ACCOUNTING INFORMATION SYSTEMS 13TH EDITION MARSHALL ROMNEY, PAUL STEINBART TEST BANK by QuentinAxel

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ACCOUNTING INFORMATION SYSTEMS 13TH EDITION MARSHALL ROMNEY, PAUL STEINBART TEST BANK Accounting Information Systems, 13e (Romney/Steinbart) Chapter 1 Accounting Information Systems: An Overview 1.1 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 output of an AIS. B) Information is the primary output of an AIS. C) Data is more useful in decision making than information. D) Data and information are the same. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 4) An accounting information system (AIS) processes A) data; information B) data; transactions C) information; data D) data; benefits Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 1

to provide users with

5) information reduces uncertainty, improves decision makers' ability to make predictions, or confirms expectations. A) Timely B) Reliable C) Relevant D) Complete Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 8) Information is when two knowledgeable people independently produce the same information. A) verifiable B) relevant C) reliable D) complete Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) Data must be converted into information to be considered useful and meaningful for decision making. There are six 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) Inventory information is provided in real time by a firm's accounting information system. The accuracy of this information is questionable, however, since the production manager often reports 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) Cheryl Metrejean 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 Ms. Metrejean. 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 3

12) In 2003, 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 4

14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

17) 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 15%, the product innovation is expected to generate ROI of only 12%. As a result, the employee fails to follow up. 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 20) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

21) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 23) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

24) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 1.2 Explain the decisions an organization makes and the information needed to make them. 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 2) Before a firm can identify the information needed to effectively manage a process, the firm must A) understand the process . B) hire programmers. C) purchase computers and/or workstations. D) obtain internet access. Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 7) What is a key decision that needs to be made with regards to selling merchandise? A) which credit cards to accept B) which employees to hire C) which public accounting firm to employ D) how much capital to acquire Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

8) What is a key decision that needs to be made with regards to acquiring inventory? A) which credit cards to accept B) which employees to hire C) which vendors to use D) how much capital to acquire Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 9) What is a key decision that needs to be made with regards to acquiring equipment? A) the location B) pro forma income statement C) how much capital to acquire D) job descriptions Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 1.3 Identify the information that passes between internal and external parties and an AIS. 1) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 2) Who of the following is not a stakeholder with whom an accounting information system typically communicates directly? A) Wall Street industry analyst B) venture capitalist C) company that supplies raw materials D) company that purchases finished goods for resale to consumers Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

3) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 5) In which transaction cycle would information for paying employees 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 6) In which transaction cycle would information for paying interest 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

7) In which transaction cycle would information for borrowing money 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 8) In which transaction cycle would information for hiring employees 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) Identify the party below that is not external to the firm. A) customer B) vendor C) government agencies D) CEO Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 10) Identify the party below that is not internal to the firm. A) customer B) management C) employees D) CEO Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

1.4 Describe the major business processes present in most companies. 1) Obtaining financing from outside investors is part of which cycle? A) the revenue cycle B) the financing cycle C) the production cycle D) the payroll cycle Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 2) The is not a transaction cycle. A) general ledger and reporting cycle B) expenditure cycle C) revenue cycle D) human resources cycle Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

5) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 6) The transaction cycle that includes the events of hiring employees and paying them is known as the A) revenue cycle. B) expenditure cycle. C) human resources cycle. D) financing cycle. Answer: C Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 8) Paying state payroll taxes is part of which transaction cycle? A) human resources/payroll B) expenditure C) financing D) revenue Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

9) Who of the following would not be involved in the revenue cycle? A) accounts payable clerk B) customer C) cashier D) credit manager Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 10) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 1.5 Explain what an accounting information system (AIS) is and describe its basic functions. 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

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. Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 organizatio ns. 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. Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 10) True or False: An accounting information system requires at least one computer. Answer: FALSE Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

1.6 Discuss how an AIS can add value to an organization. 1) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 2) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic

5) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

8) 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 Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic 9) 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. Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 10) 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. Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic 11) 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. Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic

12) 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. Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 13) 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. Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic 1.7 Explain how an AIS and corporate strategy affect each other. 1) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic

2) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 7 Difficulty: Difficult AACSB: Analytic 4) True or False: Corporate strategy should affect the way a firm deploys an accounting information system. Answer: TRUE Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic

6) 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 Objective: Learning Objective 7 Difficulty: Difficult AACSB: Analytic 7) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 7 Difficulty: Difficult AACSB: Analytic 9) True or False: It is important that a firm's AIS collect and integrate financial and nonfinancial information about the organization's activities if the firm seeks use its AIS to gain a competitive advantage. Answer: TRUE Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 10) True or False: When properly deployed, accounting information systems can provide firms with a competitive advantage. Answer: TRUE Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 23

1.8 Explain the role an AIS plays in a company's value chain. 1) 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 Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 3) Which of the following is a primary activity in the value chain? A) infrastructure B) technology C) purchasing D) marketing and sales Answer: D Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic 4) Arranging delivery of products to customers constitutes A) shipping B) inbound logistics C) outbound logistics D) delivery Answer: C Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic

in value chain analysis.

5) 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 Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 7) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday takes calls from unhappy customers. Wednesday tosses finished coconuts into the sea, sending them to the wholesaler. Thursday sends smoke signals 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 Monday performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: A Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic

8) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday takes calls from unhappy customers. Wednesday tosses finished coconuts into the sea, sending them to the wholesaler. Thursday sends smoke signals 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 Friday performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: B Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 9) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday takes calls from unhappy customers. Wednesday tosses finished coconuts into the sea, sending them to the wholesaler. Thursday sends smoke signals 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 Wednesday performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: C Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic

10) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday takes calls from unhappy customers. Wednesday tosses finished coconuts into the sea, sending them to the wholesaler. Thursday sends smoke signals 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 Thursday performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: D Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic 11) Clemente Santiago has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday takes calls from unhappy customers. Wednesday tosses finished coconuts into the sea, sending them to the wholesaler. Thursday sends smoke signals 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 Tuesday performing? A) Inbound logistics B) Operations C) Outbound logistics D) Marketing and sales E) Service Answer: E Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 12) 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. Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic

13) 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. Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 14) 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. Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 2 Overview of Transaction Processing and Enterprise Resource Planning Systems 2.1 Describe the four parts of the data processing cycle and the major activities in each. 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 1

5) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 7) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 8) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) What is the most frequent revenue cycle transaction? A) purchase of inventory B) receipt of cash C) sale to customer D) billing Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) True or False: The existence of relevant data guarantees the data are useful. Answer: FALSE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 12) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) What is the final step in the data processing cycle? A) output B) storage C) processing D) input Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

2.2 Describe documents and procedures used to collect and process transaction data. 1) The general ledger A) is the initial place to record general expenses. B) is posted in total to the general journal. C) only includes balance sheet accounts. D) summarizes the transactions in journals. Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 2) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 3) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

5) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 6) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

9) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 10) Pre-numbering of source 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 11) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 12) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

13) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 15) Street Smarts (SS) is a retailer located in Naperville, Illinois. During the peak tourist season, it has average daily cash and credit card sales in excess of $7,000. What is the best way for SS 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 16) In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 86,000 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

17) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 18) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 19) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking

20) 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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Reflective Thinking 21) 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. Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking

22) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 23) What is the first step in the data processing cycle? A) input B) output C) storage D) purchasing Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 24) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 2.3 Describe the ways information is stored in computer-based information systems. 1) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

2) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 5) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

6) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 7) Pre-numbered invoices and pre-numbered purchase orders are examples of A) sequence codes. B) block codes. C) group codes. D) mnemonic codes. Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 9) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

10) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 12) The chart of accounts of a movie theater would probably include A) retained earnings. B) a drawing account. C) work-in-process. D) both A and C Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

14) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 15) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

18) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 19) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 20) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 21) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

22) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 23) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 24) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

25) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 26) The coding technique most likely used for sales orders is A) block code. B) group code. C) sequence code. D) data code. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 27) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 28) Changing an employee's hourly wage rate would be recorded where? A) employee master file B) employee transaction file C) special journal D) employee update file Answer: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

29) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 30) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking 31) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking 32) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

33) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 34) 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. Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 35) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 2.4 Discuss the types of information that an AIS can provide. 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 19

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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 3) Which of the following information would most likely be reviewed by management on an exception report? A) monthly cash budget B) quality control system failures C) unit sales by territory and salesperson D) income statement Answer: B Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 4) All of the following situations would likely be communicated in an exception report except A) production stoppages. B) weekly credit and cash sales comparison. C) low inventory level. D) expense variances outside acceptable range. Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Reflective Thinking 5) Which statement below regarding the AIS and managerial reports is false? A) The AIS is best utilized for financial data while the management information system is best utilized for operational data. B) The AIS must be able to provide managers with detailed operational information about the organization's performance. C) Both financial and nonfinancial data are required for proper and complete evaluation of organizational performance. D) Most source documents capture both financial and nonfinancial data about business transactions. Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 20

6) True or False: Traditionally, accounting information systems have been used to collect, process, store and report non-financial information. Answer: FALSE Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytic 8) When printed on paper, data output is referred to as A) reports. B) hard copy. C) soft copy. D) financials. Answer: B Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 9) When displayed on a monitor, data output is referred to as A) reports. B) hard copy. C) soft copy. D) financials. Answer: C Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 10) Identify the output below that an accounting information system can provide. A) income statement B) list of sales returns C) exception reports D) all of the above Answer: D Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 21

2.5 Discuss how organizations use enterprise resource planning (ERP) systems to process transactions and provide information. 1) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 2) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

4) 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. Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 5) ERP stands for A) enterprise resource planning. B) enterprise resource program. C) enterprise reporting program. D) none of the above Answer: A Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 23

7) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 9) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

11) 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic 12) All of the following are ERP vendors except A) Dell. B) SAP. C) Oracle. D) Microsoft. Answer: A Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic 13) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 3 Systems Documentation Techniques 3.1 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 1

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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 12) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

17) The American Bread Company is a small restaurant that collects, stores, prepares and provides meals to customers in Miami, Florida. When food is received, it is recorded in a database and a receiving ticket is provided to the vendor. When food is used, the database is updated so that it always reflects the amount and type of food available to customers. In a data flow diagram, which type of symbol would be used to represent vendors? A) B)

C) D) Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) The American Bread Company is a small restaurant that collects, stores, prepares and provides meals to customers in Miami, Florida. When food is received, it is recorded in a database and a receiving ticket is provided to the vendor. When food is used, the database is updated so that it always reflects the amount and type of food available to customers. In a data flow diagram, which type of symbol would be used to represent the system processing food received from the vendor? A) B)

C) D) Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

19) The American Bread Company is a small restaurant that collects, stores, prepares and provides meals to customers in Miami, Florida. When food is received, it is recorded in a database and a receiving ticket is provided to the vendor. When food is used, the database is updated so that it always reflects the amount and type of food available to 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 20) The American Bread Company is a small restaurant that collects, stores, prepares and provides meals to customers in Miami, Florida. When food is received, it is recorded in a database and a receiving ticket is provided to the vendor. When food is used, the database is updated so that it always reflects the amount and type of food available to customers. In a data flow diagram, which type of symbol would be used to represent the process of updating the company's inventory records in the system? A) B)

C) D) Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

21) The American Bread Company is a small restaurant that collects, stores, prepares and provides meals to customers in Miami, Florida. When food is received, it is recorded in a database and a receiving ticket is provided to the vendor. When food is used, the database is updated so that it always reflects the amount and type of food available to customers. In a data flow diagram, which type of symbol would be used to represent the flow of data provided by the vendors into the system? A) B)

C) D) Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

23) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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. 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

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 remote server that stores the tweets (i.e., the Twitter posts) data? A) B)

C) D) Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 26) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 27) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

28) A well-planned and drawn context data flow diagram will include how many processes? A) one B) between 5 and 7 C) between 2 and 7, but no more than 7 D) as many as are needed to accurately depict the process being documented Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 29) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking

30) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

31) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 32) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

33) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 34) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 35) 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" have 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 36) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

37) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 38) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 39) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

40) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 41) 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.) Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

42) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 43) True or False: The Sarbanes-Oxley Act requires auditors to create flowcharts to document business processes. Answer: FALSE Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

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

A) data store. B) data flow. C) data source. D) data destination. Answer: D Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

45) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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

Answer: FALSE Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 47) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

48) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 49) In a data flow diagram, an inverted triangle represents A) an internal control. B) document filing. C) on page connection. D) document processing. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 50) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 51) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

52) In a data flow diagram of the order shipping process, what symbol would most appropriately denote a "Bill of Lading" used in the process? A) a square B) a circle C) two horizontal lines D) an arrow Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

3.2 Prepare and use flow diagrams 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

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

A) magnetic disk. B) terminal. C) manual process. D) off-page connector. Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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) #15 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 10) Which symbol would be used in a flowchart to represent a decision? A) #10 B) #16 C) #9 D) #6 Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11) Which symbol would be used in a flowchart to represent an invoice sent to a customer? A) #2 B) #6 C) #1 D) #15 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

12) Which symbol would be used in a flowchart to represent a general ledger? A) #2 B) #1 C) #3 D) #5 Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 13) Which symbol would be used in a flowchart to represent a manual process? A) #5 B) #6 C) #10 D) #11 Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) #15 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) #13 C) #14 D) #15 Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 17) Which symbol would be used in a flowchart to represent a general ledger master file kept on magnetic disk? A) #2 B) #5 C) #7 D) #8 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 18) Which symbol would be used in a flowchart to represent employee time cards sent by department managers to the payroll department? A) #1 B) #4 C) #11 D) #16 Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 19) Which symbol would be used in a flowchart to represent the display of a report on a computer screen? A) #1 B) #2 C) #3 D) #11 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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) #1 B) #5 C) #11 D) #15 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) #9 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 22) Which symbol would be used in a flowchart to represent a beginning, an ending, or a connection to another procedure? A) #9 B) #14 C) #15 D) #16 Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 23) Which symbol would be used in a flowchart to represent a flow of data or documents? A) #12 B) #13 C) #14 D) #15 Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

24) Which symbol would be used in a flowchart to represent a communication link? A) #12 B) #13 C) #14 D) #15 Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 25) In a document flowchart of a manual payroll processing system, "update customer file" will be shown by a(n) symbol, and "prepare vendor check" 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

28) Nishant Kumar has been hired by American Manufacturing as a staff accountant in the internal audit department. He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements to internal controls. He 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 29) Nishant Kumar has been hired by American Manufacturing as a staff accountant in the internal audit department. He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements. He 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Reflective Thinking 30) Nishant Kumar has been hired by American Manufacturing as a staff accountant in the internal audit department. He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements. He 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

31) A materials requisition order document is prepared from the inventory file and the materials file, both of which are stored on a hard drive. Which one of the following diagrams represents this activity? A)

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

32) A customer's check is returned for insufficient funds and the accounts receivable file, stored on a hard drive, is updated. Which one of the following diagrams represents this activity? A)

Answer: C 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 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 35) An employee receives a paycheck prepared in the payroll process. Which one of the following diagrams represents this activity? A)

Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

36) A student manually prepares a homework assignment and then turns it in to her teacher. Which one of the following diagrams represents this activity? A)

Answer: A 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 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. 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.) Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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. Objective: Learning Objective 2 Difficulty: Difficult 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) #11 Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 42) Which symbol would be used in a flowchart to represent manually prepared control totals? A) #9 B) #8 C) #4 D) #7 Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 43) Which symbol would be used in a flowchart to represent a customer sales order? A) #2 B) #1 C) #5 D) #15 Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 47) Which symbol would be used in a flowchart to indicate the process started with the Human Resources department? A) #1 B) #10 C) #12 D) #16 Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

48) Carly Jackson is a staff auditor for KPMG. 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 49) Carly Jackson is a staff auditor for KPMG. 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 Objective: Learning Objective 2 Difficulty: Difficult 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 4 Relational Databases 4.1 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6) Shahnaz Vijaya is a new graduate who has been hired by a family-owned furniture manufacturing company in the south. She has been asked to analyze the company's accounting information system and to recommend cost-effective 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking 7) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

8) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking 9) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 10) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking

11) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 4.2 Explain the difference between logical and physical views of a database. 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 4.3 Explain fundamental concepts of a database system such as DBMS, schemas, the data dictionary, and DBMS languages. 1) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

3) The is responsible for the database. A) database master B) database manager C) database administrator D) data coordinator Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 5) The logical structure of a database is described by the A) data dictionary. B) schema. C) database management system. D) context diagram. Answer: B Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

7) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) Record layouts, definitions, addresses, and indexes will be stored at the _ schema. A) external B) conceptual C) internal D) meta Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

level

11) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

15) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

, and populating

17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

19) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 20) A is an abstract representation of a database's contents. A) schema B) logical data model C) physical view D) data dictionary Answer: B Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 21) In a well-designed and normalized database, which of the following attributes would be a foreign key in a cash receipts table? A) customer number B) cash receipt date C) remittance advice number D) customer check number Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 22) Cornelia Cassidy is a telecom equipment 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 product information. All sales reps also have access that allows them to enter and cancel customer orders. The permissions for Cornelia define a in the company's database management system. A) conceptual-level schema B) subschema C) data dictionary D) physical view Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 10

23) Cornelia Cassidy is a telecom equipment 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 product information. She also has access that allows her to enter and cancel customer orders. The permissions for Cornelia (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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 24) 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 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 25) 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. Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

26) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 27) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 28) 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. Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 29) The REA is an example of a database that uses a database design. A) schema B) logical C) semantic D) normalization Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

data modeling approach to

4.4 Describe what a relational database is and how it organizes data. 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 2) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

5) A relational database in which customer data is not maintained independently of sales invoice data will most likely result in A) an update anomaly. B) an insert anomaly. C) a delete anomaly. D) an integrity anomaly. Answer: B Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 6) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

9) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 10) Kai Keoni has created custom statues made out of scrap metal for over ten years. He lives above his shop in Martha's Vineyard, Maryland. Kai is an accounting fanatic and has kept detailed records of every statue he has ever created. For every sale, he obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. His unique style has recently attracted the attention of several celebrities. Ready to take his business to the next level, Kai has hired you to construct an accounting information system, which he wants modeled after his paper records. As you look over his 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 pig 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

11) Kai Keoni has created custom statues made out of scrap metal for over ten years. He lives above his shop in Martha's Vineyard, Maryland. Kai is an accounting fanatic and has kept detailed records of every statue he has ever created. For every sale, he obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. His unique style has recently attracted the attention of several celebrities. Ready to take his business to the next level, Kai has hired you to construct an accounting information system, which he wants modeled after his paper records. As you look over his 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 12) Kai Keoni has created custom statues made out of scrap metal for over ten years. He lives above his shop in Martha's Vineyard, Maryland. Kai is an accounting fanatic and has kept detailed records of every statue he has ever created. For every sale, he obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. His unique style has recently attracted the attention of several celebrities. Ready to take his business to the next level, Kai has hired you to construct an accounting information system, which he wants modeled after his paper records. As you look over his records, you notice that some customer last names have different first names in different records. For example, R. Framington Farnsworth, Bob Farnsworth, and Snake Farnsworth all seem to be the same person. You explain to Kai 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

13) 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. Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 14) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 15) 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. Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking

16) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 17) 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 describe 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 19) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 18

20) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 4.5 Create a set of well-structured tables to store data in a relational database. 1) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 19

4) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

8) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 9) Ama Afolayan is chair of the National Owl Society, which maintains a database of all rare owls within the United States. One table will store the name, birth date, and other characteristics of all of the owls that have been registered. Each owl is uniquely identified by a registration number. A second table will contain data that link each owl 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 10) Ama Afolayan is chair of the National Owl Society, which maintains a database of all rare owls within the United States. One table will store the name, birth date, and other characteristics of all of the owls that have been registered. Each owl is uniquely identified by a registration number. A second table will contain data that link each owl 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Reflective Thinking

11) Ama Afolayan is chair of the National Owl Society, which maintains a database of all rare owls within the United States. One table will store the name, birth date, and other characteristics of all of the owls that have been registered. Each owl is uniquely identified by a registration number. A second table will contain data that link each owl to its male and female parents by means of their registration numbers. The entities described by the second table are A) owls. B) parental relationships. C) registration numbers. D) names. Answer: B Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 12) Kekoa Konani is chairman of the Chatty Chihuahua Club, where he maintains a database of registered purebred Chihuahuas and their breeding history. One table will store the name, birth date, and other characteristics of all of the registered Chihuahuas. Each Chihuahua is uniquely identified by a registration number. A second table will contain data that link each Chihuahua to its male and female parents by means of their registration numbers. The entities described by the first table are A) marmosets. B) parental relationships. C) registration numbers. D) names. Answer: A Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 13) Kekoa Konani is chairman of the Chatty Chihuahua Club, where he maintains a database of registered purebred Chihuahuas and their breeding history. One table will store the name, birth date, and other characteristics of all of the registered Chihuahuas. Each Chihuahua is uniquely identified by a registration number. A second table will contain data that link each Chihuahua to its male and female parents by means of their registration numbers. The primary key in the first table is A) name. B) registration number. C) date of birth. D) relationship number. Answer: B Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking

14) Kekoa Konani is chairman of the Chatty Chihuahua Club, where he maintains a database of registered purebred Chihuahuas and their breeding history. One table will store the name, birth date, and other characteristics of all of the registered Chihuahuas. Each Chihuahua is uniquely identified by a registration number. A second table will contain data that link each Chihuahua to its male and female parents by means of their registration numbers. The primary key in the second table is A) name. B) registration number. C) date of birth. D) relationship number. Answer: D Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 15) Kai Keoni has created custom statues made out of scrap metal for over ten years. He lives above his shop in Martha's Vinyard, Maryland. Kai is an accounting fanatic and has kept detailed records of every statue he has ever created. For every sale, he obtains the customer's name and address, a description of the statue, and a picture of the statue sold to the customer. His unique style has recently attracted the attention of several celebrities. Ready to take his business to the next level, Kai has hired you to construct an accounting information system, which he wants modeled after his 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Reflective Thinking

16) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking

17) 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Reflective Thinking

18) 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Reflective Thinking

19) 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. Objective: Learning Objective 5 Difficulty: Difficult AACSB: Reflective Thinking 20) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 21) 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic

22) 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic 4.6 Perform simple queries using the Microsoft Access database. 1) Which one of the following results corresponds to the query below?

Answer: C Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

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

Answer: D Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking

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

Answer: B Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking

4) Using the database depicted below, "Date" is best described as

A) a primary key. B) a foreign key. C) a non-key attribute. D) an attribute. Answer: C Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 5) Using the database depicted below, how many primary keys are in the database?

A) 0 B) 3 C) 4 D) 5 Answer: C Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 32

6) Using the database depicted below, how many foreign keys are in the database?

A) 0 B) 3 C) 4 D) 5 Answer: B Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 7) Using the database depicted below, "Item #" is best described as

A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: D Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 33

8) Using the database depicted below, "Unit Price" is best described as

A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: A Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

9) Using the database depicted below, 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 10) In the Customer table below, "Customer #" is best described as

A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: D Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic 35

11) In the Inventory table below, "Item number" is best described as

A) an attribute. B) a primary key. C) a foreign key. D) A, B, and C Answer: B Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 5 Computer Fraud 5.1 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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) fraud and embezzlement Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 inefficiency Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 4) A power outage is an example of a(n) A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) system inefficiency Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

_ threat.

5) Excessive heat is an example of a(n) A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) system inefficiency Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

threat.

6) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 8) Which type of threat causes the greatest dollar losses? A) software errors and equipment malfunctions B) unintentional acts C) intentional acts D) system inefficiency Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

9) True or False: 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) True or False: 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) Logic errors are an example of which type of threat? A) natural and political disasters B) software errors and equipment malfunctions C) unintentional acts D) system inefficiency Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 5.2 Define fraud and describe both the different types of fraud and the process one follows to perpetuate a fraud. 1) Seble 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. Seble approaches a good friend, Zhou, to discuss the possibility of Zhou investing funds and becoming a 25% partner in the business. After a lengthy discussion Zhou agrees to invest. Eight months later, Zhou and Seble have a major argument. In order for Zhou to sue Seble for fraud, all the following must be true except A) Zhou's decision to invest was primarily based on Seble's assertion that she had prior floral retail experience. B) Seble told Zhou she had worked at a floral shop for several years, when in fact she did not have any prior experience in floral retail. C) before Zhou invested, Seble prepared a detailed business plan and sales forecasts, and provided Zhou with copies. D) Zhou's 25% share of the business is worth substantially less than her initial investment. Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

2) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 3) "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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 5) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

6) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 7) 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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 8) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

9) All of the following are required for an act to be legally classified as fraudulent except A) a falsehood is made. B) about a material fact. C) to inflict pain. D) resulting in a financial loss. Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 10) 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. D) theft of company property. Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 5.3 Discuss who perpetrates fraud and why it occurs, including the pressures, opportunities, and rationalizations that are present in most frauds. 1) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 2) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

3) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) Identify the opportunity below that could enable an employee to commit fraud. A) An employee's spouse loses her job. B) An employee has a close association with suppliers or customers. C) An employee suddenly acquires lots of credit cards. D) An employee is upset that he was passed over for a promotion. Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

7) Which of the following is a financial pressure that could cause an employee to commit fraud? A) a feeling of not being appreciated B) failing to receive a deserved promotion C) believing that their pay is too low relative to others around them D) having a spouse injured in a car accident and in the hospital for several weeks Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 9) In many cases of fraud, the A) concealment; theft B) theft; concealment C) conversion; theft D) conversion; concealment Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

takes more time and effort than the

10) Which of the following is the best way to hide theft of assets? A) creating "cash" through the transfer of money between banks 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

11) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

15) What is the most prevalent opportunity within most companies to commit fraud? A) lack of any internal controls B) failure to enforce the internal controls C) loopholes in the design of internal controls D) management's failure to believe employees would commit fraud Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 16) This component of the fraud triangle explains how perpetrators justify their (illegal) behavior. A) pressure B) rationalization C) concealment D) opportunity Answer: B Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 17) The most efficient way to conceal asset misappropriation is to A) write-off a customer receivable as bad debt. B) alter monthly bank statements before reconciliation. C) alter monthly physical inventory counts to reconcile to perpetual inventory records. D) record phony payments to vendors. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 18) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

5.4 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 3) Why is computer fraud often much more difficult to detect than other types of fraud? A) because massive fraud can be committed in only seconds, leaving little-to-no evidence B) because most perpetrators invest their illegal income rather than spend it, 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 very small amounts of money at a time, requiring a long period of time to pass before discovery Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

5) Why do many fraud cases go unreported and unprosecuted? A) Major fraud is a public relations nightmare. B) Fraud is difficult, costly, and time-consuming to investigate and prosecute. C) Law enforcement and the courts are often so busy with violent crimes that little time is left for fraud cases. D) all of the above Answer: D Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 7) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

9) Why is computer fraud on the rise? 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 10) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

5.5 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) the police. Answer: B Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 3) On Tuesday morning, Chen Lee, Chief Information Officer at American Trading Corporation (ATC), got some bad news. The hard drive use to store system data backups was lost while it was being transported to an offsite storage location. Chen 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Reflective 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 employee bank accounts and net worth C) Monitoring employee behavior using video cameras D) Explaining that fraud is illegal and will be severely punished to employees Answer: A Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

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) Objective: Learning Objective 5 Difficulty: Moderate AACSB: Reflective Thinking 9) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

11) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 6 Computer Fraud and Abuse Techniques 6.1 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) What is a denial of service attack? A) A denial of service attack occurs when the perpetrator sends hundreds of messages from randomly generated false addresses, overloading an Internet service provider's e-mail server. B) A denial of service attack occurs when an e-mail message is sent through a re-mailer, who removes the message headers making the message anonymous, then resends the message to selected addresses. C) A denial of service attack occurs when a cracker enters a system through an idle modem, captures the PC attached to the modem, and then gains access to the network to which it is connected. D) A denial of service attack occurs when the perpetrator e-mails the same message to everyone on one or more Usenet newsgroups LISTSERV lists. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

4) Gaining control of somebody's computer without their knowledge and using it to carry out illicit activities is known as A) hacking. B) sniffing. C) phreaking. D) hijacking. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) Tapping into a communications line and then entering the system by accompanying a legitimate user without their knowledge is called A) superzapping. B) data leakage. C) hacking. D) piggybacking. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) Which of the following is not a method of identity theft? A) scavenging B) phishing C) shoulder surfing D) phreaking Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 7) The deceptive method by which a perpetrator gains access to the system by pretending to be an authorized user is called A) cracking. B) masquerading. C) hacking. D) superzapping. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

8) The unauthorized access to, or use of, a computer system is known as A) hacking. B) hijacking. C) phreaking. D) sniffing. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9) A fraud technique that slices off tiny amounts from many projects is called the technique. A) Trojan horse B) round down C) salami D) trap door Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) Data diddling is A) gaining unauthorized access to and use of computer systems, usually by means of a personal computer and a telecommunications network. B) unauthorized copying of company data such as computer files. C) unauthorized access to a system by the perpetrator pretending to be an authorized user. 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

12) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 14) After graduating from college with a communications degree, Rado Ionesco 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

15) Computers that are part of a botnet and are controlled by a bot herder are referred to as A) posers. B) zombies. C) botsquats. D) evil twins. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 16) Wassim Masood has been the webmaster for Woori Finance only ten days when Woori's website was flooded with access attempts. Wassim shut down the site and only opened it to Web addresses which he specifically identified as legitimate. As a result, many of Woori's customers were unable to obtain loans, causing Woori to lose a significant amount of business. Woori Finance suffered from a A) denial-of-service attack. B) zero-day attack. C) malware attack. D) cyber-extortion attack. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 17) Wassim Masood has been the webmaster for Woori Finance only ten days when he received an e-mail that threatened to shut down Woori's website unless Wassim wired payment to an account in South America. Wassim was concerned that Woori Finance would suffer huge losses if its website went down, so he 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

18) Wassim Masood works in the information technology department of TMV. On Monday morning, he arrived at work, scanned his identity card, and entered his code. At that moment, a lady in a delivery uniform came up behind Wassim with a bunch of boxes. Although Wassim held the door for the delivery lade, he later wondered if the delivery lady was engaged in A) pretexting. B) piggybacking. C) posing. D) spoofing. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 19) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

20) Zeus is an example of a A) virus. B) worm. C) Trojan horse. D) war dialing. Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 21) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 22) On the weekends, Thuy Nguyen climbs into her Toyota Camry and drives around the city of Las Vegas looking for unprotected wireless networks to exploit. Thuy is most likely engaging in A) snarfing. B) Wi-pilfering. C) war driving. D) data slurping. Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 23) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

6.2 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 5) Which method of fraud is physical in its nature rather than electronic? A) cracking B) hacking C) eavesdropping D) scavenging Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 7) Dimitri Ivanov is an accountant with PwC. The firm has a very strict policy of requiring all users to change their passwords every sixty days. In early March, Dimitri received an e-mail claiming that there had been an error updating his password and that provided a link to a website with instructions for re-updating his password. Something about the e-mail made Dimitri suspicious, so he called PwC'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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 9

8) It was late on a Friday afternoon when Makari Polzin got a call at the help desk for Taggart Transcontinental. 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 John Galt from the Accounting Department. He told Makari 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. Makari 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. Consequently, Makari provided the password to John. The caller was not John Galt, and Makari was a victim of A) phreaking. B) war dialing. C) identity theft. D) social engineering. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 9) Jim Chan decided to Christmas shop online. He linked to Amazon.com, found a perfect gift for his daughter, registered, and placed his order. It was only later that he noticed that the website's URL was actually Amazom.com. Jim was a victim of A) Bluesnarfing. B) splogging. C) vishing. D) typosquatting. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 10) Mo Chauncey was arrested in Emporia, Kansas, on February 29, 2008, for running an online business that specialized in buying and reselling stolen credit card information. Mo was charged with A) typosquatting. B) carding. C) pharming. D) phishing. Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

11) Which of the following is not an example of social engineering? A) obtaining and using another person's Social Security number, credit card, or other confidential information B) creating phony websites with names and URL addresses very similar to legitimate websites in order to obtain confidential information or to distribute malware or viruses C) using e-mail to lure victims into revealing passwords or user IDs D) setting up a computer in a way that allows the user to use a neighbors unsecured wireless network Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 12) Describe at least four social engineering 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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

13) What is social engineering? 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. 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 16) True or False: Identify theft has always been a federal crime. Answer: FALSE Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 6.3 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

3) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

7) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

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

8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) Narang Direct Sales is a telemarketing firm that operates out of India. 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. Narang Direct Sales was a victim of A) Bluesnarfing. B) splogging. C) vishing. D) typosquatting. Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

10) Rina Misra, a first-time computer user, purchased a brand new PC two months ago and it was now operating much more slowly and sluggishly. Since purchasing the computer, she 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) Bluesnarfing. Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 11) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) 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 for until it is tested. D) Do not open e-mail attachments from unknown senders. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

13) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 17) True or False: Law enforcement uses key logging software, a form of malware, to detect crime. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 19) True or False: Steganography malware uses encryption to increase its effectiveness. Answer: FALSE Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 7 Control and Accounting Information Systems 7.1 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 do not realize that data security is crucial to their survival. B) LANs and client/server systems are easier to control than centralized, mainframe systems. C) Many companies believe that protecting information is a strategic requirement. D) Computer control problems are often overestimated and overly emphasized by management. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 3) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 1

5) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

control, and procedures to control.

8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) Which type of control prevents, detects, and corrects transaction errors and fraud? A) general B) application C) detective D) preventive Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) 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 Control Provision of 1998 Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 12) 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 information systems development D) the creation of the Public Company Accounting Oversight Board Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

13) A(n) measures company progress by comparing actual performance to planned performance. A) boundary system B) diagnostic control system C) interactive control system D) internal control system Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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) internal control system Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Oanez Dinnerware A) asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process. B) hired the manager from the external audit team as company CFO twelve months after the manager had worked on the audit. C) selected the company's Chief Financial Officer to chair the audit committee. D) did not mention to auditors that the company had experienced significant losses due to fraud during the past year. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

17) Irene Pacifica was relaxing after work with a colleague at a local watering hole. Well into her second martini, she began expressing her feelings about her company's budgeting practices. It seems that as a result of controls put in place by the company,her ability to creatively manage his department's activities have been curtailed. 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: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) Irene Pacifica was relaxing after work with a colleague at a local watering hole. Well into her second martini, she began expressing her feelings about her work environment. Recently, every employee of the firm was required to attend a sexual harassment workshop. 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 19) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

7.2 Compare and contrast the COBIT, COSO, and ERM control frameworks. 1) Which of the below is not a component of the COSO ERM? A) monitoring B) control environment C) risk assessment D) compliance with federal, state, or local laws Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 5) True or False: The COSO ERM contains all five of the same COSO-Integrated Framework components. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 6) How many principles are there in the 2013 updated COSO - Internal Control Framework? A) 5 B) 8 C) 17 D) 21 Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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) to more effectively address technological advancements D) to comply with International accounting standards Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8) Which internal control framework is widely accepted as the authority on internal controls? A) COBIT B) COSO Integrated Control C) COSO Enterprise Risk Management D) Sarbanes-Oxley Control Framework Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7

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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 14) Why did COSO develop the Enterprise Risk Management framework? A) to improve the audit process B) to improve the risk management process C) to improve the financial reporting process D) to improve the manufacturing process Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

7.3 Describe the major elements in the internal environment of a company. 1) Rauol is a receptionist for The South American Paper Company, which has strict corporate policies on appropriate use of corporate resources. The first week of March, Rauol saw Jim (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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 10

5) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 6) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 7) The SEC 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

9) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 10) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 11) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

12) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 7.4 Describe the four types of control objectives that companies need to set. 1) According to the ERM, these help the company address all applicable laws and regulations. A) compliance objectives B) operations objectives C) reporting objectives D) strategic objectives Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 2) According to the ERM, high level goals that are aligned with and support the company's mission are A) compliance objectives. B) operations objectives. C) reporting objectives. D) strategic objectives. Answer: D Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 3) According to the ERM, 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 13

4) objectives help ensure the accuracy, completeness and reliability of internal and external company reports, Applying the ERM framework. A) Compliance objectives B) Operations objectives C) Reporting objectives D) Strategic objectives Answer: C Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 7.5 Describe the events that affect uncertainty and the techniques used to identify them. 1) True or False: Using the COSO definition of an event, an event represents uncertainty. Answer: TRUE Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 3) Which of the following is not a commonly used technique used to identify potential events? A) performing internal analysis B) monitoring leading events C) conducting interviews D) none of the above Answer: D Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

7.6 Explain how to assess and respond to risk using the Enterprise Risk Management (ERM) model. 1) is not a risk responses identified in the COSO Enterprise Risk Management Framework. A) Acceptance B) Avoidance C) Monitoring D) Sharing Answer: C Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 2) Best Friends, Incorporated is a publicly traded company where three BFF's (best friends forever) serve as its key officers. This situation A) is a violation of the Sarbanes-Oxley Act. B) violates the Securities and Exchange Act. C) increases the risk associated with an audit. D) must be changed before your audit firm could accept the audit engagement. Answer: C Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 3) remains after management implements internal control(s). A) Inherent risk B) Residual risk C) Risk appetite D) Risk assessment Answer: B Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 7) 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 $650,000. Insurance with a $50,000 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) $50 B) $650 C) $50,000 D) $650,000 Answer: D Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 8) 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 $650,000. Insurance with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss without insurance? A) $50 B) $650 C) $50,000 D) $650,000 Answer: B Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 16

9) 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 $650,000. Insurance with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss with insurance? A) $50 B) $650 C) $50,000 D) $650,000 Answer: A Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 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 $650,000. Insurance with a $50,000 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) $50 B) $500 C) $600 D) $650 Answer: C Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic

12) As a result of an internal risk assessment, Allstate Insurance decided it was not profitable to provide hurricane insurance in the state of Florida. Allstate apparently chose to the risk of paying hurricane claims in Florida. A) reduce B) share C) avoid D) accept Answer: C Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 13) Upon getting into your new car, you suddenly became worried that you might become injured in an auto accident. You decided to buckle your seat belt in response. You chose to the risk of being injured in an auto accident. A) reduce B) share C) avoid D) accept Answer: A Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 14) Upon getting into your new car, you suddenly became worried that you might become injured in an auto accident. In response, you decided to drive 5 miles under the speed limit. You chose to the risk of being injured in an auto accident. A) reduce B) share C) avoid D) accept Answer: A Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 15) Upon getting into your new car, you suddenly became worried that you might become injured in an auto accident. In response, you decided to ride your bike instead. You chose to the risk of being injured in an auto accident. A) reduce B) share C) avoid D) accept Answer: C Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking 18

7.7 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 Objective: Learning Objective 7 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 Objective: Learning Objective 7 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic 5) 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 Objective: Learning Objective 7 Difficulty: Difficult AACSB: Reflective Thinking 6) 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) Mike issues credit cards to him and Maxine, and when the credit card balances are just under $1,000, Maxine writes off the accounts as bad debt. Mike then issues new cards. Answer: D Objective: Learning Objective 7 Difficulty: Difficult AACSB: Reflective Thinking 7) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 20

8) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Reflective Thinking 9) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Reflective Thinking 10) A store policy that allows retail clerks to process sales returns for $500 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Reflective Thinking 11) An accounting policy that requires a purchasing manager to sign off on all purchases over $5,000 is an example of A) general authorization. B) specific authorization. C) special authorization. D) generic authorization. Answer: B Objective: Learning Objective 7 Difficulty: Easy AACSB: Reflective Thinking 21

12) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Reflective Thinking 22

16) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 17) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Reflective Thinking

19) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Reflective Thinking 20) 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. Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic 21) 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. Objective: Learning Objective 7 Difficulty: Moderate AACSB: Reflective Thinking

7.8 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 Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 3) COSO requires that any internal deficiencies identified through monitoring be reported to whom? A) the external auditor B) appropriate federal, state, or local authorities C) the board of directors D) the audit committee Answer: C Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 4) Which of the following is not a key method of monitoring performance? A) performing internal control evaluation B) employing a chief risk officer C) implementing effective supervision D) monitoring system activities Answer: B Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 25

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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 8 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 8) Which type of audit assesses employee compliance with management policies and procedures? A) external audit B) internal audit C) network security audit D) all of the above Answer: B Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 8 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 8 Controls for Information Security 8.1 Explain how information security affects information 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

4) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

7) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 8) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 9) Identify a party below who was involved with developing the Trust Services Framework. A) FASB B) United States Congress C) AICPA D) IMA Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 3

11) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 12) Identify the primary means of protecting data stored in a cloud from unauthorized access. A) authentication B) authorization C) virtualization D) securitization Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 14) True or False: Cloud computing can potentially generate significant cost savings for an organization. Answer: TRUE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) True or False: Cloud computing is generally more secure than traditional computing. Answer: FALSE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 8.2 Discuss how a combination of preventive, detective, and corrective controls can be employed to provide reasonable assurance about the security of an organization's information system. 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 5

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 4) is/are an example of a preventive control. A) Emergency response teams B) Encryption C) Log analysis D) Intrusion detection Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 5) is/are an example of a detective control. A) Physical access controls B) Encryption C) Emergency response teams D) Log analysis Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

6) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 9) Identify the best description of an access control matrix below. A) does not have to be updated 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

10) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11) Which of the following preventive controls are necessary to provide adequate security for social engineering threats? A) controlling remote access B) encryption C) host and application hardening D) awareness training Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 12) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

14) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 17) 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) stateful packet filtering. D) static packet filtering. Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

18) 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) stateful packet filtering. B) deep packet inspection. C) access control list. D) static packet filtering. Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 20) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 21) This is used to identify rogue modems (or by hackers to identify targets). A) war chalking B) war dialing C) war driving D) none of the above Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

22) The process of turning off unnecessary features in the system is known as A) deep packet inspection. B) hardening. C) intrusion detection. D) war dialing. Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 23) The most common input-related vulnerability is A) buffer overflow attack. B) hardening. C) war dialing. D) encryption. Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 24) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 25) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

26) This 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 B) intrusion detection system C) penetration test D) vulnerability scan Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 27) A well-known hacker started his own computer security consulting business shortly after being released from prison. Many companies pay him to attempt to gain unauthorized access to their network. If he is successful, he 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 28) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 29) In 2007, a major U.S. financial institution hired a security firm to attempt to compromise its computer network. A week later, the firm reported that it had successfully entered the system without apparent detection and presented an analysis of the vulnerabilities that had been found. This is an example of a A) preventive control. B) detective control. C) corrective control. D) standard control. Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 12

30) 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) Wireless access points present little danger of vulnerability so security is not a concern. C) Security is set to the lowest level that the device is capable of. D) Security is set to the highest level that the device is capable of. Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 31) 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) weak authentication D) buffer overflow Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 32) Noseybook 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

33) When new employees are hired by Pacific Technologies, they are assigned user names and appropriate permissions are entered into the 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 34) When new employees are hired by Pacific Technologies, they are assigned user names and passwords and provided with laptop computers 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 35) 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) hardening. C) patch management. D) defense in depth. Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

36) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 37) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 38) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

39) On April 1, 2012, students enrolled in an economics course at Harvard University received an e-mail stating that class would be cancelled. The e-mail claimed to be from the professor, but it wasn't. Computer forensic experts determined that the e-mail was sent from a computer in one of the campus labs at 6:32 A.M. They were then able to uniquely identify the computer that was used by means of its network interface card's address. Security cameras revealed the identity of the student responsible for spoofing the class. A) IDS B) TCP/IP C) MAC D) DMZ Answer: C Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 40) 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). Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 41) Describe four requirements of effective passwords . Answer: 1. Strong passwords should be at least 8 characters. 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 changes frequently. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 42) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

43) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 44) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 45) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

46) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 47) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 48) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 49) 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. Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking

50) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 51) The most important element of any preventive control is A) the people. B) the performance. C) the procedure(s). D) the penalty. Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 9 Confidentiality and Privacy Controls 9.1 Identify and explain controls designed to protect the confidentiality of sensitive corporate information. 1) Identify the type of information below that is least likely to be considered "sensitive" by an organization. A) financial statements B) legal documents C) strategic plans D) product cost information Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 4) True or False: Encryption is one of the many ways to protect information in transit over the internet. Answer: FALSE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

5) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 6) Encryption is a necessary part of which information security approach? A) defense in depth B) time based defense C) cloud quarantine D) synthetic defense Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) Janus 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 Janus finds an embedded code on the internet, it knows that confidential information has been leaked. Janus then begins identifying how the information was leaked and who was involved with the leak. Janus is using A) data loss prevention software. B) a keylogger. C) a digital watermark. D) a spybot. Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

9.2 Identify and explain controls designed to protect the privacy of personal information collected from customers, employees, suppliers or business partners. 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 2) In developing policies related to personal information about customers, Folding Squid Technologies adhered to the Trust Services framework. The standard applicable to these policies is A) security. B) confidentiality. C) privacy. D) availability. Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

4) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 5) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 6) It is impossible to encrypt information A) transmitted over the Internet. B) stored on a hard drive. C) printed on a report. D) None of the above Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) Data masking is also referred to as A) encryption. B) tokenization. C) captcha. D) cookies. Answer: B Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) Do not place checks in your outgoing mail. D) Refuse to disclose your social security number to anyone or any organization. Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 B) the Health Information Technology for Economic and Clinical Heath Act C) the Financial Services Modernization Act D) the Affordable Care Act Answer: D Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 9.3 Explain how the two basic types of encryption systems work. 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 5) Using a combination of symmetric and asymmetric key encryption, Sofia Chiamaka sent a report to her home office in Bangalore, India. 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 6) 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 earliest methods, attributed to an ancient Roman emperor, 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 10

7) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) These 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 10) Information encrypted with the creator's private key that is used to authenticate the sender is A) asymmetric encryption. B) digital certificate. C) digital signature. D) public key. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

11) Which of the following is not one of the three important factors determining the strength of any encryption system? A) key length B) key management policies C) encryption algorithm D) privacy Answer: D Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 12) A process that takes plaintext of any length and transforms it into a short code. A) asymmetric encryption B) encryption C) hashing D) symmetric encryption Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12

15) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

, and in the public key

17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 18) On June 17, 2013, a laptop computer belonging to Thea Technologies was stolen from the trunk of Jamie Marcia's car while she was attending a conference. After reporting the theft, Jamie 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13

19) Hjordis Marika took a call from a client. "Hjordis, I need to interact online in real time with our affiliate in India, and I want to make sure that our communications aren't intercepted. What do you suggest?" Hjordis responded, "The best solution is to implement A) a virtual private network." B) multifactor authentication." C) a private cloud environment." D) an asymmetric encryption system with digital signatures." Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 20) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 10 Processing Integrity and Availability Controls 10.1 Identify and explain 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2) Error logs and review are an example of A) data entry controls. B) data transmission controls. C) output controls. D) processing controls. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

3) 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) Modules 11 B) validity check C) check digit D) sequence check Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

5) A customer failed 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) validity check D) reconciliation of a batch control total Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

6) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Reflective Thinking

7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 9) The inventory tracking system shows that 12 iPods were on hand before a customer brings three iPods to the register for purchase. The cashier accidentally enters the quantity sold as 30 instead of 3. Which data entry control would most effectively prevent this error? A) limit check B) sign check C) field check D) validity check Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) A payroll clerk accidently 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

11) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 12) Form design is one example of a(n) A) output control. B) processing control. C) input control. D) data entry control. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) Turnaround documents are an example of a(n) A) data entry control. B) output control. C) processing control. D) input control. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

15) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 16) Parity checks are an example of a(n) A) data entry control. B) data transmission control. C) output control. D) processing control. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 17) A user review an example of A) a data entry control. B) a data transmission control. C) an output control. D) a processing control. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) Data matching is an example of a(n) A) data entry control. B) data transmission control. C) processing control. D) input control. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

19) A batch total is an example of which control below? A) data entry control B) data transmission control C) processing control D) output control Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 20) 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, after which the document is shredded. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 21) Check digit verification is an example of a(n) A) data transmission control. B) output control. C) processing control. D) input control. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22) A ensures input data will fit into the assigned field. A) limit check B) size check C) range check D) validity check Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

23) This 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 24) This determines if all required data items have been entered. A) completeness check B) field check C) limit check D) range check Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 25) This 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 26) This determines if characters are of the proper type. A) field check B) alpha-numeric check C) range check D) reasonableness test Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

27) This 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 28) This batch processing data entry control sums a field that contains dollar values. A) record count B) financial total C) hash total D) sequence check Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 29) This batch processing data entry control sums a non-financial numeric field. A) record count B) financial total C) hash total D) sequence check Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 30) When I enter 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

31) This 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 32) This batch processing data entry control sums the number of items in a batch. A) financial total B) hash total C) record count D) sequence check Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 33) This data entry control 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 34) What control are file labels an example of? A) data entry controls B) output controls C) processing controls D) source data controls Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

35) 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) Internal header label B) validity check C) check digit D) parity check Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 36) Sonja Greer called the IT Help Desk in a bad mood. "I'm trying to open an Excel file, but I get a message that says that the file is locked for editing. Why is this happening to me?" The answer is likely that A) the file is corrupted due to a computer virus. B) Sonja probably 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 37) This control protects records from errors that occur when two or more users attempt to update the same record simultaneously. A) concurrent update controls B) cross-footing balance test C) data conversion controls D) recalculation of batch totals Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 38) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 12

39) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 40) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 41) This 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 42) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

43) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 44) Which of the following is a control is an important way to prevent buffer overflow vulnerabilities? A) limit check B) size check C) range check D) field check Answer: B Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 45) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10.2 Identify and explain controls designed to ensure systems availability. 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) Permanently establish an alternative means of processing information. C) Resume normal operations as soon as possible. D) Train employees for emergency operations. Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 9) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

10) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 11) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 12) copies all changes made since the last full backup. A) Archive B) Cloud computing C) Differential backup D) Incremental backup Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

14) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 15) 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 25,000 transactions. If the firm's recovery time objective is 120 minutes, then the worst case recovery time objective is A) 1 hour. B) 2 hours. C) 3 hours. D) 4 hours. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 16) The accounting department at Aglaya Telecom records an average of 5,000 transactions per hour. A cost-benefit analysis leads management to conclude that the maximum acceptable amount of data loss is 20,000 transactions. If the firm's recovery time objective is 60 minutes, then the worst case recovery time objective is A) 1 hour. B) 2 hours. C) 3 hours. D) 4 hours. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

17) The accounting department at Aglaya Telecom records an average of 5,000 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. The firm's recovery point objective is therefore A) 50,000 transactions. B) 5,000 transactions. C) 10 hours. D) 4 hours. Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 18) The accounting department at Aglaya Telecom records an average of 2,500 transactions per hour. Managers state that the maximum acceptable loss of data in the event of a system failure is 2,500 transactions. The firm's recovery point objective is therefore A) 2,500 transactions. B) 5,000 transactions. C) 1 hour. D) 2 hours. Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 19) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 20) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

21) 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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 22) Define and contrast a recovery point objective and a recovery time objective. 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 23) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 24) True or False: It is impossible to eliminate the risk of downtime. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

25) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 26) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 27) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 28) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

29) Which COBIT5 management practice addresses system backup procedures? A) DSS01.06 B) DSS04.07 C) DSS03.05 D) DSS04.04 Answer: B Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 30) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 31) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 32) True or False: Best practice requires backups be retained indefinitely. Answer: FALSE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

33) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 34) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 35) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 36) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 11 Auditing Computer-Based Information Systems 11.1 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 4) The audit examines the reliability and integrity of accounting records. A) financial B) informational C) information systems D) operational Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

5) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) A system that employs various types of advanced technology has more traditional batch processing. A) control B) detection C) inherent D) investing Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

risk than

12) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

17) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 19) The auditor's objective is to seek audited. A) absolute reliability B) reasonable objectivity C) reasonable evidence D) reasonable assurance Answer: D Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

that no material error exists in the information

20) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

21) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 23) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 24) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

25) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 26) Expanding a firm's operations to include a manufacturing facility in Russia will A) reduce inherent risk. B) reduce control risk. C) increase inherent risk. D) increase control risk. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 27) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 28) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

29) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 30) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 31) Which of the following is not one of the types of internal audits? A) reviewing corporate organizational structure and reporting hierarchies B) examining procedures for reporting and disposing of hazardous waste C) reviewing source documents and general ledger accounts to determine integrity of recorded transactions D) comparing estimates and analysis made before purchase of a major capital asset to actual numbers and results achieved Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 32) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

33) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 34) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 35) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 36) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

37) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 38) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

11.2 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 11

5) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 6) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

9) What is a test data generator? A) an application that records how well systems personnel have performed on company competency examinations B) an application that prepares data that can be used for auditing the effectiveness of computer processing C) an application that records which professional examinations systems personnel have obtained D) a backup generator application that can be used to generate data if the original storage device fails Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 10) True or False: Embedded audit molecules can be used to continually monitor the system and collect audit evidence. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11.3 Describe the different tools and techniques auditors use to test software programs and program logic. 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 5) Which auditing technique will not assist in determining if unauthorized programming changes have been made? A) use of a source code comparison program B) use of the reprocessing technique to compare program output C) interviewing and making inquiries of the programming staff D) use of parallel simulation to compare program output Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) Strong controls can partially compensate for inadequate A) development; processing B) processing; development C) operational; internal D) internal; operational Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 14) An auditor sets an embedded audit module to flag all credit transactions in excess of $3,000. 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

15) An auditor sets an embedded audit module to record all credit transactions in excess of $4,000 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 17

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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). Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 11.4 Describe computer audit software, and explain how it is used in the audit of an AIS. 1) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

2) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 3) What is the primary purpose of computer audit software? A) eliminate auditor judgment errors B) assist the auditor in retrieving and reviewing information C) detect unauthorized modifications to system program code D) recheck all mathematical calculations, cross-foot, reprocess financial statements and compare to originals Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 4) How has the U.S. government deployed computer-assisted audit techniques to reduce the budget? A) to identify fraudulent Medicare claims B) to perform random audits of government spending C) to replace human auditors with computerized auditors D) to develop a more balanced government budget Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 5) True or False: One of the advantages of CAATS software is that it can replace the auditor's judgment in specific areas of an audit. Answer: FALSE Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

6) Identify the company below that CAATS would likely provide the most value. A) a local car dealership B) a mom and pop grocery store C) a large lumber mill that uses an ERP system D) a medium-sized shoe retailer with outlets in many cities Answer: D Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 11.5 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

2) Evaluating effectiveness, efficiency, and goal achievement are objectives of A) financial B) operational C) information systems D) all of the above Answer: B Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 5) True or False: During the evidence evaluation stage of an operational audit, the auditor measures the system against generally accepted accounting principles (GAAP). Answer: FALSE Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

6) You are the head of the internal audit department for Apple Computer. You want to hire a person to serve as one of Apple'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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 24

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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 12 The Revenue Cycle: Sales to Cash Collections 12.1 Describe the basic business activities and related information processing operations performed in the revenue cycle. 1) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

and the

2) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) The normally triggers the customer payment recording process. A) sales invoice B) deposit slip C) remittance advice D) customer monthly statement Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 1

5) According to generally accepted accounting principles, a sale is recognized when A) cash is received from the customer. B) inventory is removed from the warehouse. C) inventory becomes the legal property of the customer. D) a sales order is approved by sales, inventory control, and credit departments. Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 6) is not a basic activity of the revenue cycle. A) Sales order entry B) Shipping C) Receiving D) Billing Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

9) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) Special software packages called service. A) EDI systems B) CRM systems C) POS systems D) VMI systems Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

can help an organization manage customer

12) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

15) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

17) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 20) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

21) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 22) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 23) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 24) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

25) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 26) The accounts receivable management method typically used by credit card companies is A) balance forward. B) postbilling. C) monthly statement. D) open-invoice. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 27) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 28) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 7

29) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 30) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 31) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 32) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 8

33) 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. bDifficulty :ox; 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 34) 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 of multiple master data files. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 35) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

36) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 37) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 38) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 39) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

40) A picking ticket is generated by the A) shipping process. B) sales order entry process. C) packing process. D) billing process. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 41) A picking ticket is generated by the A) shipping process. B) sales order entry process. C) packing process. D) billing process. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 42) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 12.2 Discuss the key decisions that need to be made in the revenue cycle, and identify the information needed to make those decisions. 1) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

2) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 5) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

6) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8) True or False: Shipping efficiency can often be improved by replacing RFID tags with bar codes. Answer: FALSE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 12.3 Identify major threats in the revenue cycle, and evaluate the adequacy of various control procedures for dealing with 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

2) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Reflective Thinking 3) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 5) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

6) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

is performed to verify that each transaction

9) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

10) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 11) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

13) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 15) To ensure proper segregation of duties, only the memos. A) accounts receivable supervisor B) controller C) credit manager D) cashier Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

has authority to issue credit

16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 18) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 19) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 20) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

21) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

who reports to the

, is not

22) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 23) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 24) Internal file labels can be used to prevent the loss of data in the revenue cycle since they A) record off-site storage locations. B) keep competitors from accessing files. C) organize the on-site physical storage site. D) reduce the possibility of erasing important files. Answer: D Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

25) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Reflective Thinking 26) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Reflective Thinking 27) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

28) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 29) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 30) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

31) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 32) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 33) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

34) 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 35) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

36) 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 37) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

38) 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

39) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

40) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 41) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 42) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 43) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

44) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 45) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

in paper-based customer

46) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

in Internet-based customer

47) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

48) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 49) True or False: A credit sale should always be denied if it exceeds the customer's credit limit. Answer: FALSE Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 50) True or False: A credit sale should always be reviewed by a credit manager if it exceeds the customer's credit limit. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements 13.1 Explain the basic business activities and related information processing operations performed in the expenditure cycle. 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 3) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

4) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

8) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 9) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

12) When would an MRP inventory approach be a 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

20) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 21) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

, which reports to the

22) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

for payment

23) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

24) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 25) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 26) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 27) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

28) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 29) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 30) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 31) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

32) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 33) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 34) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 35) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9

36) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 37) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 38) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 39) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

40) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 41) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 42) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

43) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 44) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 45) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

46) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 47) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 48) EFT payments are generally performed by A) the treasurer. B) a cashier. C) an accounts payable clerk. D) a credit manager. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 49) Which of the following is not an activity performed in the expenditure cycle? A) ordering B) receiving C) cash disbursement D) shipping Answer: D Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

50) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 51) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 52) True or False: Under the EOQ inventory approach, carrying costs are usually ignored for low-cost/low-usage items. Answer: TRUE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 53) True or False: The EOQ approach to managing inventory has been gaining popularity in recent years. Answer: FALSE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 54) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

55) Ideally, inventory purchases occur in response to A) customer demand B) optimal demand C) forecast demand D) supplier demand Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

in a JIT inventory system.

56) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 57) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 58) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

59) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13.2 Discuss the key decisions to be made in the expenditure cycle, and identify the information needed to make those decisions. 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

13.3 Identify major threats in the expenditure cycle, and evaluate the adequacy of various control procedures for dealing with those threats. 1) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 2) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 3) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

4) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 5) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

, the

6) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

12) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

equal to the

14) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 18) 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 Sad Clown's 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

19) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 20) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 21) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

22) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 23) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 24) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

25) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 26) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 27) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 24

28) 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 Objective: Learning Objective 3 Difficulty: Moderate 25

AACSB: Analytic 29) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 30) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 31) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 32) True or False: It is important to physically count inventory, at least periodically, even in a perpetual inventory system. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

33) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 34) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 35) Identify 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 36) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

37) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 38) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 39) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 14 The Production Cycle 14.1 Describe the major business activities and related information processing operations performed in the production cycle. 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 2) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking

4) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 7) "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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

8) "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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

12) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 19) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5

20) Yasamin Roshni owns and operates a small deli in Miami, Florida. Each morning she prepares a list that describes the quantity and variety 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 21) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 22) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 23) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 6

24) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 25) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 26) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 7

27) 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) Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

28) 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 ) Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

29) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 30) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 31) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 32) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

33) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 34) 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: B Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 35) MRP-II is to MRP, as lean manufacturing is to A) EOQ. B) JIT. C) push manufacturing. D) reorder point. Answer: B Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 14.2 Identify major threats in the production cycle and evaluate the adequacy of various control procedures for dealing with those threats. 1) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 11

2) Which process or activity relates to overproduction? A) product design B) planning and scheduling C) production operations D) cost accounting Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 8) The expenses associated with a product recall are A) prevention B) inspection C) internal failure D) external failure Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

costs.

9) costs are expenses associated with quality assurance activities. A) Prevention B) Inspection C) Internal failure D) External failure Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

10) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11) The expenses associated with disposal of defective products are A) prevention B) inspection C) internal failure D) external failure Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

costs.

12) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

13) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 14) 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) x (processing time/total time) x (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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

16) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 19) The acronym "RFP" stands for what? A) Request for Project B) Request for Processing C) Request for Proposal D) Request for Purchase Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

20) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 14.3 Explain how a company's cost accounting system can help it achieve its manufacturing goals. 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

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 percentage of "bad" units produced given current technology Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

11) Elif Package Delivery determines the cost per delivery by summing the average cost of loading, unloading, transporting, and maintenance. What costing approach does Elif Package Delivery use? A) job-order B) unit-based C) process D) activity-based Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) Elif Package Delivery determines the cost per delivery by averaging total cost over the number of deliveries. What costing approach does Elif Package Delivery use? A) unit-based B) job-order C) process D) activity-based Answer: B Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13) Elif Package Delivery calculates the cost per delivery by identifying variables as cost drivers, and allocating overhead accordingly. What costing approach does Elif Package Delivery use? A) job-order B) activity-based C) unit-based D) process Answer: B Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Difficult 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 because 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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) barcoded ID card C) clock punchcard D) RFID chips Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 D) none of the above Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 26) True or False: ERP systems make it easier for an organization to implement an activity based costing approach. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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) none of the above Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 28) True or False: Implementing a modern costing approach often results in short-term declines in profitability. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

14.4 Discuss the key decisions that must be made in the production cycle and identify the information required to make those decisions. 1) 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. Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytic 2) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 15 The Human Resources Management and Payroll Cycle 15.1 Describe the major business activities and related information processing operations performed in the human resources management (HRM)/payroll cycle. 1) Which activity below is not performed by Human Resources management (HRM)? A) compensation B) training C) discharge D) recruitment and hiring Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2) Which department should have the sole ability to provide information to the AIS about hiring, terminations, and pay rate changes? A) payroll B) timekeeping C) production D) HRM Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) Which of the following is generally not a major sourceDifficulty : 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 4) Who does the payroll system issue checks to? A) employees and to banks participating in direct deposit B) a company payroll bank account C) government agencies D) All of the above are correct. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 1

5) Experts estimate that, on average, the costs associated with replacing an employee are about the employee's annual salary. A) one-quarter of B) one-half of C) one and one-half times D) twice Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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) All of the above are true. Answer: D Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 8) Identify the item below that is not a desired result of an employee bonus systems. 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2

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) none of the above Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

and

11) Which of the following is not classified as a voluntary deduction? A) pension plan contributions B) social security withholdings C) insurance premiums D) deductions for a charity organization Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

13) Which type of payroll report lists the voluntary deductions for each employee? A) payroll register B) deduction register C) earnings statement D) federal W-4 form Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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) earnings statement D) federal W-4 form Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 16) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

17) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 19) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 20) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

21) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 22) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 23) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 24) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

25) 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) none of the above Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 26) 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) a separate payroll bank account D) direct deposit of checks Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 27) Which of the following documents would be likely to yield the greatest cost saving by converting from paper to electronic? A) payroll register B) earnings statement C) deduction register D) time card Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 28) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

29) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 30) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 31) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 32) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

33) 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. Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 34) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 35) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 36) True or False: The HRM department should immediately delete records of employees who quit to prevent other employees from assuming their identities. Answer: FALSE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

37) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 38) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 39) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 40) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

41) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 15.2 Discuss the key decisions to be made in the HRM/payroll cycle and identify the information needed to make those decisions. 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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) Resources, Events, and Agents (REA) databases D) cardinality systems Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

3) Identify the firm below where employees' knowledge is likely to be more valuable than the value of a company's tangible assets. A) international airline B) law firm C) automobile manufacturer D) railroad Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 4) True or False: Batch processing continues to be widely used to process payroll transactions. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 15.3 Identify the major threats in the HRM/payroll cycle and evaluate the adequacy of various internal control procedures for dealing with them. 1) 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) Banks don't like to commingle payroll and expense checks. D) All of the above are correct. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

2) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 3) When using electronic documents, A) access controls B) separation of duties C) general controls D) application controls Answer: D Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

increase(s) the accuracy of data entry.

4) The most vital control in preventing unauthorized changes to the payroll master file is A) hiring totally honest people to access and make changes to this file. 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 5) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

6) Which control would be most appropriate to address the problem of inaccurate payroll processing? A) encryption B) direct deposit C) cross-footing of the payroll register D) an imprest payroll checking account Answer: C Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking 7) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 8) A "zero balance check" refers to which of the following control procedures? A) a type of batch total 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 9) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

10) 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) encryption Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 11) The threat of violation of employment laws relates directly to which activity? A) payroll processing B) collecting employee time data C) hiring and recruiting D) all of the above Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

14) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 15) The average annual management salary at Iyov Management is $80,000. If the average turnover rate for employees is ten per year, what is the approximate average annual cost of turnover? A) $80,000 B) $400,000 C) $800,000 D) $1,200,000 Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 17) Which of the following is a control that addresses the threat of unauthorized changes to the payroll master file? A) field checks B) batch totals C) segregation of duties D) sound hiring procedures Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

18) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 19) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

20) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 21) Explain benefits to companies and to employees of 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 22) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

23) 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 24) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

25) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 26) Source data automation is often effective in reducing A) unintentional errors. B) intentional errors. C) accuracy. D) theft. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 27) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 28) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

29) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 30) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 31) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 16 General Ledger and Reporting System 16.1 Describe the information processing operations required to update the general ledger and to produce reports for internal and external users. 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) Who should provide the adjusting entries in a well-designed general ledger and reporting system? A) various user departments B) the treasurer's area C) the other major AIS subsystems D) the controller's area Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

4) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 2

8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) Recording interest earned on an investment is an example of which type of adjusting journal entry? A) accrual entry B) deferral entry C) revaluation entry D) correcting entry Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) 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) revaluation entry. D) correcting entry. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

12) Depreciation expense and bad debt expense are examples of which type of adjusting journal entry? A) deferrals B) accruals C) revaluations D) estimates Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 17) Financial statements are prepared in a certain sequence. Which statement is prepared last? A) the adjusted trial balance B) the income statement C) the balance sheet D) the statement of cash flows Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 19) 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) budget department B) controller C) treasurer D) chief executive officer Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

20) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 21) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 16.2 Identify the major threats in general ledger and reporting activities and evaluate the adequacy of various control procedures for dealing with them. 1) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 6

2) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 3) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

6) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

10) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 10

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 17) True or False: 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 18) True or False: Periodic account reconciliations are a control that can be used to reduce the risk of employees creating unauthorized adjusting entries. Answer: FALSE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11

16.3 Understand the implications of new IT developments, such as XBRL, and changes in the external reporting requirements, such as IFRS, for the design and operation of the general ledger and reporting system. 1) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 2) 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 re-enter data into order to work with it. C) Both are benefits of XBRL. D) Neither is a benefit of XBRL. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 3) 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 code. B) XML. C) pdf file. D) XBRL. Answer: D Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

4) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 5) IFRS is an acronym for what? A) International Financial Reporting Standards B) Internal Forensic Response System C) Input and Financial Reporting Standards D) Internal Fault Recovery System Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking 13

8) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking 9) 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 10) 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: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

11) 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) none of the above Answer: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 13) XBRL stands for A) extensible business reporting language. B) extreme business reporting ledgers. C) external business reporting language. D) extensive business report logic. Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) True or False: The SEC requires U.S. companies to use XBRL when submitting their filings. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

15) Each specific data item in an XBRL document is called a(n) A) taxonomy. B) element. C) instance. D) schema. Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 16.4 Discuss how tools like responsibility accounting, balanced scorecards, and graphs can be used to provide information managers need to effectively monitor performance. 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

4) Performance reports for cost centers should compare actual versus budget A) controllable B) uncontrollable C) fixed D) variable Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 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) look about the same. Answer: A Objective: Learning Objective 4 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) calling all costs fixed. B) to use flexible budgeting. C) better prediction of output. D) to eliminate the budgeting process. Answer: B Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

11) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 12) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 13) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 19

14) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking 15) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 16) 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 and effectiveness perspective Answer: D Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

17) True or False: Organizations should set their balanced scorecard targets to reflect industry benchmark values. Answer: FALSE Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 17 Database Design Using the REA Data Model 17.1 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 4) In which stage(s) of the database design process does data modeling occur? A) only in the systems analysis stage B) only in the design stage C) in both the systems analysis and design stages D) neither the systems analysis nor the design stages Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 1

5) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

is anything about which an organization

7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

and the relationships between

9) Data modeling is an element of A) systems analysis. B) conceptual design. C) both A and B D) neither A nor B Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 10) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

13) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 15) True or False: Besides modeling entities as rectangles, there are no industry standards for entity-relationship diagrams. Answer: TRUE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 16) True or False: It is industry standard to model entities as rectangles on entity-relationship diagrams. Answer: TRUE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 17) It is industry standard to model relationships as A) rectangles B) ovals C) diamonds D) there is no industry standard Answer: D Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

in entity-relationship diagrams.

18) It is industry standard to model attributes as A) rectangles B) ovals C) diamonds D) There is no industry standard. Answer: D Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

in entity-relationship diagrams.

17.2 Use the REA data model to design an AIS database. 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) all of the above Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 "E" in the REA data model stands for things that have an economic value to the organization. Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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) none of the above Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) none of the above Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

8) REA models are usually depicted in which diagramming form? A) entity-relationship diagrams B) decision tree diagrams C) if-then diagrams D) stock-flow diagrams Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 CFO C) a customer sale D) none of the above Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 CFO C) a customer sale D) none of the above Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 CFO C) a customer sale D) none of the above Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 15) Identify the notation often used to represent cardinality information. A) dotted lines B) Greek characters C) crow's feet D) color coding Answer: C Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

16) Identify the notation below that is not used to represent cardinality information. A) UML B) (Min, Max) C) DFD D) Maximums only Answer: C Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 17) 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) none of the above Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 18) 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) none of the above Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 19) 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) none of the above Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

17.3 Draw an REA diagram of an AIS database. 1) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking 2) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

and two

agent and one

4) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

5) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 8) The maximum cardinality of any REA diagram relationship is A) zero or one. B) one or many. C) zero or many. D) none of the above Answer: B Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

9) How many types of relationships are possible between entities? A) one B) two C) three D) an infinite number Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 10) 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) All of the above are equally likely. Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 11) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 12) Which of the following graphical symbols represents a minimum cardinality of zero and a maximum cardinality of one? A) B) C) D) Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

13) Which of the following graphical symbols represents a minimum cardinality of zero and a maximum cardinality of many? A) B) C) D) Answer: C Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) Which of the following graphical symbols represents a minimum cardinality of one and a maximum cardinality of one? A) B) C) D) Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 15) Which of the following graphical symbols represents a minimum cardinality of one and a maximum cardinality of many? A) B) C) D) Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

16) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

17) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

18) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

19) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

20) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

21) 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:

Objective: Learning Objective 3 Difficulty: Difficult AACSB: Reflective Thinking

22) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 23) 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. Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 24) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 25) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 26) 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). Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 20

27) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 28) 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:

Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking

17.4 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Easy 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult 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 Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking 12) 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 multiple 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: A Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking

13) 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: B Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking 14) 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: C Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking

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 Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 18 Implementing an REA Model in a Relational Database 18.1 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 2) An integrated REA diagram merges multiple copies of and _ entities but retains multiple copies of entities. A) resource; event; agent B) event; agent; resource C) resource; agent; event D) None of the above. An integrated REA diagram merges multiple copies of all entities. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) An integrated REA diagram could contain multiple copies of A) customers. B) sales. C) inventory. D) sales-inventory. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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) Both A and B are true. D) Both A and B are false. Answer: B Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 5) Combining REA diagrams for individual transaction cycles into a single, enterprise-wide model adds two 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3

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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 18) In an integrated REA diagram, every resource must be 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

19) In an integrated REA diagram, every agent must be 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 20) Explain the five rules for drawing integrated REA diagrams. Answer: Every event must be linked to at least one resource. Every event must be linked to two agents who participate in that event. 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.) Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource. If a specific event, referred to as the focal 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 focal event and every other event with which it may be associated must be 0. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 18.2 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 9

12) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

16) Concatenated keys are A) only needed 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:N relationships. D) required to implement M:N relationships. Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 17) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 19) Which table is most likely to have a concatenated key? A) customer B) sales C) customer-sales D) accounts receivable Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

20) In which of the following cases is the number of tables required to represent the relationship equal to three? A)

Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 21) In which of the following cases is the relationship between entities not implemented by foreign keys? A)

Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

22) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 23) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 24) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 25) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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

A) 12 B) 13 C) 8 D) 9 Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

27) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

28) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 29) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 16

30) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 31) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 32) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

33) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 34) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 35) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 36) From the choices below, identify the attribute below that would make the best primary key. A) height (in inches) B) date of first purchase C) zip code D) customer telephone number Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

37) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 38) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 39) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

40) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 18.3 Explain how to write queries to retrieve information from an AIS relational database built according to the REA data model. 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 21

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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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. Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: AnaDifficulty :lytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 19 Special Topics in REA Modeling 19.1 Develop REA data models for a variety of organizations besides retail stores. 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 2) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

4) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

8) 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) All of the above are ways in which rental transactions differ from sales transactions. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

12) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) 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 requisition number Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 14) 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, check number Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

16) 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 would not be 1; it would most likely be 0. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 17) 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) 0:1. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 18) 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) Those activities would be stored as part of a relationship, not a table. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

20) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 21) 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) determined by the number of warehouses compared to the number of inventory items. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 23) Warehouse number is most likely to be a foreign key in A) Order Inventory. B) Disburse Cash. C) Receive Inventory. D) Inventory. Answer: C Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

24) Supplier number is least likely to be a foreign key in A) Order Inventory. B) Disburse Cash. C) Receive Inventory. D) Warehouse. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 25) Financial Institution number is most likely to be a foreign key in A) Cash. B) Disburse Cash. C) Receive Inventory. D) Warehouse. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 26) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 27) Supplier number is most likely to be a foreign key in A) Inventory–Request_Inventory. B) Receive Inventory. C) Supplier. D) Warehouse. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

28) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Reflective Thinking 29) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 30) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

31) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 32) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

33) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 34) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

35) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 36) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 11

37) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 38) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 39) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 40) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

41) 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) none of the above Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 42) 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) none of the above Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 43) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 44) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic

45) True or False: An organization that sells digital products, such as access to view online videos, does not need an inventory table in its database. Answer: FALSE Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 46) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 47) 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) None of the above Answer: C Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 48) A type entity is used to depict the following relationship. A) is-a-kind-of B) is-a-member-of C) is-a-piece-of D) is-a-group-of Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

49) A groups entity is used to depict the following relationship. A) is-a-kind-of B) is-a-member-of C) is-a-piece-of D) is-a-group-of Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 50) Type and group entities are similar in that both are abstractions that represent sets of A) objects. B) semantics. C) attributes. D) all of the above Answer: A Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 51) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 52) The textbook explicitly identifies can yield tax benefits. A) meal and entertainment expenses B) salary expenses C) travel expenses D) depreciation expenses Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

as situation where a properly designed database

19.2 Develop REA data models for the HR/payroll, manufacturing, and capital assets business cycles. 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) Worker I.D. Answer: A Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 3) Identify the entity that stores most of the data typically found in the employee master file. A) Time Worked B) Employee C) HR D) Payroll Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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) 0:N Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 6) 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) 0:N Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

8) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 9) 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) none of the above Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 10) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 11) 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

12) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

16) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 17) Which of the following diagrams represents the cardinality pairs for a typical, hierarchical organization? A)

Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

18) 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)

Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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

Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 21) Which of the following accurately represents typical cardinalities for two entities in the finance cycle? A)

Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

22) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

23) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

24) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 25) Which of the following accurately represents typical cardinalities for two entities in the production cycle? A)

Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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

Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 27) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

28) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 29) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

30) 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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 31) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 32) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

33) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 34) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 35) 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 A and B Answer: A Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 36) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 29

37) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 38) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 20 Introduction to Systems Development and Systems Analysis 20.1 Explain the five phases of the systems development life cycle. 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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) a competitive advantage. B) a technological change. C) an improved business process. D) growth. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 5) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Reflective Thinking 6) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 7) The step of the systems development life cycle (SDLC) identifies and evaluates design alternatives and to develop design specifications. A) conceptual design. B) implementation and conversion. C) physical design. D) systems analysis. Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

8) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9) When would a company go through a systems development life cycle? A) only when major changes are needed B) only 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 11) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 3

12) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 13) Approximately what percentage of software development projects are cancelled before they are ever completed? A) 70% B) 30% C) 66% D) 54% Answer: B Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 20.2 Discuss the people involved in systems development and the roles they play. 1) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 4

2) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 3) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 4) 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) None of the descriptions above are appropriate. Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 5) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

6) Who prepares a systems analysis report? A) computer analysts B) management C) the project development team D) the steering committee Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 7) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 8) 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. Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

9) An effective project development team consists of A) systems analysts. B) accountants. C) users. D) all of the above Answer: D Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 11) True or False: External parties may need to participate in an organization's systems development and analysis process. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 12) Who is responsible for maintaining existing computer programs? A) management B) system programmers C) systems analysts D) accountants Answer: B Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

20.3 Explain the importance of systems development planning and describe planning techniques. 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Reflective Thinking 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

4) In which tool is a prioritized list of projects contained? A) project development plan B) implementation plan C) the master plan D) all of the above Answer: C Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 6) A planning horizon of at least plan should be updated at least A) 3; four times B) 5; four times C) 3; two times D) 5; two times Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

years is common for any master plan; however, the each year.

7) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

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: B Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic 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: A Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

13) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) PERT is an acronym that stands for A) program evaluation and review technique. B) process effort and resource table. C) preliminary expenditures and revision template. D) performance effectiveness and refinement target. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

20.4 Discuss the various types of feasibility analysis and calculate economic feasibility. 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 3) The most important and is 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 4) 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) All of the above models are used to create a feasibility framework. Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

5) It is most difficult to quantify when assessing economic feasibility. A) benefits B) costs C) the payback period D) costs, benefits, and the payback period Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

9) 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 internal rate of return C) the net present value method D) the payback method Answer: C Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

12) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 internal rate of return criterion?

A) Project A B) Project B C) Project C D) Project D Answer: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

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: A Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 payback criterion?

A) Project A B) Project B C) Project C D) Project D Answer: D Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 16) Which of the following is the most important and frequently analyzed aspect of a feasibility study? A) economic feasibility B) technical feasibility C) legal feasibility D) operational feasibility Answer: A Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

17) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 18) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 19) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

20) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 20.5 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

3) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 4) Identify the form of user resistance that occurs when the new system is blamed for any unpleasant occurrence. A) passive-aggression B) proclivity C) procrastination D) projection Answer: D Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 5) 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 emotionalism C) keep communication lines open D) keep the system simple Answer: C Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 6) 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) control users' expectations D) test the system Answer: B Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

7) 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 9) On October 15, 2013, 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 10) 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 21

11) 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. Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 20.6 Discuss the key issues and steps in systems analysis. 1) During of systems analysis, an examination 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 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 Answer: C Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 22

phase of systems analysis.

4) When seeking to find answers to question pertaining to "why," the most useful approach is to A) conduct interviews. B) make observations. C) distribute questionnaires. D) read system documentation. Answer: A Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 6 Difficulty: Difficult AACSB: Reflective Thinking 6) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

7) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 8) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 9) The method of gathering information helps to determine how a system actually works. A) interview B) observation C) questionnaire D) system documentation Answer: B Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 10) The method of gathering information helps to determine how a system should work. A) interview B) observation C) questionnaire D) system documentation Answer: D Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

11) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic

15) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 17) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic

19) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 20) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 21) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 22) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 27

23) 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. Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic 24) 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. Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 25) 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. Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic

26) 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 system really works if it has not been maintained on a regular basis. Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 27) 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. Objective: Learning Objective 6 Difficulty: Moderate AACSB: Reflective Thinking

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 21 AIS Development Strategies 21.1 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 2) When canned software is used for systems acquisition, the conceptual design phase of the SDLC A) becomes a make-or-buy decision. B) is combined with the physical design phase. C) is eliminated. D) is unchanged. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 3) When canned software is used for systems acquisition, the physical design phase of the 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) is eliminated. D) is unchanged. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

4) When canned software is used for systems acquisition, the implementation and conversion phase of the SDLC does not A) involve the documentation step. B) require the company to have trained IS personnel. C) require the develop and test software step. D) include A and C above. Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 5) When canned software is used for systems acquisition, the maintenance aspect of the operations and maintenance phase of the SDLC A) is more costly. B) is not necessary and is eliminated. C) is usually the responsibility of the vendor. D) requires trained personnel. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

8) Which statement is true regarding canned software and the 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 SDLC process. C) Most canned software meets all of a company's information or data processing needs. D) The SDLC process does not apply to purchasing canned software. Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 9) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 10) 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) None of the above is correct. Answer: C Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 11) Information provided to potential vendors on a Request For Proposal 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) All of the above are correct. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

12) 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 drafting Answer: B Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 13) 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 drafting C) Requirements drafting; benchmark problem D) All methods mentioned above include cost information. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 14) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

19) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 20) 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 Objective: Learning Objective 1 Difficulty: Difficult AACSB: Analytic 21) 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

22) Software as a Service (SaaS) refers to Web-based computing services provided by a(n) A) application service provider (ASP). B) Internet service provider (ISP). C) end-user system (EUS). D) help desk. Answer: A Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 23) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 24) 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 25) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

26) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 27) 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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 28) According to Deloitte & Touche, most chief information officers A) do not expect to replace their current information systems. B) prefer to replace their current information systems. C) expect to replace their current information system(s) with commercially available packages. D) expect to replace their current information system(s) with packages developed in-house. Answer: C Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 29) 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) Nobody. Turnkey systems install themselves. Answer: B Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

30) are one example of a cloud computing solution. A) Application service providers B) Turnkey vendors C) SDLC implementations D) Canned software providers Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 31) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 32) 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) a firm changes its business processes, not the software C) only programmers with software experience modify the software D) all of the above Answer: A Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

because

33) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

34) 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 21.2 Explain how information systems departments develop custom software. 1) Which approach systems acquisition is generally costly and labor-intensive? A) canned software B) custom software C) modified software D) turnkey software Answer: B Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 2) There are frequently many canned software packages are 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 11

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 the reduced training associated with canned software Answer: A Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 21.3 Explain how end users develop, use, and control computer-based information systems. 1) Which of the following is not an appropriate 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 2) 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 Objective: Learning Objective 3 Difficulty: Difficult AACSB: Analytic

3) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

7) 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 quickly find answers. D) None of the duties listed above pertain to second-line help desk personnel. Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 9) Where is the responsibility for the development of end-user computing applications typically placed? A) end users B) help desk C) Information Technology Services Department D) programmers Answer: A Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 10) 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. Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

11) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 14) True or False: The IT department should be given control of end-user computing (EUC). Answer: FALSE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

15) True or False: End-user computing can eliminate many of the analyst-programmer communication problems associated with the traditional program development. Answer: TRUE Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

of all

17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 18) Who should maintain control of access to date in a user-created system with proper controls? A) end-users B) management C) the IT department D) a help desk Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

21.4 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 completely 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 2) Which of the following is not a benefit of outsourcing? A) access to greater expertise and more advanced technology B) greater control C) improved development time D) lower costs Answer: B Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

5) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 7) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Reflective Thinking

8) 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 Objective: Learning Objective 4 Difficulty: Difficult AACSB: Reflective Thinking 9) 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

10) 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. Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytic 11) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

13) 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 Objective: Learning Objective 4 Difficulty: Difficult AACSB: Analytic 14) 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 21.5 Explain the principles and challenges of business process management. 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic

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 technology for communication and coordination. Answer: A Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 5 Difficulty: Difficult AACSB: Analytic 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. Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 6) True or False: 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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 5 Difficulty: Easy AACSB: Analytic 8) Identify a key advantage of a business process management system (BPMS) as compared to an event-based system. A) ease of use B) processing speed C) cost D) built in audit trail Answer: D Objective: Learning Objective 5 Difficulty: Moderate AACSB: Analytic 21.6 Describe how prototypes are used to develop an AIS, and discuss the advantages and disadvantages of doing so. 1) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 23

3) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 4) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 5) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic 6) 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 Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic

7) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 6 Difficulty: Moderate AACSB: Analytic 9) 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 Objective: Learning Objective 6 Difficulty: Easy AACSB: Analytic

10) 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. Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic 11) 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 Objective: Learning Objective 6 Difficulty: Difficult AACSB: Analytic

21.7 Explain what computer-aided software engineering is and how it is used in systems development. 1) Which is not a problem with CASE technology? A) cost B) incompatibility C) lack of system documentation D) unmet expectations Answer: C Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 2) 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 Objective: Learning Objective 7 Difficulty: Easy AACSB: Analytic 3) 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 Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic 4) 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. Objective: Learning Objective 7 Difficulty: Moderate AACSB: Analytic

Accounting Information Systems, 13e (Romney/Steinbart) Chapter 22 Systems Design, Implementation, and Operation 22.1 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

8) Which consideration below is not considered important to output design? A) format B) location C) medium D) source Answer: D Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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. 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? Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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. Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic

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. Objective: Learning Objective 1 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 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 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 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 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 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 Objective: Learning Objective 1 Difficulty: Easy AACSB: Analytic 22.2 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 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) audit trail Answer: D Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 10) 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 systems analysis phase Answer: C Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

12) Which of the following is a consideration during file and database design? A) form size B) format C) medium D) organization Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 13) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 14) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 15) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic

16) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 17) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 18) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 19) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 10

20) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 21) 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 Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 22) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

23) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 24) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 25) 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. Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic

26) 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. Objective: Learning Objective 2 Difficulty: Difficult AACSB: Reflective Thinking 27) 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). Objective: Learning Objective 2 Difficulty: Difficult AACSB: Analytic

28) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 29) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Analytic 30) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

31) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 32) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 33) 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 Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking

34) True or False: Although most systems are moving away from using paper documents, form design is still an important consideration in system development. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 35) True or False: It is more 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: FALSE Objective: Learning Objective 2 Difficulty: Easy AACSB: Analytic 36) Approximately what portion of software development costs should be allocated to testing, debugging, and rewriting software? A) None. It is important to put controls in place so that development occurs without errors that require correcting. B) between 5% and 15% C) between 20% and 30% D) at least 35%, but no more than 50% Answer: C Objective: Learning Objective 2 Difficulty: Moderate AACSB: Reflective Thinking 37) True or False: If developers took the time to find and correct every program flaw, they would risk not getting the system completed on time. Answer: TRUE Objective: Learning Objective 2 Difficulty: Easy AACSB: Reflective Thinking 22.3 Discuss the systems implementation and conversion 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 16

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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 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 tests. B) operating tests. C) processing of test transactions. D) walk-throughs. Answer: D Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 4) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 5) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

6) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 7) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 8) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 9) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

10) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 11) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 12) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 13) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic

14) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 15) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 16) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 17) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

18) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 19) 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 Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 20) Which of the following is the most costly and least risky method of converting from one system to another? A) direct B) parallel C) pilot D) phase-in Answer: B Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 21) Which of the following is the least costly and most risky method of converting from one system to another? A) direct B) parallel C) pilot D) phase-in Answer: A Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

22) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 23) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 24) 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. Objective: Learning Objective 3 Difficulty: Easy AACSB: Analytic 25) 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. Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

26) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 27) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 28) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic 29) 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 Objective: Learning Objective 3 Difficulty: Moderate AACSB: Analytic

22.4 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic

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2) Which factor is not investigated during the post-implementation review? A) accuracy B) benefits C) completion D) costs Answer: C Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic

5) Performing revisions to existing program code is an example of A) debugging. B) structured programming. C) program maintenance. D) walk through. Answer: C Objective: Learning Objective 4 Difficulty: Easy AACSB: Analytic 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. Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic 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 Objective: Learning Objective 4 Difficulty: Moderate AACSB: Analytic