC) is the third of five stages in the lifecycle, coming after the systems analysis and conceptual design stages. In this stage of the SDLC, input, output, and database attributes are designed, as well as various controls. Programs and procedures are developed during this stage as well. A final part of this stage is the delivery of the developed system, which will be further enhanced during the implementation and conversion stage of the SDLC. Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 16) Identify the statement below that is not a major reason companies change their information systems. A) In response to changes in user needs. B) In response to technological changes. C) To gain a competitive advantage. D) To take advantage of tax benefits. Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

17) Approximately what percentage of software development projects are cancelled before they are ever completed? A) 70% B) 30% C) 66% D) 54% Answer: B Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 18) Approximately what percentage of software development projects were late? A) 70% B) 30% C) 66% D) 54% Answer: A Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 19) Approximately what percentage of software development projects were over budget? A) 70% B) 30% C) 66% D) 54% Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking 20) Approximately what percentage of software development projects were unsuccessful? A) 70% B) 30% C) 66% D) 54% Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking

21) Fairfax Corporation uses two systems for revenue cycle transaction processing. One system keeps track of customer sales. The other system keeps track of accounts receivable. Last year, Fairfax Corporation decided to merge the two systems into one so that both functions could be performed in the same system. This is an example of A) competitive advantage. B) technological innovation. C) productivity gains. D) systems integration. Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 22) Which group of individuals listed below can be the most effective in generating employee support and encouraging the development and acceptance of an AIS project? A) Accountants. B) Information systems steering committee. C) Management. D) Project development team. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 23) Who is responsible for ensuring that the new system will meet the needs of users? A) Accountants. B) System programmers. C) The project development team. D) System analysts. Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 24) Who is responsible for preparing the specifications used to create or revise system programs? A) Management. B) System programmers. C) Systems analysts. D) Accountants. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 7

25) What role does the information systems steering committee play in the systems development process? A) It guides project development. B) It is an executive-level group established to plan and oversee the information systems function. C) It designs system controls and periodically monitors the system to verify the controls are implemented and functioning properly. D) It guides project implementation. Answer: B Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 26) Who is responsible for planning and monitoring a project to ensure timely and cost-effective completion? A) Information systems steering committee. B) Management. C) Project development team. D) Accountants. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 27) Who prepares a systems analysis report? A) Computer analysts. B) Management. C) The project development team. D) The steering committee. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

28) Identify the individuals who make up the project development team and describe the team's purpose. Answer: The project development team includes systems specialists, managers, accountants, internal auditors, and users. The project development team's duties include planning each project, monitoring it to ensure timely and cost-effective implementation, properly introducing changes after considering the human element, and communication with the top management and the steering committee at all steps in the process. Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 29) Identify and discuss the role of the groups that influence the development and implementation of an AIS. Answer: Management — support from management is crucial in successful development and implementation of an AIS. Any actual or perceived lack of support from management may cause skepticism and a lack of "buy in" from employees. Accountants — determine the user requirements and communicate to system developers; members of the project development team; design system controls and monitor and test the system. Accountants can also help in assessing and tracking costs of projects. Information systems steering committee — a cross-functional, executive-level team that champions the project and is responsible for high-level support of the project. Sets policies that govern AIS systems analysts - study existing systems, design new ones, and prepare system specifications for computer programmers. Systems programmers — write computer programs based on specifications and requirements created by the system analysts. External players — customers, vendors, auditors, and regulations from governmental entities influence design of an AIS. Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytical Thinking 30) An effective project development team consists of A) systems analysts. B) accountants. C) users. D) all of the above Answer: D Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

31) Who should communicate frequently with users and hold regular meetings to consider ideas and discuss progress so there are no surprises upon project completion? A) Information systems steering committee. B) Management. C) Project development team. D) Accountants. Answer: C Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 32) External parties are not needed to participate in an organization's systems development and analysis process. Answer: FALSE Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 33) Who is responsible for maintaining existing computer programs? A) Management. B) System programmers. C) Systems analysts. D) Accountants. Answer: B Concept: Systems development life cycle Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain the importance of systems development planning, and describe the types of plans and planning techniques used. 1) Which of the following statements about systems development is true? A) Planning throughout the systems development life cycle promotes coordination between systems and strategic plans. B) Organizations should conduct systems development activities at least once every five years. C) The systems development steps are critical for profit-oriented businesses, but are too expensive and time consuming for most not-for-profit organizations. D) Diligently following the steps and suggestions in the systems development life cycle ensures the final system will meet user needs and be implemented at or below the budgeted cost. Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 10

2) Which of the following about planning for systems development is false? A) Project plans are developed for each new system and each system modification. Then, these project plans are combined together to form the master plan. B) A project development plan includes an economic feasibility analysis and a schedule of activities. C) The master plan identifies system goals, who will develop the system, and the resources that will be needed. D) The master plan includes details about organizational goals, existing systems and resources, projects being conducted, and predictions of future needs and requirements. Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3) All of the following are benefits of planning and managing systems development except A) controlling costs. B) ensuring systems are consistent with organizational goals. C) guaranteeing that employees use the system. D) aids in keeping the organization abreast of technological change. Answer: C Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4) In which tool is a prioritized list of projects contained? A) The project development plan. B) The implementation plan. C) The master plan. D) The program evaluation and review technique plan. Answer: C Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 5) The is the basic building block of information systems planning. A) master plan B) project development plan C) systems analysis plan D) implementation plan Answer: B Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 11

6) The describes what a system will consist of, how it will be developed, who will develop it, when it will be developed, how needed resources will be acquired, the status of projects in process, the prioritization of planned projects, and the prioritization criteria. A) master plan B) project development plan C) systems analysis plan D) implementation plan Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) A planning horizon of at least years is common for any master plan; however, the plan should be updated at least each year. A) 3; four times B) 5; four times C) 3; two times D) 5; two times Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 8) requires that all activities and the precedent and subsequent relationships among them be identified. A) A CASE diagram B) A Gantt chart C) A PERT diagram D) A SDLC cycle Answer: C Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

9) A network of arrows and nodes representing project activities that require an expenditure of time and resources and the completion of initiation of activities, respectively, is called A) a Gantt chart. B) a PERT diagram. C) a SDLC cycle. D) CASE. Answer: B Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 10) Which planning technique does not show the relationships among various activities? A) Gantt chart. B) PERT. C) the critical path method. D) VAN. Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) Refer to the diagram below, where the numbers next to the arrows refer to the number of days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F B) A-C-E-F C) A-B-D-E-F D) A-C-B-D-F E) A-C-B-D-E-F Answer: E Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

12) Refer to the diagram below, where the numbers next to the arrows refer to the number of days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F B) A-C-E-F C) A-B-D-E-F D) A-C-B-D-F E) A-C-B-D-E-F Answer: B Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 13) Refer to the diagram below, where the numbers next to the arrows refer to the number of days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F B) A-C-E-F C) A-B-D-E-F D) A-C-B-D-F E) A-C-B-D-E-F Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

14) Describe the importance of the master plan in systems development. Answer: A master plan is a long-range planning document specifying the components of the system, how the system will be developed, who will do the developing, how resources will be acquired for development, and the direction the AIS will take into the future. The document should give a status of projects already in process, prioritize them, describe criteria for prioritization and provide a timetable for their development. A master plan should span a time period of three years, and it should be updated at least two to three times each year. Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) PERT is an acronym that stands for A) program evaluation and review technique. B) process evaluation and review technique. C) performance effectiveness and review technique. D) performance effectiveness and refinement technique. Answer: A Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) Identify the statement below that best describes a Gantt chart. A) A network of arrows and nodes representing project activities. B) A bar chart with project activities on the left-hand side and units of time across the top. C) A pie chart with the size of estimated expenditures represented as slices. D) A scatterplot diagram with activities on the Y access and dots representing the potential expenditures of each activity. Answer: B Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 17) One disadvantage of a Gantt chart is the fact that A) it does not show the entire schedule for a project. B) it does not show project progress. C) it does not show relationships among project activities. D) it does not permit an individual to quickly determine which activities are behind schedule. Answer: C Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

18) Describe what is a Gantt chart and both of its advantage and disadvantage. Answer: A Gantt chart is a bar chart with project activities on the left-hand side and units of time across the top. For each activity, a bar is drawn from the scheduled starting date to the ending date, thereby defining expected project completion time. As activities are completed, they are recorded on the Gantt chart by filling in the bar; thus, at any time it is possible to determine which activities are on schedule and which are behind. The primary advantage of the Gantt chart is the ability to show graphically the entire schedule for a large, complex project, including progress to date and status. A disadvantage is that the charts do not show the relationships among project activities. Concept: Systems development planning Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 3 Discuss the various types of feasibility analysis, and calculate economic feasibility using capital budgeting techniques. 1) A feasibility study should first be performed in the development life cycle. A) conceptual design B) implementation and conversion C) physical design D) system analysis Answer: D Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

stage of the systems

2) Suppose a state law mandates that the firm maintained certain sales information. Where should this requirement be considered in a feasibility study? A) Economic feasibility. B) Legal feasibility. C) Operational feasibility. D) Technical feasibility. Answer: B Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

3) The most important and frequently re-analyzed part of a feasibility study is the aspect. A) Economic feasibility B) Operational feasibility C) Scheduling feasibility D) Technical feasibility Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4) Suppose an organization is interested in knowing whether the system can be developed and implemented in the time allotted. Where should this requirement be considered in a feasibility study? A) Economic feasibility. B) Scheduling feasibility. C) Operational feasibility. D) Technical feasibility. Answer: B Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 5) Suppose an organization is interested in knowing whether the system can be developed and implemented using existing technology. Where should this requirement be considered in a feasibility study? A) Economic feasibility. B) Scheduling feasibility. C) Operational feasibility. D) Technical feasibility. Answer: D Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

6) Suppose an organization is interested in knowing whether it has access to people who can design, implement, and operate the proposed system. Where should this requirement be considered in a feasibility study? A) Economic feasibility. B) Scheduling feasibility. C) Operational feasibility. D) Technical feasibility. Answer: C Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) model is the basic model used to create a framework for an economic feasibility analysis. A) The capital budgeting B) The cash budgeting C) The cost/benefit D) The profit margin Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) It is most difficult to quantify A) benefits B) costs C) the payback period D) break even Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

when assessing economic feasibility.

9) Companies usually accept the project with the when using the payback method to determine a project's economic feasibility. A) longest payback period B) weighted average payback period C) payback period that is equal to the project's economic life D) shortest payback period Answer: D Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 18

10) A consideration of whether an organization's employees will use a new or revised system represents the aspect of a feasibility study. A) economic feasibility B) operational feasibility C) scheduling feasibility D) technical feasibility Answer: B Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 11) Estimating benefits and expenditures to determine whether a proposed system would be beneficial is known as A) the "best guess" model of benefit analysis. B) the "value added" benefit model. C) the capital budgeting model. D) the estimated benefits model. Answer: C Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 12) Estimating future cash flows and discounting them back to the present is part of which capital budgeting technique? A) The future value method. B) The annuity method. C) The net present value method. D) The payback method. Answer: C Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

13) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the payback criterion?

A) Project A B) Project B C) Project C D) Project D Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 14) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the net present value criterion?

A) Project A B) Project B C) Project C D) Project D Answer: D Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

15) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the internal rate of return criterion?

A) Project A B) Project B C) Project C D) Project D Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the internal rate of return criterion?

A) Project A B) Project B C) Project C D) Project D Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

17) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the net present value criterion?

A) Project A B) Project B C) Project C D) Project D Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 18) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the payback criterion?

A) Project A B) Project B C) Project C D) Project D Answer: D Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 19) Which of the following will help organizations to determine whether a system's benefits justify the time, money, and resources required to implement it. A) Economic feasibility. B) Technical feasibility. C) Legal feasibility. D) Operational feasibility. Answer: A Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

20) Which of the following aspect of a feasibility study is concerned with meeting external reporting requirements? A) Technical feasibility. B) Legal feasibility. C) Scheduling feasibility. D) Operational feasibility. Answer: B Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 21) Which of the following aspect of a feasibility study is concerned with human resources? A) Technical feasibility. B) Legal feasibility. C) Scheduling feasibility. D) Operational feasibility. Answer: D Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 22) Describe economic feasibility analysis. What techniques are used in economic feasibility analysis? Answer: The capital budgeting model is used as the foundation for economic feasibility analysis. In this model, cost savings and other (even intangible) benefits, as well as initial outlay costs, operating costs, and other cash outflows are quantified in terms of dollars and cents. The tangible and intangible benefits include cost savings; improved customer service, overall increased productivity; improved decision making and data processing; better management control; and increased job satisfaction and employee morale. The costs include: software acquisition; design; programming; testing; documentation and maintenance costs; site preparation; and human resource costs such as hiring, testing, and relocation. The capital budgeting model is used as a framework for economic feasibility analysis. The three techniques that are used are: — Payback period: The number of years for the net savings to recover the initial costs of the investment is calculated. A project with the shortest payback period is preferable under this method. — Net Present Value (NPV): A discount rate representing the time value of money is used to discount all future cash flows to the present. The initial outlay costs are deducted from discounted cash flows to obtain net present value. A positive NPV indicates favorable economic feasibility. — Internal Rate of Return (IRR): IRR is the effective interest rate that results in an NPV of zero. This effective interest rate is compared with a company's desired rate of return (sometimes it can be the cost of capital). A project with the highest IRR will be selected when this method is used for evaluation purposes. Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 23

23) Identify and describe the five types of feasibility that must be considered throughout the system development life cycle. Answer: These five types of feasibility are technical, operational, legal, scheduling, and economic. Technical feasibility asks the question of whether the planned system can be developed and implemented using the technology that exists today. Operational feasibility focuses on the question of whether the organization possesses the human resources capable of designing, implementing, and operating the proposed system, and whether people can actually use the system and will use the system. Legal feasibility deals with issues of federal and state law compliance, administrative agency regulations, and any contractual obligations the company may have. The focus of scheduling feasibility is the question of whether the system can be developed and implemented within the time allotted. Economic feasibility tackles questions of whether the system benefits will outweigh the time, money, and resources used to develop it. Capital budgeting models are used to evaluate the costs versus benefits of a system. The capital budgeting techniques of a payback period, the net present value (NPV) of cash flows, and the internal rate of return (IRR) can be incorporated as part of the economic feasibility component of the feasibility study. Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 24) Describe the three commonly used capital budgeting techniques. Answer: The three commonly used capital budgeting techniques are: 1. Payback period. The payback period is the number of years required for the net savings to equal the initial cost of the investment. The project with the shortest payback period is usually selected. 2. Net present value (NPV). All estimated future cash flows are discounted back to the present, using a discount rate that reflects the time value of money. The initial outlay costs are deducted from the discounted cash flows to obtain the net present value (NPV). A positive NPV indicates the alternative is economically feasible. The highest positive NPV is usually selected. 3. Internal rate of return (IRR). The internal rate of return (IRR) is the effective interest rate that results in an NPV of zero. A project's IRR is compared with a minimum acceptable rate to determine acceptance or rejection. The proposal with the highest IRR is usually selected. Concept: Feasibility analysis Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4 Explain why system changes trigger behavioral reactions, what form this resistance to change takes, and how to avoid or minimize the resulting problems. 1) is a form of user resistance where data are erroneously entered into a system. A) Acceptance B) Aggression C) Avoidance D) Aggravation Answer: B Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 2) is a form of resistance when users continue to use a manual process instead of adopting a new information system. A) Acceptance B) Aggression C) Avoidance D) Aggravation Answer: C Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 3) is a form of resistance when users blame anything and everything on the new system, such that it becomes the scapegoat for all real and imagined problems and errors. A) Acceptance B) Aggression C) Avoidance D) Projection Answer: D Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

4) Identify the behavioral problem below that arises due to users receiving an insufficient explanation of why a system must be changed. A) Communication. B) Natural resistance to change. C) The manner in which the change is introduced. D) Top management support of change. Answer: A Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) Identify the form of user resistance that occurs when the new system is blamed for any unpleasant occurrence. A) Passive-aggression. B) Persistent. C) Protest. D) Projection. Answer: D Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 6) In order to reduce resistance resulting from uncertainty, what guideline should be implemented and followed during the systems development process? A) Attempt to meet the users' needs. B) Avoid confrontation. C) Keep communication lines open. D) Keep cost down. Answer: C Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

7) A good rule to follow to prevent behavioral problems associated with implementing a new system is "Avoid complex systems that cause radical changes." What expression is used to describe this system design rule? A) Allay fears and stress new opportunities. B) Keep the system simple and humanize it. C) Manage users' expectations. D) Provide tech support. Answer: B Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 8) Three months after Modern Helpdesks Incorporated began accepting e-mail service requests, several service advisors had never checked their e-mail accounts. This is an example of dealing with change by A) deterrence. B) projection. C) avoidance. D) aggression. Answer: C Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 9) Shortly after a new automated quality assurance system was deployed, a firm's production output dropped by five percent. The shift manager blamed the new system, declaring that "after we laid off staff, nothing went as fast." This is an example of dealing with change by A) deterrence. B) projection. C) avoidance. D) aggression. Answer: B Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

10) A newly installed robotic vacuuming system stopped working. A service technician was called to repair the robots. The technician found that water had been placed into the robot's path, causing it to malfunction. This is an example of dealing with change by A) deterrence. B) projection. C) avoidance. D) aggression. Answer: D Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 11) Dysfunctional employee behavior in response to implementation of a new computerized information system is likely to be the result of A) poor human resource policies. B) lack of communication and training. C) weak system controls. D) inadequate compensation policies. Answer: B Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 12) What are some of the reasons why behavioral problems occur when a new AIS is introduced? Answer: Personal characteristics and background of the users involved or impacted by the change. The manner in which change is introduced may have greater impact than the actual change itself. Experience with prior changes that went poorly may make employees wary of new anticipated changes. Any lack of top management support may raise an issue of endorsement for such changes. Communication can be a problem when no explanation is given to employees about a change. Biases and natural resistance to change may occur due to emotional attachments to duties or coworkers. Disruptive nature of the change process can place additional burdens on workers. People may have a fear of the unknown and uncertainty about accompanying changes. Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

13) Describe guidelines that an organization can follow to prevent behavioral problems when implementing a system. Answer: The human element, which is often the most significant problem a company encounters in implementing a system, can be improved by observing the following guidelines: Obtain management support; Involve users; Allay fears, and stress new opportunities; Avoid emotionalism; Provide training; Reexamine performance evaluation; Keep communication lines open; Keep the system simple, and humanize it; and Control users' expectations. Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 14) Guidelines that an organization can follow to prevent behavioral problems when implementing a system is often inexpensive and not as time-consuming as one may have thought. Answer: FALSE Concept: Behavioral aspects of change Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5 Discuss the key issues, objectives, and steps in systems analysis. 1) During of systems analysis, an examination is made of each development activity to define the problem to be solved. A) information needs and systems requirements B) the feasibility study C) the initial investigation D) the systems survey Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 2) When is a proposal to conduct a systems analysis prepared? A) After a written request for systems development is prepared. B) After the development team completes the survey of the existing AIS. C) After the initial investigation of the project is approved. D) Before the initial investigation of the project is approved. Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

3) Modeling of the existing system occurs during the A) information needs and system requirements B) feasibility study C) initial investigation D) systems survey Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

phase of systems analysis.

4) When seeking to find answers to questions pertaining to "why," the most useful approach is to A) conduct interviews. B) make observations. C) distribute questionnaires. D) read system documentation. Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 5) When seeking to find anonymous answers, the most useful approach is to A) conduct interviews. B) make observations. C) distribute questionnaires. D) read system documentation. Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 6) When seeking to verify how a system actually works, rather than how it should work. The most useful approach is to A) conduct interviews. B) make observations. C) distribute questionnaires. D) read system documentation. Answer: B Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

7) When seeking to describes how a system should work, the most useful approach is to A) conduct interviews. B) make observations. C) distribute questionnaires. D) read system documentation. Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 8) Significant system changes were implemented two months ago. The changes were wellplanned, well-designed, thoroughly tested before and after conversion, and several employee training sessions were conducted. Still, the changes haven't resulted in any productivity increases, cost savings, or process improvements. Management is puzzled and needs to find out why the system isn't successful. The best action for management to take is A) conduct face-to-face interviews with managers, key personnel, and randomly selected employees from each functional area impacted by the system changes in an attempt to discover why the changes aren't effective. B) make sure the system changes were well documented and review the documentation to see if perhaps some important feature or process was overlooked during the design phase. C) e-mail a series of questions to all employees, asking for input about further changes that would bring about the desired results. D) advise employees that consultants will be conducting observation sessions over the next two weeks to determine if employees have fully implemented changes and whether there is any evidence of resistance to the changes. Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Challenging AACSB: Reflective Thinking 9) Which method of data gathering is most likely to result in information that represents the personal biases and opinions of the person giving the information? A) A questionnaire. B) An interview. C) Observation by the analyst. D) System documentation. Answer: B Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

10) When the information is brief and well defined, which is the best data-gathering approach to use? A) A questionnaire. B) An interview. C) Observation by the analyst. D) System documentation. Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 11) Which is the best data-gathering approach to use when information must be obtained from many different people? A) A questionnaire. B) An interview. C) Observation by the analyst. D) System documentation. Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 12) The method of gathering information helps to determine how a system actually works. A) interview B) observation C) questionnaire D) system documentation Answer: B Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 13) The method of gathering information helps to determine how a system should work. A) interview B) observation C) questionnaire D) system documentation Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 32

14) What are the best strategies for determining system requirements? A) Analyze existing systems, ask users what they need, prototyping, and monitoring. B) Ask users what they need, analyze existing systems, develop concept of new system, and prototyping. C) Ask users what they need, analyze existing systems, examine existing system utilization, and prototyping. D) Ask users what they need, analyze existing systems, examine existing system utilization, and develop concept of new system. Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 15) What report serves as a repository of data from which systems designers can draw information? A) The executive steering committee report. B) The initial investigation report. C) The systems analysis report. D) The systems survey report. Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 16) In which systems analysis step do analysts conduct an extensive study of the present system to gain a thorough understanding of how it works? A) Feasibility study. B) Information needs and requirements. C) Systems analysis report. D) Systems survey. Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

17) The question of what the project should and should not accomplish is determined in what step of systems analysis? A) Feasibility study. B) Initial investigation. C) Systems analysis report. D) Systems survey. Answer: B Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 18) A Logical model used to gather information about an existing system A) comes only after a physical model of the existing system is created. B) describes how a system actually works, rather than how it should work. C) illustrates how a system functions by describing the flow of documents and computer processes. D) illustrates what is being done, regardless of how that flow is actually accomplished. Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 19) The system objective concerned that crucial information be produced first, and then less important items as time permits, is known as A) flexibility. B) reliability. C) timeliness. D) usefulness. Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 20) The system objective concerned that information output should help management and users make decisions is known as A) flexibility. B) reliability. C) timeliness. D) usefulness. Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 34

21) The system objective concerned that system should be able to accommodate reasonable requirement changes is known as A) flexibility. B) reliability. C) timeliness. D) usefulness. Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 22) The system objective concerned that system should process data accurately and completely is known as A) flexibility. B) reliability. C) timeliness. D) usefulness. Answer: B Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 23) A prototype A) is expensive to create and is therefore only created once user needs are well-defined. B) is making an internal and external review of the system to be analyzed, noting that users may not use the existing AIS as intended. C) is typically created during the physical design phase of systems development. D) can be used to help users identify and communicate their system needs. Answer: D Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

24) The task of improving the efficiency of Crawford Insurance's accounting information system was given to a project development team. During the step in the systems development life cycle, the team determined that implementing a new system will yield an internal rate of return of approximately 16.0%. A) systems analysis B) operations and maintenance C) implementation and conversion D) conceptual design Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 25) The task of improving the efficiency of Crawford Insurance's accounting information system was given to a project development team. During the step in the systems development life cycle, the team determined that the project's objectives can be best accomplished by upgrading the existing system. A) systems analysis B) implementation and conversion C) physical design D) conceptual design Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 26) The task of improving the efficiency of Crawford Insurance's accounting information system was given to a project development team. During the step in the systems development life cycle, the team initiated an end user training program to prepare employees to switch to the new system. A) systems analysis B) operations and maintenance C) implementation and conversion D) physical design Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

27) The task of improving the efficiency of Crawford Insurance's accounting information system was given to a project development team. During the step in the systems development life cycle, the team defined the procedures needed to back up and secure the new system's data. A) operations and maintenance B) implementation and conversion C) physical design D) conceptual design Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 28) The least time-consuming method of collecting data for use in a systems survey is A) observation. B) interviews. C) questionnaires. D) reviewing system documentation. Answer: C Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 29) Data gathered by can often be difficult to interpret properly. A) observation B) interviews C) questionnaires D) reviewing system documentation Answer: A Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 30) Describe the five phases of systems analysis. Answer: Initial investigation of each development activity to define the problem to be solved. Systems survey to study the present system and gain a thorough understanding of how it works. Feasibility study with special focus on the economic feasibility of the project. Information needs and system requirements which will identify the needs of users and determine the objectives of the new system. Systems analysis report which provides management with the findings of the analysis phase. Deliver systems requirements. Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Challenging AACSB: Analytical Thinking 37

31) Describe the four primary objectives of a systems survey conducted during systems analysis. Answer: Analyze existing operations, policies and procedures, and data and information flow to gain a thorough understanding of the current system including its strengths and weaknesses. Make a preliminary assessment of current and future processing needs, and determine both the extent and nature of the changes that are needed. Develop relationships with users and build coalitions to gain support for the AIS. Collect data that identify user needs, conduct a feasibility analysis, and make recommendations to the management. Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 32) Identify and briefly discuss the points at which a "go/no go" decision is made in the systems analysis process. Answer: There are three points at which a "go/no go" decision can be made during systems analysis. The first point is during the initial investigation, in which a decision will be made whether to conduct a systems survey. The second point is at the end of the feasibility study, at which point a decision will be made whether to proceed to the information requirement stage. The third (and last) point is at the completion of the analysis phase, which is the point at which a decision is rendered about whether to proceed to the design phase. Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Challenging AACSB: Analytical Thinking

33) Discuss the relative advantages and disadvantages of the four different methods for gathering data during a systems survey. Answer: Interviews: Advantages of this method include: answers to "why" questions; a way to build relationships; analysts can easily probe and ask follow-up questions; and analysts can build acceptance for the project. Disadvantages to interview include: time consumed, expense to conduct, and the information given is subject to personal biases and opinions of those interviewed. Questionnaires: The advantages to using questionnaires are: anonymity from respondents can yield candid answers; much information can be obtained in a short time period; they are generally inexpensive; and a questionnaire gives the respondent time to think about answers, which may produce answers of a high quality. Disadvantages include: lack of any follow up or probing on a personal level; since the questionnaire is anonymous, the analyst cannot clarify questions; sometimes questionnaires are viewed as impersonal, and they may often be ignored or not completed carefully. Observation: Advantages of observation include verification of how systems actually work and better understanding of the system. Disadvantages include: time consumed; they are expensive and difficult to interpret, the observed people may alter their behavior. Systems Documentation: The advantages of system documentation are that such documentation may provide a good description of how the system should work, and generally documentation is easy to read. The disadvantages to system documentation are that it can be time consuming to obtain and analyze, it may not be available or it may be incomplete, and it may not show how a system really works if it has not been maintained on a regular basis. Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 34) For each of the following items, discuss which of the four data gathering methods would be most appropriate and why. a. Eliciting 300 employees' opinions on a new incentive program to replace the current bonus program. b. Identifying how the credit approval process for new customers is supposed to be conducted and by whom. Answer: a. Eliciting opinions from a large population on a potentially emotionally charged topic is best handled with a questionnaire. You can ask the same questions from a large number of employees; you will get candid responses, particularly if you respect anonymity; the questionnaire would be relatively quick and inexpensive to create and analyze responses. b. Identifying how a process is supposed to be done is best handled by reviewing documentation about the process. Flowcharts, data flow diagrams, process diagrams, job descriptions, organizational charts, and training manuals would all provide information about the design of the credit approval process. Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 39

35) Describe the four strategies used to determine AIS requirements. Answer: The following four strategies are used to determine AIS requirements: 1. Ask users what they need. This is the simplest and fastest strategy, but many people do not understand their needs. They know their job but may be unable to break it down into the individual information elements they use. It is sometimes better to ask what decisions they make and what processes they are involved in and then design systems to address their answers. Users must think beyond current information needs so that new systems do not simply replicate current information in improved formats. 2. Analyze external systems. If a solution already exists, do not "reinvent the wheel." 3. Examine existing systems. Determine if existing modules are used as intended, may be augmented by manual tasks, or may be avoided altogether. This approach helps determine whether a system can be modified or must be replaced. 4. Create a prototype. When it is difficult to identify requirements, a developer can quickly rough out a system for users to critique. Users identify what they like and dislike about the system and request changes. This iterative process of looking at what is developed and improving it continues until users agree on their needs. Concept: Systems analysis Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 21 AIS Development Strategies 1 Describe how organizations purchase application software, vendor services, and hardware. 1) Identify the statement below that is false with regards to the development of an AIS. A) A newly designed AIS always meets user needs for a time period. B) Changes to the AIS are often difficult to make after requirements have been frozen into specifications. C) The development process can take so long that the system no longer meets company needs. D) Users are sometimes unable to specify their needs adequately. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 2) When canned software is used for systems acquisition, the conceptual design phase of the systems development life cycle (SDLC) A) becomes a make-or-buy decision. B) is combined with the physical design phase. C) remains unchanged. D) becomes a "turn-on turn-off" decision. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) When canned software is used for systems acquisition, the physical design phase of the systems development life cycle (SDLC) A) does not involve designing and coding, although modifications may still need to be made. B) is combined with the conceptual design phase. C) involves designing and coding, although modifications may still need to be made. D) remains unchanged. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

4) When canned software is used for systems acquisition, the implementation and conversion phase of the systems development life cycle (SDLC) A) involves the documentation step. B) requires the company to have trained IS personnel. C) requires the develop and test software step. D) involves both A and C. Answer: D Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 5) When canned software is used for systems acquisition, the maintenance aspect of the operations and maintenance phase of the systems development life cycle (SDLC) A) is more costly. B) is often difficult to predict. C) is usually the responsibility of the vendor. D) requires trained personnel. Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 6) When a systems vendor provides both the software and hardware needed to run a system as a package, this is known as A) a turnkey system. B) cloud computing. C) an application service package. D) canned software. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 7) When a systems vendor provides software via the Internet and gives the user accesses to the software remotely via the Internet, this is known as A) a turnkey system. B) cloud computing. C) an application service package. D) canned software. Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2

8) Identify one major drawback that is frequently associated with canned software. A) A commercial software development company develops it. B) Canned software is sold on the open market to a broad range of users with similar requirements. C) Canned software may not meet all of a company's information or data processing needs. D) Canned software may offer easy availability and lower costs. Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) Which statement is true regarding canned software and the systems development life cycle (SDLC)? A) Canned software cannot be modified to meet unique user needs. B) Companies that buy, rather than develop, AIS software can still follow the systems development life cycle (SDLC) process. C) Most canned software meets all of a company's information or data processing needs. D) The systems development life cycle (SDLC) process does not apply to purchasing canned software. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 10) The reasons for are to simplify the decision-making process, reduce errors, provide time savings, and avoid potential disagreements. A) leasing B) outsourcing C) prototyping D) sending out a request for a proposal Answer: D Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

11) When a request for proposal (RFP) is solicited based on , total costs are usually lower and less time is required for vendor preparation and company evaluation. A) specific equipment needs B) general software needs C) exact hardware and software specifications D) system efficiency Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 12) Information provided to potential vendors on a Request For Proposal (RFP) should include A) a budget for software and hardware. B) detailed specifications for the AIS. C) a timeframe required for completion of the project. D) a high level needs for the AIS. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) is a performance evaluation approach that evaluates systems based on the weighted score of criteria and points. A) Benchmarking B) Point scoring C) Prototyping D) Requirements costing Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 14) is a method of comparing systems by executing an input, processing, and output task on different computer systems and evaluating the results. A) Benchmarking B) Point scoring C) Prototyping D) Requirement costing Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 4

15) is a method of comparing systems based on the cost of all required features; when software does not meet all requirements, the cost of developing unavailable features is estimated and added to its cost. A) Benchmarking B) Point scoring C) Requirement costing D) Prototyping Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 16) and are approaches to evaluating vendor proposals that do not incorporate dollar estimates of costs or benefits. A) Benchmark problem; point scoring B) Point scoring; requirements costing C) Requirements costing; benchmark problem D) Point scoring; prototyping Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 17) The more information a company provides vendors in its request for proposal, the better the chances of receiving a system that meets the organization's requirements. Which of the below statements identifies why errors may decrease? A) All responses are in the same format and based on the same information. B) Both parties possess the same expectations and pertinent information is captured in writing. C) The chances of overlooking important factors are reduced. D) The same information is provided to all vendors. Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

18) What is the first step a company should take when evaluating requests for proposals? A) Carefully compare proposals against the proposed AIS requirements. B) Determine how much of a given proposal meets the desired AIS requirements. C) Eliminate proposals that are missing important information or fail to meet minimum requirements. D) Invite vendors to demonstrate their systems. Answer: C Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 19) The method calculates and compares the processing times of different AIS to compare system performance. A) benchmark problem B) mandatory requirements C) point scoring D) requirements costing Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 20) What is a drawback to using the requirement costing method of software and hardware evaluation? A) Dollar estimates of costs and benefits are not included. B) Intangible factors such as reliability and vendor support are overlooked. C) The weights and points used are assigned subjectively. D) There is no drawback to using the requirements costing method. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

21) Carmie Iria, the director of a systems project committee, has received management approval for the implementation of a new accounting information system. After sending out an RFP to multiple vendors, the committee settled on purchasing a system from Optibase, a vendor who will provide the company with all of the required hardware and software. Carmie's committee has opted to purchase A) canned software. B) a turnkey system. C) an outsourced system. D) cloud computing. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 22) Carmie Iria, the director of a systems project committee, has received management approval for the implementation of a new accounting information system. After sending out an RFP to multiple vendors, the committee settled on purchasing a system from Sysys, a vendor who will provide a standard software package and post-sale technical support. Carmie's committee has decided to go with A) canned software. B) a turnkey system. C) an outsourced system. D) an end-user developed system. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 23) What is a benchmark problem? A) A difficulty encountered when attempting to bring an accounting information system up to industry best practices. B) A method used to compare the efficiency of alternative accounting information systems. C) The cost-benefit tradeoff defined by the relationship between increased costs and increased benefits from a system. D) A method used to test the compatibility of a new accounting information system with existing hardware and software. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Challenging AACSB: Analytical Thinking

24) Which of the following is a method for comparing alternative vendor proposals for development of an accounting information system when the vendors differ with regard to their ability to meet the project criteria? A) Point scoring. B) Resource clearing. C) Requirements costing. D) Multi-objective optimization. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 25) Describe the difficulties that could be encountered when developing an AIS. Answer: Demand for development resources is very high and can backlog AIS projects for several years. The development process can be lengthy. System developers may not understand the company's business, and consequently the new system may not always meet user's needs. The time taken to develop an AIS may make it obsolete when the new system is ready to launch. Users may not be able to articulate their demands adequately, and therefore they may be dissatisfied with the finished product. Changes to the AIS are difficult to make beyond a certain point, so the AIS remains in a state of "perpetual development" and flux. Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 26) What are the three methods to obtain a new information system? What is a turnkey system? Answer: The three methods to obtain a new information system are purchasing new software, developing software in-house (either by development staff or by the system end-users themselves), or hiring an outside company to create a system. A turnkey system is a software and hardware package, which is complete and ready to be used "at the turn of a key." Vendors for turnkey systems primarily specialize in a particular industry. Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

27) Explain the concept of an application service provider. Answer: An application service provider (or ASP) is a third-party provider of software to organizations. An ASP is Web-based, providing delivery of software to its clients over the Internet. An organization that uses an ASP "rents" the software, thus eliminating the tasks of buying, installing, and maintaining the software. Among the advantages to using this approach as opposed to the outright purchase of software is a reduction of software costs and administrative overhead, automated software upgrades, scalability as the organization itself grows, global access to information, access to skilled IT personnel, and ability to focus on core competencies rather than IT requirements. Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 28) Identify the ways an organization can gain full advantage of using a Request For Proposal (RFP). Answer: The more information an organization provides in its RFP, the better its chances are of receiving a system that meets its requirements. It is important to include detailed specifications for the new AIS, including required applications, inputs, outputs, files, databases, frequency and ways of updating files and creating queries, and any unique characteristics or requirements. It is also essential that the RFP distinguishes between what are mandatory requirements and what are "desirable but not essential" requirements. Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 29) What are the advantages and disadvantages of custom software and of canned software for meeting application software needs? Answer: Custom software: tailored to needs; potential competitive advantage; and better control over the process: expensive; difficult to write; error prone; and time consuming. Canned software: easy to acquire; fast to acquire; inexpensive; good documentation; updates are inexpensive; and can be tested: not tailored to needs; not as efficient as custom software; does not develop in-house expertise in creation; and developer may go out of business. Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

30) Who is typically responsible for installing turnkey systems? A) An organization's IT department. B) The vendor who provides the system. C) A third-party hired by the system vendor. D) Both the organization's IT department and the vendor who provides the system. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 31) are one example of a cloud computing solution. A) Application service providers B) Turnkey vendors C) SDLC implementations D) Canned software providers Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 32) Identify one of the benefits associated with procuring software from application service providers. A) Lower cost. B) Scalability. C) Greater effectiveness. D) Faster processing speed. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 33) When an organization seeks to modify canned software, it is best when unauthorized modifications may make the program unreliable. A) the vendor modifies the software B) the intended end-user modifies the software C) programmers with software experience modify the software D) the organization's IT modifies the software Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

because

34) Moneka Jones is the CIO for Noela Incorporated. Moneka wants to replace the firm's existing system, but wants to leave the technical issues to the vendor because she is not wellinformed on the latest technologies. When preparing an RFP, Moneka most likely should A) disclose exact hardware and software specifications. B) disclose specific performance objectives and requirements. C) disclose general software requirements. D) disclose general performance objectives and requirements. Answer: B Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 35) Moneka Jones is the CIO for Noela Incorporated. Moneka wants to replace the firm's existing system. However, she wants to spend as little time as possible preparing and evaluating RFPs. When preparing an RFP, Moneka should probably A) disclose exact hardware and software specifications. B) disclose specific performance objectives and requirements. C) disclose general software requirements. D) disclose general performance objectives and requirements. Answer: A Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 36) A Deloitte & Touche survey found that most chief information officers do not expect to replace their current systems with commercially available packages. Answer: FALSE Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 37) Explain the importance of using a request for proposal. Answer: Using an RFP is important because it: 1. Saves time. The same information is provided to all vendors, eliminating repetitive interviews and questions. 2. Simplifies the decision-making process. All responses are in the same format and based on the same information. 3. Reduces errors. The chances of overlooking important factors are reduced. 4. Avoids potential for disagreement. Both parties possess the same expectations, and pertinent information is captured in writing. Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

38) RFPs for exact hardware and software specifications have higher total costs and require more time to prepare and evaluate. Answer: FALSE Concept: Purchasing software Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2 Explain how information system departments develop custom software. 1) Which approach systems acquisition is generally costly and labor-intensive? A) Canned software. B) Custom software. C) Modified canned software. D) Turnkey software. Answer: B Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) There are frequently many canned software packages available. However, many companies choose to develop their own software. Why? A) An organization may have unique requirements that are not addressed by canned software packages. B) Canned software packages are often less expensive than software developed in house. C) The organization's size and complexity necessitates the in-house development of software. D) A and C above are correct. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is not a guideline that should be used to select an outside, customsystem developer? A) The outside developer should have an in-depth understanding of how the company conducts its business. B) The outside developer should have experience in the company's industry. C) The outside developer should possess a good understanding of business in general. D) The outside developer should be able to complete the system independently, without requiring frequent contact to ask questions. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 12

4) Firms should consider developing custom software only if A) it will be used for critical functions like accounts receivable. B) it will contribute to development of a significant competitive advantage. C) the firm has the necessary expertise available in-house. D) the available canned software is very expensive. Answer: B Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 5) What guidelines should be followed when contracting with an outside developer to create custom software? Answer: Carefully select a developer by checking into references and inquiring about reputation and past experiences from other organizations. Sign a contract with clearly defined areas of responsibility for the developer. Plan and monitor each step by designing each step of the project in detail, and making frequent checkpoints for monitoring the project. Maintain effective communication with the developer. Control all costs and minimize cash outflow until the project has been completed and is accepted. Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 6) Discuss how an organization can develop custom software. Answer: Custom software can be developed and written in-house. Many organizations develop their own software because their requirements are unique or their size and complexity necessitate the creation of a custom package. Specific applications or functions can often be developed inhouse by end-users. End-users can use spreadsheet or database software programs to create reports, perform "what-if" analysis, prepare depreciation schedules, or prepare budgets. Alternatively, third-party developers can be contracted to develop custom software for an organization. Custom software should only be developed when it results in a distinct, competitive advantage to the organization. Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

7) Although Gillette uses canned software in its business operations, it does so with the intention of creating a competitive advantage. Identify how Gillette aims to gain a greater competitive advantage from using canned software. A) From deciding how the software should be used. B) From deciding what software should be used. C) From the cost savings it gains by using canned software. D) From deciding when software should be used. Answer: A Concept: Custom software development Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 8) Why does Pepsi create most of the software it uses in business operations? A) Pepsi does not trust canned software. B) Using canned software actually cost Pepsi more than using custom software. C) Pepsi could not find canned software sophisticated enough to meet its needs. D) There is no canned software available in Pepsi's industry. Answer: C Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 9) Which of the following is not an appropriate for task end users to perform? A) Performing statistical analyses. B) Preparing schedules and lists. C) Retrieving information from databases. D) Updating database records. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 10) What is the basic function of a help desk? A) Control access to corporate data. B) Provide technical maintenance and support. C) Train end users and assist with application development. D) All of the above are basic functions of a help desk. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

11) refers to involving users in the development, control, and deployment of information systems. A) Amateur user computing (AUC) B) Competitive intra-organization systems development approach (CIOSDA) C) End-user computing (EUC) D) Novice information systems development (NISD) Answer: C Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 12) Identify the system below that end users should not be allowed to develop. A) A payroll processing program. B) A program that performs "what-if" statistical modeling. C) Developing an application using prewritten software such as a spreadsheet or database system. D) Preparing a schedule or list such as a depreciation schedule. Answer: A Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 13) Identify one of the primary risks associated with end-user computing below. A) IS personnel will not have enough work to do if users develop their own systems. B) Systems that have not been adequately tested may be implemented. C) System costs may skyrocket. D) System development time may increase substantially. Answer: B Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

14) Which of the following about end-user computing is true? A) System users know best what they need, so should be able to create their own applications. B) End-users, while knowledgeable about their job, are not trained to create systems applications, and should not be allowed to do so. C) It is inefficient and costly to ask the IS department to create basic applications that only a few users need to use. D) In most companies, the IS department doesn't want end-users to create their own applications, for fear IS won't have enough work to do. Answer: A Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) A second-line help desk operator would most likely A) handle complicated queries requiring research. B) provide callers with scripted answers. C) use expert systems to resolve issues. D) handle less complicated queries requiring research. Answer: A Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 16) End-user computing is likely to result in a(n) A) well tested system. B) well documented system. C) rapidly developed system. D) efficient system. Answer: C Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 17) Where is the responsibility for the development of end-user computing applications typically placed? A) End users. B) Help desk. C) Front-line analysts. D) Second-line technicians. Answer: A Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 16

18) Describe the purposes of a help desk. Answer: A help desk consists of analysts and technicians that encourage, support, coordinate, and control end-user activities. Some of the duties and activities of the help desk includes the following: Hot-line assistance to solve problems. Clearinghouse for information, coordination, and assistance. Training, maintenance, and support center for the software and hardware. Application development assistance center. Approval point for development and implementation standards for hardware and software purchases, documentation and application testing, and security issues. Controlling access to corporate data by using access matrix controls, etc. Evaluating new end-user hardware and software products. Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19) Describe end-user computing and the advantages and risks involved. Answer: End-user computing is the hands-on development, use, and control of computer-based information systems by users. The suitable applications are: Producing simple reports and answers to one-time queries by accessing the company database. Sensitivity, statistical, or "whatif" analysis. Using spreadsheets or database software to analyze data. Preparing schedules and lists such as depreciation schedule, accounts receivable aging, and loan amortizations. User computing has seen an explosive growth because: Users realized that computers can be used to meet more and more information needs. Increased access to data created many new uses and needs for information. One prediction is that end-user computing may account for 75% to 95% of all information processed in the near future. Advantages of end-user computing: The user is involved in the creation, control, and implementation of the software; systems tend to meet user needs; programs can be created timely; end-users creating programming can free up IS resources; and programs tend to be versatile and easy to use. Disadvantages of end-user computing: Logic and development errors; inadequately tested applications; inefficient systems; poorly controlled and documented systems; systems incompatibilities; duplication of systems and data; and wasted resources and increased costs. Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 20) End-user development is inappropriate for which types of systems? A) Systems that process a large number of transactions. B) Systems that need to be developed rapidly. C) Systems that must be easy to use. D) Organizations that have large IT departments. Answer: A Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

21) Identify the system below that is likely to be most appropriate for end-user development. A) An accounts receivable system. B) A general ledger system. C) An inventory system. D) A loan amortization spreadsheet program. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 22) Identify the system below that is likely to be most appropriate for end-user development. A) An accounts receivable system. B) A general ledger system. C) An inventory system. D) A system that helps with sensitivity analysis. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 23) The IT department should be given control of end-user computing (EUC). Answer: FALSE Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 24) End-user computing can eliminate many of the analyst-programmer communication problems associated with the traditional program development. Answer: TRUE Concept: Custom software development Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

25) If recent trends in end-user computing (EUC) persist, EUC will represent information processing by the end of 2020. A) 15% - 24% B) 20% - 49% C) 50% - 74% D) 75% or more Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

of all

26) Why are end-user created systems often poorly documented? A) Users often do not know how to document systems properly. B) Users often consider systems documentation to be unimportant. C) Users often believe it is too expensive to properly document systems. D) Users are often unaware they need to properly document systems. Answer: B Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 27) Who should maintain control of access to date in a user-created system with proper controls? A) The end-users. B) Management. C) The IT department. D) A help desk. Answer: D Concept: Custom software development Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

3 Explain why organizations outsource their information systems, and evaluate the benefits and risks of this strategy. 1) How does outsourcing improve an organization's utilization of assets? A) By allowing a company to eliminate its IS department, which will reduce its payroll costs. B) By allowing the company to sell assets to outsourcers and improve their cash position. C) By eliminating the expense of keeping up with the latest technology and, thus, eliminate the drain on cash reserves. D) Both B and C above are correct. Answer: D Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Which of the following is not a benefit of outsourcing? A) Access to greater expertise and more advanced technology. B) Ability to gain greater control. C) Improved development time. D) Lower costs. Answer: B Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 3) The risk of losing a fundamental understanding of a company's AIS needs and the strategic users of an AIS as a result of outsourcing is referred to as A) focus reduction. B) loss of control. C) reduced competitive advantage. D) unfulfilled goals. Answer: C Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4) The risk of the potential high cost to reverse outsourcing is referred to as A) focus reduction. B) locked-in system. C) reduced competitive advantage. D) unfulfilled goals. Answer: B Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) Why might outsourcing cause employee resistance? A) Outsourcing often allows a company to better use its assets and scarce resources. B) Outsourcing can lower a company's overall IS costs. C) Outsourcing often facilitates downsizing. D) Outsourcing helps eliminate the peaks and valleys of system usage. Answer: C Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) The unauthorized disclosure of sensitive information is an example of what risk associated with outsourcing? A) A locked-in system. B) A loss of control. C) A reduced competitive advantage. D) Inflexibility. Answer: B Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

7) Benathir Donathat, director of the project committee, has received approval from management for implementation of a new accounting information system. After putting out an RFP, the committee settled on a Web-based application service provider that will manage all hardware and software required by the system, with fees based on usage. The committee decided to go with A) canned software. B) a turnkey system. C) an outsourced system. D) an end-user developed system. Answer: C Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 8) Sabella Cycles declared bankruptcy in 2013 and has since closed 5 outlets, or approximately 25% of its locations. Sabella needs to reduce the costs of operating the firm's information systems. To accomplish this, Sabella might decide to A) replace the existing system with one of a smaller scale. B) customize the existing system. C) outsource system operations. D) purchase a canned software system. Answer: C Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 9) In which of the following cases is outsourcing likely to be the best solution to the firm's data processing needs? A) Peterson International is a trenchcoat wholesaler to retailers around the world. Sixty percent of sales orders are taken during the months of August and September. Peterson needs a system to manage online ordering and fulfillment. B) Battlegoat Investment Strategies manages investors' portfolios and provides services to wealthy customers. The firm needs a system that will pull together selected investment data from a variety of sources and that allows account managers to prepare customized reports. C) Yachtman Limited is in the business of buying businesses, managing them for a few years, then selling them for a profit. The firm requires a flexible system that will allow it to manage the types of businesses it controls. D) Desalinas LLC, manages the construction of desalinization plants. It needs a system that will allow it to manage the construction process from bid to billing. Answer: A Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking 22

10) Describe outsourcing and identify the two types of outsourcing agreements. Answer: Outsourcing is the hiring of an outside company to handle all or part of a company's data processing activities. There are two main types of outsourcing agreements: Mainframe outsourcing and Client/server or desktop outsourcing. Mainframe outsourcing is when the outsourcer buys the client's equipment, hires the client's employees, and operates on the client's site or connects the system to the outsourcer's computer. Client/server or desktop outsourcing is when a particular service, segment of business, function, or PC support is outsourced. Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) Discuss how information system outsourcing can provide the organization with both a business solution and asset management. Answer: Many companies have come to view information system outsourcing as not merely an IS solution but a true business solution. Outsourcing has become a plausible business solution because it allows the organization to focus and put its concentration into its core competencies. This transfer of IS responsibilities can be liberating to the organization, as it frees up more resources to devote to the mainstay of its business efforts. The viewpoint is that a company should be allowed to do what it does best; so the outsourcer is better at IS operations and management, while the organization is better in its areas or core competencies. Many organizations treat outsourcers as business partners, working closely to meet the strategic business objectives of the organization. An additional benefit of IS outsourcing is asset management. Many organizations tie up millions of dollars in their IS efforts, and the attempt to keep up with technological improvements can create a steady drain on cash reserves and other organizational resources. One way to significantly improve an organization's cash position and reduce annual expenses is to sell off IS assets, or lease them to the outsourcing organization. This can have positive benefits for both the organization and outsourcing vendor as well, as it helps the organization with cash and expense management, and can provide an outsource vendor with the equipment (and even people) it needs to properly service its client. Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Challenging AACSB: Reflective Thinking

12) WorldWide Supermarket, a grocery store with 5,000 locations around the world surprised financial markets by announcing that it was selling all of its computers to CompuService and hiring the firm to operate and manage the supermarket's system. WorldWide Supermarket just engaged in which type of outsourcing agreement? A) A locked-in agreement. B) A mainframe agreement. C) A client/server agreement. D) A cloud computing agreement. Answer: B Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) All of the following are reasons a company might choose to outsource its systems operations and maintenance except A) increased flexibility. B) increased innovation. C) reduce costs. D) foster competition. Answer: B Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 14) According to a survey discussed in your textbook, what percentage of outsourcing experiences have been labeled as "disasters" by company executives? A) 5%. B) 17%. C) 33%. D) 50%. Answer: B Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

15) According to your textbook, what percentage of outsourcing agreements have been described as failure or as major disappointments? A) 5% - 10%. B) 10% - 25%. C) 25% to 50%. D) Great than 50%. Answer: C Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 16) According to a survey discussed in your textbook, what percentage of companies outsourced some or all of their information systems? A) 5%. B) 25%. C) 50%. D) Greater than 50%. Answer: D Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 17) Which or the following does not typically cause outsourcing failures? A) Lukewarm company buy-in. B) Blind imitation of competitors. C) Ill-defined outsourcing agreements. D) Downsizing. Answer: D Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

18) Describe the advantages and disadvantages of outsourcing. Answer: There are a number of significant advantages to outsourcing: 1. A business solution. Outsourcing is a viable strategic and economic business solution that allows companies to concentrate on core competencies. 2. Asset utilization. Organizations improve their cash position and reduce expenses by selling assets to an outsourcer. 3. Access to greater expertise and better technology. 4. Lower costs. 5. Less development time. Experienced industry specialists develop and implement systems faster and more efficiently than in-house staff. Outsourcers also help cut through systems development politics. 6. Elimination of peaks-and-valleys usage. Seasonal businesses require significant computer resources part of the year, and little the rest of the year. 7. Facilitation of downsizing. Companies that downsize often have an unnecessarily large AIS function. Companies that outsource often experience some of the following drawbacks: 1.Inflexibility. Many contracts are for 10 years. If a company is dissatisfied or has structural changes, the contract is difficult or costly to break. 2. Loss of control. A company runs the risk of losing control of its system and its data. 3. Reduced competitive advantage. Companies may lose sight of how their AIS produces competitive advantages. Outsourcers are not as motivated as their clients to meet competitive challenges. Companies can mitigate this problem by outsourcing standard business processes (payroll, cash disbursements, etc.) and customizing those that provide competitive advantages. 4. Locked-in system. It is expensive and difficult to reverse outsourcing. A company may have to buy new equipment and hire a new data processing staff, often at prohibitive costs. 5. Unfulfilled goals. Critics claim some outsourcing benefits, such as increased efficiency, are a myth. 6. Poor service. Common complaints are that responsiveness to changing business conditions is slow or nonexistent and migration to new technologies is poorly planned. 7. Increased risk. Outsourcing business processes can expose a company to significant operational, financial, technology, strategy, personnel, legal, and regulatory risks. Concept: Information system outsourcing Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 4 Explain how business process management, prototyping, agile development, and computeraided software engineering can help improve system development. 1) Business Process Management views business processes as A) strategic organizational assets. B) a series of small tasks to be closely managed. C) related activities that, once perfected, should be managed on an exception basis. D) subsets of organizational strategy that should not be owned by any specific person or department. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

2) Which of the following is not an element of managing a business process "end to end"? A) Identifying process experts to oversee specific functions across units. B) Designating a process owner. C) Setting performance standards. D) Establishing control and monitoring processes. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 3) Which of the following is not true about business process management (BPM) and enterprise resource planning (ERP) systems? A) ERP systems encompass all functions and processes in an organization, but BPM systems are implemented at process or unit levels in an organization. B) BPM systems are process-centered, but ERP systems are data-centered. C) Organizations can use both ERP and BPM systems at the same time. D) ERP and BPM systems rely heavily on technology for communication and coordination. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 4) Which of the following is not one of the ways in which a Business Process Management System can improve internal control? A) Innovative technology allows access and authorization controls to be programmed at the transaction level. B) Documents or transactions that require approval can be electronically routed to a manager. C) Process rules are used to alert users when actions must be taken. D) All actions and processes are monitored and documented in a process log for periodic review. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking

5) Describe each of the four important principles underlying Business Process Management (BPM). Answer: Business processes can produce competitive advantages through innovative processes and technology to respond to changing consumer, market and regulatory demands before competitors are able to respond. Business processes must be managed end to end, meaning a process owner should have responsibility to set performance standards, control and monitor processes, and communicate with other functional units. Business processes should be agile, which emphasizes continuous improvement and adaptability. Business processes must be aligned with organizational strategy and needs to be effective and efficient. Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 6) Business process management (BPM) evolved from business process reengineering (BPR) because BPR had such a high success rate that firms wanted to expand it to cover all aspects of a firm's business process operations. Answer: FALSE Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 7) Which of the following is a one-time event that can yield dramatic performance improvements? A) Business process reengineering (BPR). B) Business process management (BPM). C) Business process innovation (BPI). D) Business process diagramming (BPD). Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the following technology allows for a continuous approach to improve and to optimize business processes? A) Business process reengineering (BPR). B) Business process management (BPM). C) Business process innovation (BPI). D) Business process diagramming (BPD). Answer: B Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 28

9) Which of the following is a system that automates and facilitates business process improvements throughout the system development life cycle? A) Business process reengineering system (BPRS). B) Business process innovation system (BPIS). C) Business process management system (BPMS). D) Business process diagramming system (BPDS). Answer: C Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 10) Identify a key advantage of a business process management system (BPMS) as compared to an event-based system. A) Ease of use. B) Increase processing speed. C) Cost saving. D) Built in audit trail. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 11) The basic premise of is that it is easier for people to express what they like or dislike about an existing system than to imagine what they would like in a system. A) modified software B) outsourcing agreements C) prototyping D) turnkey systems Answer: C Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

12) Which statement below regarding prototyping is false? A) Prototypes are considered "first drafts," which are quickly built and intended to be discarded when the real system is finished. B) Developers who use prototyping still go through the systems development life cycle. C) Prototypes help developers and end users make conceptual and physical design decisions. D) Prototyping allows developers to condense and speed up parts of the analysis and design phases. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 13) The first step in developing a prototype emphasizes A) developing a good prototype into a fully functional system. B) speed and low cost rather than efficiency of operation. C) that users identify changes to be made in an iterative process. D) what output should be produced rather than how it should be produced. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 14) Identify the system below where development would not likely benefit from treating a prototype. A) Decision support systems. B) Executive information systems. C) Expert systems. D) Systems that cross a number of organizational boundaries. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 15) Identify one disadvantage in prototyping. A) Developers may shortchange the testing and documentation process. B) Errors are likely to be detected and eliminated early in the development process. C) Prototyping may be less costly than other approaches. D) Prototyping usually produces a better definition of user needs than other approaches. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 30

16) Firms should consider preparing a software prototype if the software A) will be used for a critical function like accounts receivable. B) automates an unstructured or semi-structured task. C) can be produced using expertise available in-house. D) is available as a canned package. Answer: B Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking 17) Firms should consider preparing a software prototype if the application A) will be used for a critical function like inventory management. B) automates a structured task. C) can be produced using outside developers. D) inputs and outputs are not clearly defined. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 18) As part of the bidding process required for bidding on providing a new software system to Kinect Incorporated, Thorton Wilder prepared diagrams that represent input and output screenshots. These diagrams are an example of A) CASE. B) an operational prototype. C) a RFP. D) a nonoperational prototype. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 19) As part of the bidding process required for bidding on providing a new software system to Kinect Incorporated, Thorton Wilder prepared a functional program that simulated the new system's input and output interface. This program is an example of A) CASE. B) an operational prototype. C) a RFP. D) a nonoperational prototype. Answer: B Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 31

20) Describe prototyping and identify when prototyping is appropriate. Identify the steps involved in prototyping. Discuss the advantages and disadvantages of prototyping. Answer: Prototyping is the development of a simplified working model (prototype) of an information system. It is a "first draft," that is quickly and inexpensively built and provided to users for testing. Prototyping is appropriate if: There is uncertainty about the existing AIS. The questions to ask are unclear. The final AIS is not clearly visualized. Speed is an issue. There is a high likelihood of failure. The system is a decision support system, executive information system, expert system, or information retrieval system. Suitable when the system involves experimentation and trial-and-error development. Suitable when the system requirements evolve as the system is used. Prototyping is not appropriate if: The system is large or complex and serves major organizational components or crosses a number of organizational boundaries. Steps in developing a prototype: Identify basic system requirements based on users' needs for what output should be produced. Develop initial prototype emphasizing speed and low cost instead of efficiency of operation and demonstrate it for users. Make changes needed as identified by users, may take several iterations. Develop and use the user-approved system. Advantages of prototyping: Better definition of user needs. Higher user involvement and satisfaction; faster development time; fewer errors; more opportunity for changes; and less costly to the organization. Disadvantages of prototyping: significant user time; less efficient use of system resources; incomplete system development; inadequately tested and documented systems; negative behavioral reactions; never-ending development. Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytical Thinking 21) Prototyping is often appropriate when A) there is a low level of uncertainty. B) it is clear which questions need to be addressed. C) there is a high likelihood of failure. D) there are limited financial resources available. Answer: C Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytical Thinking 22) Which is not a problem with CASE technology? A) cost B) incompatibility C) lack of system documentation D) unmet expectations Answer: C Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 32

23) Which of the following were CASE tools not designed to do? A) replace skilled designers B) plan, analyze, design, program, and maintain an information system C) automate important aspects of the software development process D) enhance the efforts of managers in understanding information needs Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 24) Which of the following is an advantage of CASE? A) It exhibits a high degree of cross-system compatibility. B) It is an inexpensive technology that is accessible to small businesses. C) Documentation is generated automatically. D) It enhances the congruence between user expectations and the final system. Answer: C Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 25) Describe computer-aided software (or systems) engineering (CASE) and identify the advantages and disadvantages of CASE? Answer: CASE refers to an integrated package of computer-based tools that automate important aspects of the software development process. CASE tools can be used to plan, analyze, design, program, and maintain an information system. CASE tools do not replace skilled designers, but they provide effective support for all phases of the SDLC. Advantages — Improved productivity, improved program quality, cost savings, improved control procedures, and simplified documentation. Disadvantages — Incompatibility, cost, and unmet expectations. Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

26) Describe the conditions that favor the use of prototyping. Answer: The conditions that favor the use of prototyping include: 1.Users' needs are not understood, change rapidly, or evolve as the system is used. 2. System requirements are hard to define. 3. System inputs and outputs are not known. 4. The task to be performed is not well structured. 5. Designers are uncertain about what technology to use. 6. The system is crucial and needed quickly. 7. The risk associated with developing the wrong system is high. 8. User reactions are especially important development considerations. 9. Many design strategies must be tested. 10. The design staff has little experience developing the system or application. 11. The system will be used infrequently (processing efficiency is not a major concern). Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 27) Many systems development projects requirements do not change because users often have a good understanding of all the things they want the software to do. Answer: FALSE Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 28) A guiding philosophy and a set of principles for developing information systems in an unknown, rapidly changing environment is called A) agile development. B) scrum methodology. C) scrum development. D) user stories. Answer: A Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 29) A software development methodology where a team works together in an intense but relatively short iterative and incremental scrum process to reach a common development goal, with team members meeting daily in face-to-face communication, until development is concluded is called A) agile development. B) scrum methodology. C) scrum development. D) user stories. Answer: B Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 34

30) A process that embraces customers frequently changing their minds about what they need or want and with the focus on flexibility, responding to new requirements, adapting to evolving changes in technology, and quickly delivering a system the customer can evaluate is called A) agile development. B) scrum methodology. C) scrum development. D) user stories. Answer: C Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 31) A description of something a user wants to include in the system written by the product owner is called A) agile development. B) scrum methodology. C) scrum development. D) user stories. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 32) A software development methodology designed to produce higher-quality software more productively by taking the beneficial elements and best practices of traditional software development to "extreme" levels is called A) extreme prototyping. B) extreme development. C) extreme processing. D) extreme programming. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

33) The four phases of the unified process software development framework are A) inception, transition, construction, and elaboration. B) inception, transition, elaboration, and construction. C) inception, construction, elaboration, and transition. D) inception, elaboration, construction, and transition. Answer: D Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Challenging AACSB: Analytical Thinking 34) Describe the important characteristics of extreme programming (XP). Answer: Some of the more important characteristics of extreme programming include: 1.Uses two-person programming teams. 2. Recognizes that changes to systems requirements are a normal and accepted occurrence in software development that should be expected and planned for as time passes and system needs are better understood. XP embraces changes and abandons the idea that a stable set of requirements can be produced during the initial planning phase of development. 3. Uses short development cycles, culminating in frequent software releases, so that there are many checkpoints that allow new customer requirements to be introduced. Makes many small, incremental changes, rather than a few big changes, allowing the customer more control over the software development process. It reduces the cost of changes and improves development productivity. 4. Starts with the simplest solution and only adds extra functionality as needed. Trying to design and code uncertain or complex future requirements might delay crucial features and risks spending resources on features that might not be needed or desired. 5. Uses code to communicate thoughts about complex or hard to understand programming problems. Often, clear and concise code can better explain a problem than a written or oral description of the problem. Other programmers can give feedback on this code by coding their thoughts about the problem. 6. Requires programmers to listen to customer needs and understand their business processes so they can provide customer feedback about the technical aspects of how a problem can or cannot be solved. 7.Tests extensively every piece of code that is written before developing additional features to eliminate as many coding flaws as possible. 8. Requires frequent and prompt communication and feedback between customers, developers, and testers. Customers communicate their needs and help develop the acceptance tests that occur every few weeks so they can easily correct design flaws and steer development. Developers estimate the costs and the time required to implement new requirements and communicate them to customers. Developers need feedback from testers to correct errors or weaknesses found during testing. 9. Organizes system logic to prevent system dependencies so that changes in one part of the system will not affect other parts of the system. Concept: Methods for improving systems development Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

Accounting Information Systems, 14e, Global Edition (Romney/Steinbart) Chapter 22 Systems Design, Implementation, and Operation 1 Discuss the conceptual systems design process and the activities in this phase. 1) In which phase of the SDLC does developing a general framework for implementing user requirements occur? A) Conceptual systems design. B) Implementation and conversion. C) Operations and maintenance. D) Physical design. Answer: A Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 2) The is responsible for evaluating the design alternatives and selecting the one that best meets the organization's needs. A) design team B) implementation committee C) steering committee D) systems analysts Answer: C Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following lists represent the sequence of elements in developing the conceptual design specifications? A) Input, data storage, processing procedures and operations, and output. B) Input, output, data storage, and processing procedures and operations. C) Output, data storage, input, and processing procedures and operations. D) Processing procedures and operations, input, data storage, and output. Answer: C Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

4) Which element of design specification will help the project team find an efficient way to collect data for preparing sales reports? A) Data collection. B) Input. C) Output. D) Processing procedures. Answer: B Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 5) One of the purposes of the A) conceptual systems design report B) physical systems design report C) program design D) systems analysis report Answer: A Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

is to guide physical systems design activities.

6) Deciding how often a certain report should be provided to users is part of which conceptual design specification element? A) Data storage. B) Input. C) Output. D) Processing procedures and operations. Answer: C Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 7) Which of the following is not a reason for preparing the conceptual systems design report? A) It can be used to guide physical systems design activities. B) It communicates how management and user information needs will be met. C) It discusses the design alternatives that were not selected for the project. D) It helps the steering committee assess system feasibility. Answer: C Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

8) Which consideration below is not considered important to output design? A) Format. B) Location. C) Medium. D) Source. Answer: D Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 9) How can accountants help in the systems development life cycle (SDLC) process? Answer: Accountants must first understand the development process, and then realize that they can make a valuable contribution to the development process in several ways. As users, accountants can specify their needs and help explain such needs to the development team. As members of the development team, they can provide valuable input throughout the design and development process. As auditors, they can perform attest functions with a greater working knowledge and enhanced skill sets. Accountants should keep the project on track by evaluating and measuring benefits, monitoring costs, and helping to maintain the timetable. Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 10) What factors does a steering committee consider when evaluating different system designs? Answer: How well does the design meet organizational and systems objectives? How well does the design meet users' needs? How economically feasible is the design in terms of costs versus benefit? What are the advantages and disadvantages of the design? Do the advantages outweigh the disadvantages? Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 11) What are the purposes of a conceptual systems design report? Answer: The purposes of this report are to a) guide physical systems design activities, b) communicate how management and user information needs will be met, and c) help the steering committee assess system feasibility. Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking

12) Describe the conceptual systems design phase and identify the elements of conceptual design specifications. Answer: The conceptual systems design phase involves the development of the general framework for implementing user requirements and solving problems identified in the analysis phase. Conceptual design elements include the following elements: Output specifications to meet users' information needs. Data storage specifications based on reports that need to be produced, the manner in which data are stored (sequential, random, etc.), the type of database to use, and appropriate field sizes. Input specification after output is identified so that the "when, where, and how" of data input are appropriate for the types of output needed. Processing procedures and operations specifications are determined after the sequencing and processes for input and data storage are known. Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 13) Which of the below standards should not be used to evaluate design alternatives in the conceptual systems design stage of the SDLC? A) How well a system meets organizational objectives. B) How well a system meets user needs. C) The economic feasibility of each alternative. D) The amount of time it required to formulate each alternative. Answer: D Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 14) The project committee for ALDI corporation is attempting to evaluate design alternatives proposed for a new, organization-wide accounting information system. However, there is a great deal of debate regarding whether source documents, turnaround documents, or source data automation should be utilized in the new system. Which design consideration is most appropriately associated with these alternatives? A) Communication channels. B) Data storage structure. C) File organization and access. D) Input medium. Answer: D Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

15) The project committee for ALDI corporation is attempting to evaluate design alternatives proposed for a new, organization-wide accounting information system. However, there is a great deal of debate regarding whether the system should interface via telephone, internet, cable, or satellite. Which design consideration is most appropriately associated with these alternatives? A) Communication channels. B) Data storage structure. C) File organization and access. D) Input medium. Answer: A Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 16) The project committee for ALDI corporation is attempting to evaluate design alternatives proposed for a new, organization-wide accounting information system. However, there is a great deal of debate regarding whether the system should be standardized on using tapes, disks, hard drives, or paper. Which design consideration is most appropriately associated with these alternatives? A) Communication channels. B) Data storage structure. C) File organization and access. D) Input medium. Answer: B Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 17) The project committee for ALDI corporation is attempting to evaluate design alternatives proposed for a new, organization-wide accounting information system. However, there is a great deal of debate regarding whether accessing data access should be random, sequential, or indexed. Which design consideration is most appropriately associated with these alternatives? A) Communication channels. B) Data storage structure. C) File organization and access. D) Input medium. Answer: C Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

18) The project committee for ALDI corporation just finished evaluating the design alternatives for a new, organization-wide accounting information system and has selected a design. Now, the project committee needs to create conceptual design specifications for which of the following elements below? A) Output. B) Data storage. C) Processing and operations. D) All of the above. Answer: D Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytical Thinking 19) Describe the standards that should be used to evaluate design alternatives. Answer: The following standards should be used to evaluate design alternatives: (1) how well it meets organizational and system objectives, (2) how well it meets user needs, (3) whether it is economically feasible, and (4) how advantages weigh against disadvantages. The steering committee evaluates the alternatives and selects the one that best meets the organization's needs. Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking 20) Describe the conceptual design specifications once a design alternative is selected. Answer: Once a design alternative is selected, conceptual design specifications are created for the following elements: 1. Output. Because the system is designed to meet user information needs, output specifications are prepared first. To evaluate store sales, SM must decide (a) how often to produce a sales analysis report, (b) what the report should contain, (c) what it will look like, and (d) whether it is a hard-copy or screen (or both) output. 2. Data storage. Data storage decisions include which data elements must be stored to produce the sales report, how they should be stored, and what type of file or database to use. 3. Input. Input design considerations include which sales data to enter; sale location and amount; and where, when, and how to collect the data. 4. Processing procedures and operations. Design considerations include how to process the input and stored data to produce the sales report and in which sequence the processes must be performed. Concept: Conceptual systems design Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytical Thinking

2 Discuss the physical systems design process and the activities in this phase. 1) Identify the report below that does not have a pre-specified content and format design. A) Demand reports. B) Scheduled reports. C) Special-purpose analysis reports. D) Triggered exception reports. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 2) It is important that for data storage purposes. A) all data is in compatible format B) there is easy access to the system C) a printout of the data dictionary is available D) copies of necessary reports are available Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 3) Physical input design considerations include A) which transactions to enter. B) layout of source documents. C) types of data input and optimal input methods. D) cost of collecting and storing data. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 4) Program design A) spans all five stages of the system development life cycle. B) includes writing computer code. C) includes debugging logic errors. D) is described by all the above. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

5) Which of the following statements below is correct about modules of computer code created during program design? A) Modules interact with each other directly and also through the control module. B) Modules interact with each other directly. C) Modules interact with only the control module. D) Modules primarily, but not always, interact with the control module. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 6) Which of the following statements is true? A) Structured programming divides programs into well-defined segments to reduce complexity. B) Structured programming is used to debug logic errors in programs. C) Structured programming is accomplished by using a flowchart to guide design. D) Structured programming pieces together standard code strings into a completed program. Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 7) Identify the question that is not an important consideration in procedures and controls design. A) Are customer data stored in alphabetical order in a master file? B) Are payments made only to legitimate vendors? C) Are data processed and stored accurately? D) Can the system be modified without affecting system availability? Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking 8) Which of the following control considerations will help ensure that all cash disbursements are made only to legitimate vendors? A) Security. B) Accuracy. C) Authorization. D) Validity. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

9) Which of the following controls design considerations will help ensure that all customer inquiries are answered in real-time? A) Security. B) Authorization. C) Accuracy. D) Integrity. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 10) Which of the following control considerations will help ensure that all input, processing, storage, and output activities are authorized by the appropriate managers? A) Security. B) Accuracy. C) Authorization. D) Validity. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11) Which of the following control considerations will help ensure that the system is protected against (a) unauthorized physical and logical access to prevent the improper use, alteration, destruction, or disclosure of information and software? A) Security. B) Accuracy. C) Authorization. D) Validity. Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

12) At what point in the systems development life cycle does the company determine how the conceptual AIS design is to be implemented? A) The conceptual design phase. B) The implementation and conversion phase. C) The physical design phase. D) The operation and maintenance phase. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 13) What of the below is the most time-consuming activity in the physical design stage of the systems development life cycle (SDLC)? A) Controls design. B) Input design. C) Output design. D) Program design. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 14) Which of the following is a consideration during file and database design? A) Form size. B) Format. C) Medium. D) Organization. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 15) The first step in program design is to A) determine user needs. B) develop a plan. C) hire program users. D) write program instructions. Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

16) Flowcharts, record layouts, and decision tables are all often part of A) determining user needs. B) documenting the program. C) testing the program. D) training program users. Answer: B Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 17) is a process used to uncover and eliminate program errors. A) Black box testing B) Debugging C) Desk checking D) White box testing Answer: B Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 18) of software development costs should be allocated to testing, debugging, and rewriting software. A) 5% to 10% B) 10% to 20% C) 20% to 30% D) More than 30% Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 19) What is used as the basis for management to make a "go/no go" decision regarding whether to proceed from the physical design phase to the implementation and conversion phase of the systems development life cycle? A) Conceptual system design report. B) Physical systems design report. C) Systems design report. D) Implementation planning design report. Answer: B Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 11

20) Subdividing program code into small, well-defined modules is A) called debugging. B) known as structured programming. C) part of program maintenance. D) done during testing. Answer: B Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 21) Yasin, a professional in information technology services, received an e-mail from Adil in the Sales Department. The e-mail read: "Yasin, I need you to run that inventory report you prepared for me last month again. Please send it to me by e-mail. Thank you, Adil." What type of report is Adil asking Yasin to provide? A) Scheduled report. B) Special-purpose analysis report. C) Triggered exception report. D) Demand report. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 22) Yasin, a professional in information technology services, sent an e-mail to Mauqwa in the Purchasing department. The e-mail read "Mauqwa, the system just generated a stock-out report. I just wanted to give you a heads up. I'm sending it right over. Best regards, Yasin" What type of report is Yasin providing to Mauqwa? A) Scheduled report. B) Special-purpose analysis report. C) Triggered exception report. D) Demand report. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

23) Yasin, a professional in information technology services, received an e-mail from Sabri in the Sales department. The e-mail read: "Yasin, I need you to do something for me. Query sales data for the second quarter and pull out all of the invoices that include iPhones selling with a discount. I need a count and the total amount of the discount. Thanks, Sabri." What type of report is Sabri asking Yasin to prepare? A) Scheduled report. B) Special-purpose analysis report. C) Triggered exception report. D) Demand report. Answer: B Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 24) Ghassan in Marketing received an e-mail from Asif at regional headquarters. "Ghassan, I just reviewed the annual sales report for your district. You blew your sales goal away again, you top gun!" What type of report did Asif use? A) Scheduled report. B) Special-purpose analysis report. C) Triggered exception report. D) Demand report. Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 25) Describe at least four considerations during controls design. Answer: Controls design ensures the effectiveness, efficiency, and accuracy of the AIS. The important concerns to be addressed are: validity of transactions — authorization of input, storage, and output activities — accuracy of input and processing activities — security access to system — numerical control pre-numbering and accounting of all documents — audit trail — tracing of transactions from source documents to final output and vice versa — availability of the system when needed — maintainability so the system can be modified without affecting availability or security — integrity Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

26) What output design considerations should be analyzed as part of the physical system design phase? Answer: Two things must be considered regarding system output. First, who will use the output? Why do users need this type of output, and what decisions will be made based on such output? Second, the medium of the output must be addressed. What medium should be used? Should the output be on paper, computer screen, stored as a voice response file, placed on diskette, microfilm, or some possible combinations of these mediums? These are two important considerations that can either "make or break" a system in terms of its successful use. Other considerations are: What format (table, graph, etc.)? Should preprinted forms be used? Where should the output be sent? Who should have access to the output? How often should the output be produced? Lengthy output should be preceded by an executive summary and a table of contents. Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 27) Describe structured programming. Answer: Structured programming refers to programs that are subdivided into small, well-defined modules with the goal of reducing complexity and enhancing reliability and modifiability. Each module should interact with a control module rather than with each other. Proper structured programming dictates that each module should have only one entry and exit point to facilitate testing and modification. Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 28) What is the objective of output design? What are the output design considerations? What are the various categories of outputs? Answer: Output design: The objective is to determine the nature, format, content, and timing of printed reports, documents, and screen displays. Design considerations: Use — who will use, why is it needed, what is needed for use. Medium — paper, screen, diskette. Format — tables, graphs, narratives. Preprinted — e.g., purchase orders, checks. Location — where sent. Access — by whom and to what. Detail — summary, table of contents, headings. Timeliness — how often. Categories of output are: Scheduled reports are prespecified and formatted and prepared regularly. Special-purpose analyses are not prespecified or formatted, but are prepared when management requests data to evaluate an issue. Triggered exception reports are prespecified and formatted and prepared in event of abnormal conditions. Demand reports are prespecified and formatted and prepared when requested. Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking

29) Write one question that should be asked about each of the controls design considerations. Answer: There are several controls design considerations to be addressed in this phase of the SDLC. Validity, authorization, accuracy, access, numerical control, and providing an audit trail are the major items, which must be taken into account in physical design. Validity would address a question such as, "Are all system interactions valid?" Authorization could be examined by asking, "Are input, processing, storage, and output activities authorized by the appropriate managers?" Accuracy can be analyzed by asking, "Is input verified to ensure accuracy and what controls are in place to ensure that data passed between processing activities is not lost?" When dealing with access issues, the analyst should ask if there is adequate control over accessing data, and ask the important question, "How is a hacker denied access to a data file?" Asking the question, "Are documents pre-numbered to prevent errors or intentional abuse?" can provide insight about numerical controls. Finally, to provide appropriate audit trails, the analyst should ask the question, "Can transaction data be traced from source documents to final output, and vice versa?" It is imperative that controls design be properly implemented in this phase of the SDLC to ensure the success of launching the system and its ongoing use. Also, availability and integrity. Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Challenging AACSB: Reflective Thinking 30) Describe the eight basic steps in program design. Answer: Generally speaking, developers use an eight-step method to develop and test software programs. As part of the systems implementation phase of the SDLC, it is important that these steps faithfully are followed by the development team. 1) The team should consult with users and write an agreement about software requirements as a way to determine user needs. 2) Next, a development plan should be created and documented. 3) The overall approach and major processing tasks should be identified on a high level before proceeding to levels of greater detail. At that point the activity of writing program instructions can begin. 4) After program code has been written, the next step is to test the program. This can be achieved in part through debugging and desk checking, along with other types of testing. 5) The next thing to be done is to document the program, since this will explain how the program works and assist analysts in correcting and resolving errors. 6) Training program users is the beginning of the end of the test phase. Program documentation developed in step five will be used at this time. 7) The seventh step is to install and use the system. At this point the program can be used and program maintenance can take place as needed. 8) Use and modify the system. Revise existing programs (called program maintenance). Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Challenging AACSB: Analytical Thinking

31) Identify the element below that is not an objective of the output design phase of the physical systems design stage of the SDLC. A) Determining the nature of reports. B) Determining the timing of reports. C) Determining the content of reports. D) Determining the cost of reports. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 32) Identify a control commonly used by organizations during the output design phase of the physical systems design stage of developing a new system to avoid expensive time delays later in the SDLC process. A) Requiring management to test the system before proceeding. B) Requiring programmers to alert the project team when they are exceeding their allocated time budgets. C) requiring the development team to take time-off so that they do not become fatigued. D) Requiring users to sign a document stating the output form and content are acceptable. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 33) The project development committee for Photomat Incorporated is discussing output design alternatives for a new, organization-wide accounting information system. There is a heated debate among the team regarding which departments should be given the quarterly sales report. Mark prefers that only management and accounting receive the report, while Jan prefers that management, accounting, and the sales departments receive the report. What output design consideration is the team debating? A) Use. B) Medium. C) Format. D) Location. Answer: A Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

34) The project development committee for Photomat Incorporated is discussing output design alternatives for a new, organization-wide accounting information system. There is a heated debate among the team regarding whether the quarterly sales report be printed on paper, be viewable only on-screen, or be distributed as an e-mail. Mark prefers the report be printed on paper, while Jan prefers the report be distributed via e-mail to save trees. What output design consideration is the team debating? A) Use. B) Medium. C) Format. D) Location. Answer: B Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 35) The project development committee for Photomat Incorporated is discussing output design alternatives for a new, organization-wide accounting information system. There is disagreement among the team regarding whether the quarterly sales numbers be disclosed in a narrative, displayed as a table, or appear in a bar chart. What output design consideration is the team discussing? A) Use. B) Medium. C) Format. D) Location. Answer: C Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 36) The project development committee for Photomat Incorporated is discussing output design alternatives for a new, organization-wide accounting information system. The project development committee has decided that all reports will be printed on paper. However, there is disagreement regarding where the reports should be made available. John wants the sales reports to be printed and stored in the accounting department for greatest security. Monica wants the sales reports to be printed in every department for full disclosure. What output design consideration are John and Monica discussing? A) Use. B) Medium. C) Format. D) Location. Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 17

37) Since most systems are moving away from using paper documents, form design is not as an important consideration in system development. Answer: FALSE Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytical Thinking 38) It is not as efficient to enter data on paper, then enter the data into the system compared to requiring users to enter data directly into the system without using a paper source document. Answer: TRUE Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 39) If developers took the time to find and correct every program flaw, they would risk not getting the system completed on time. Answer: TRUE Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking 40) Which of the following is not a principle of good form design? A) Is the form a standard size? B) Is space provided for a signature(s) to indicate transaction approval? C) Does the form name appear at the top in bold type? D) Is the cost of producing the form too high? Answer: D Concept: Physical systems design Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytical Thinking

3 Discuss the systems implementation process and the activities in this phase. 1) is the process of installing hardware and software and getting the AIS up and running. A) Conceptual design B) Physical design C) Systems analysis D) Systems implementation Answer: D Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 2) Effective AIS training involves A) instruction on new hardware and software. B) orientation to new policies and operations. C) planning and scheduling so it occurs before system testing and conversion. D) All of the above are correct. Answer: D Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 3) Step-by-step reviews of procedures or program logic early in the system design that focus on inputs, files, outputs, and data flows are called A) acceptance test. B) operating tests. C) processing of test transactions. D) walk-throughs. Answer: D Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking

4) Test of a new system using real transactions to determine if user-developed acceptance criteria are met are called A) acceptance test. B) operating tests. C) processing of test transactions. D) walk-throughs. Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 5) The is responsible for identifying such risk factors in an implementation plan. A) implementation team B) steering committee C) systems analysis team D) systems development team Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 6) Within the implementation planning and conversion phase of the systems development life cycle, analysts must before they can . A) complete documentation; test software programs B) install and test software; test software programs C) test software programs; test the system D) test the system; select and train personnel Answer: C Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 7) Several types of documentation must be prepared for a new system. The type of documentation that includes the files and databases accessed and file retention requirements is called A) development documentation. B) operations documentation. C) reference documentation. D) user documentation. Answer: B Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20

8) Several types of documentation must be prepared for a new system. The type of documentation that includes a system description; copies of output, input, and file and database layouts; program flowcharts; test results; and user acceptance forms is called A) development documentation. B) operations documentation. C) reference documentation. D) user documentation. Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 9) Several types of documentation must be prepared for a new system. The type of documentation that includes a procedures manual and training materials is called A) development documentation. B) operations documentation. C) reference documentation. D) user documentation. Answer: D Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 10) is a system test that determines whether a program is operating as designed. A) An acceptance test B) A debugging test C) A test data processing D) A walk-through Answer: C Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 11) A(n) system test uses copies of real transaction and file records. A) acceptance test B) debugging test C) test data processing D) walk-through Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 21

12) Walk-throughs are system tests that involve A) managers observing the operation of the system by "walking through" the IT department. B) processing hypothetical data that are designed to identify errors in the system. C) processing copies of real transactions in order to determine whether or not the system meets requirements. D) a thorough review of the procedures and program logic of the system. Answer: D Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 13) Acceptance tests involve A) managers observing the operation of the system by "walking through" the IT department. B) processing hypothetical data that are designed to identify errors in the system. C) processing copies of real transactions in order to determine whether or not the system meets requirements. D) a thorough review of the procedures and program logic of the system. Answer: C Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 14) Processing test data involves A) managers observing the operation of the system by "walking through" the IT department. B) processing hypothetical data that are designed to identify errors in the system. C) processing copies of real transactions in order to determine whether or not the system meets requirements. D) a thorough review of the procedures and program logic of the system. Answer: B Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking

15) Which of the following is not one of the types of documentation that should be prepared for a new system? A) Management. B) Operations. C) User. D) Development. Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 16) What is systems implementation? How do you plan for it? Answer: Systems implementation is the process of installing hardware and software and getting the AIS in place and in use. Systems planning consists of: Implementation tasks and person(s) responsible for tasks. Setting expected completion dates. Cost estimates and variances. Identify risk factors that decrease likelihood of successful implementation. Strategies for coping with risk factors. Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 17) Describe the different types of documentation that should be prepared for a new system. Answer: Development documentation includes system description; copies of output, input and file and database layouts; program flowcharts; test results; and user acceptance forms. Operations documentation includes operating schedules; files and databases accessed; and equipment, security and file retention requirements. User documentation includes procedures manuals and training materials. Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 18) Describe the different methods of testing a system. Answer: Walkthroughs, which involve systematic reviews of procedures or program logic at different phases during the SDLC. In the early stages of the design process, the focus is inputs, outputs, and files. In the later stages, the focus is on program logic and structure. Processing test transactions to determine whether a program operates as designed. Different types of hypothetical transactions are processed to see if the controls catch various types of errors. Acceptance tests, which use real transactions and file records. Users develop the acceptance criteria and make the final acceptance or rejection decision. Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 23

19) Identify the item below that is not generally part of an implementation plan. A) Implementation tasks. B) Expected completion dates. C) Cost estimates. D) Budgeted savings. Answer: D Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 20) Which of the following is not generally changed when a company's accounting information system is changed? A) Employee compensation. B) The organization's structure. C) Employee headcount. D) All of the above are generally changed. Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 21) Which of the following control design considerations is concerned with whether data processing is complete, accurate, timely, and authorized? A) Integrity. B) Security. C) Validity. D) Audit trail. Answer: A Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 22) Ideally, employees should receive training on a new system A) as soon as possible. B) right after the physical design. C) during implementation planning. D) just before system testing and conversion. Answer: D Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

23) Employees who are transferred internally is often a more costly alternative because they already will need to be trained. Answer: FALSE Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytical Thinking 24) The hidden cost of inadequate training is that users turn for help to coworkers who have mastered the system, decreasing the productivity of coworkers and increasing company costs. Answer: TRUE Concept: Systems implementation Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytical Thinking 4 Discuss the systems conversion process and the activities in this phase. 1) In a , the old and the new systems are operated simultaneously for a period of time. A) direct conversion B) parallel conversion C) phase-in conversion D) pilot conversion Answer: B Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 2) Implementing a new system at a branch location before company-wide adoption is called A) direct conversion. B) parallel conversion. C) phase-in conversion. D) pilot conversion. Answer: D Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

3) Which of the following activities is not part of data conversion? A) Changing data content. B) Moving file servers. C) Changing file formats. D) Moving files to a new storage medium. Answer: B Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 4) What type of conversion terminates the old system as soon as the new system is ready? A) Direct conversion. B) Parallel conversion. C) Phase-in conversion. D) Pilot conversion. Answer: A Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 5) What type of conversion changes the old system to a new one by operating both systems simultaneously until the organization is confident the new system is functioning correctly? A) Direct conversion. B) Parallel conversion. C) Phase-in conversion. D) Pilot conversion. Answer: B Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 6) What type of conversion changes the old system to a new one by gradually replacing elements of the old with the new until the old system has been entirely replaced? A) Direct conversion. B) Parallel conversion. C) Phase-in conversion. D) Pilot conversion. Answer: C Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking

7) Which of the following describes a phase-in conversion? A) Both the old and new AIS are operated simultaneously. B) Elements of the old AIS are replaced gradually with elements of the new AIS. C) The new AIS is introduced into a segment, rather than the whole organization. D) The old AIS is terminated as the new AIS is introduced. Answer: B Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytical Thinking 8) Which of the following is the final step in the data conversion process? A) Data conversion. B) Testing the system. C) Documentation of conversion activities. D) Monitoring of the system after data conversion. Answer: C Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 9) Which of the following is not one of the ways data may need to be modified during data conversion? A) Resolve data inconsistencies. B) Validate new files. C) Identify files to be converted. D) Remove unnecessary fields from data files. Answer: D Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 10) Which of the following is the most costly and least risky method of converting from one system to another? A) Direct conversion. B) Parallel conversion. C) Pilot conversion. D) Phase-in conversion. Answer: B Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking

11) Which of the following is the least costly and most risky method of converting from one system to another? A) Direct conversion. B) Parallel conversion. C) Pilot conversion. D) Phase-in conversion. Answer: A Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 12) Describe the approaches to system conversion. Answer: Direct conversion is used when the old system is of no value or is not comparable to the new system. This type of conversion carries a high risk of failure. Parallel conversion protects the company from error, but it is costly and stressful to process transactions twice. Phase-in conversion results in gradual changes over time that also allows resources to be acquired over time. However, creating temporary interfaces is costly and gradual changes take time and come at greater expense. Pilot conversion implements the system in just one part of the organization that allows problems to be corrected before the system is completely adopted. However, the costs of interfaces and running both systems are a disadvantage. Concept: Systems conversion Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytical Thinking 5 Discuss the systems operation and maintenance process and the activities in this phase. 1) Changing tax rates in a software program would be accomplished in the the systems development life cycle. A) maintenance B) operations C) program design D) implementation Answer: A Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

phase of

2) Which factor is not investigated during the post-implementation review? A) Accuracy. B) Benefits. C) Completion. D) Costs. Answer: C Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 3) Which of the following is the final activity in the systems development life cycle? A) Monitoring of the system. B) Ongoing maintenance activities. C) Preparation of the post-implementation review report. D) User acceptance of the post-implementation review report. Answer: D Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking 4) An analyst who asks the question, "Does the system produce actual and complete data?" is investigating what post implementation factor? A) Accuracy. B) Compatibility. C) Goals and objectives. D) Reliability. Answer: A Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 5) Performing revisions to existing program code is an example of A) debugging. B) structured programming. C) program maintenance. D) walk through. Answer: C Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytical Thinking

6) Describe the post-implementation review activity. Answer: A post-implementation review ensures that the new AIS meets planned objectives. Any problems uncovered during the review are brought to the attention of the management and the necessary adjustments are made. When review is complete, prepare a report. The acceptance of the post-implementation review report by users concludes the systems development process. Control of the AIS now passes on to the data processing department. Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 7) Over the entire life of a typical system, approximately of the work takes place during development and of the work takes place on software modifications and updates. A) 30%; 70% B) 40%; 60% C) 50%; 50% D) 60%; 40% Answer: A Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 8) Post implementation review is conducted to A) determine whether a new system meets its planned objectives. B) determine how well the project team performed in developing the new system. C) prioritize future modifications to the system. D) provide external auditors assurance that a new system has been placed into service. Answer: A Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking 9) What are the factors that an organization needs to investigate during its postimplementation review? Answer: Factors that an organization needs to investigate during its postimplementation review include: goals and objectives, satisfaction, benefits, costs, reliability, accuracy, timeliness, compatibility, controls and security, errors, training, communications, organizational changes, and documentation. Concept: Operation and maintenance Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytical Thinking