128 Module 41: Information Technology

which the binary digits of a character are added to determine the physical security for program files may appropriately be
whether the sum is odd or even. Another bit, the parity bit, assigned to a library function within the computer department.
is turned on or off so the total number of bits will be odd or
140. (a) The requirement is to identify the tool that would
even as required. Answer (c) is incorrect because an echo
best give a graphical representation of a sequence of activities
check is a hardware control wherein data is transmitted back
and decisions. Answer (a) is correct because a flowchart is
to its source and compared to the original data to verify the
a graphical representation of a sequence of activities and
transmission correctness. Answer (d) is incorrect because a
decisions. Answer (b) is incorrect because a control chart is
limit or reasonableness check is a programmed control based
used to monitor actual versus desired quality measurements
on specified limits. For example, a calendar month cannot be
during repetition operation. Answer (c) is incorrect because a
numbered higher than twelve, or a week cannot have more
histogram is a bar chart showing conformance to a standard
than 168 hours.
bell curve. Answer (d) is incorrect because a run chart tracks
136. (a) The requirement is to identify the type of hardware the frequency or amount of a given variable over time.
control that requires the CPU to send signals to the printer to
141. (c) The requirement is to determine what the symbol A
activate the print mechanism for each character. Answer (a)
represents in the flowchart of a client’s revenue cycle.
is correct because an echo check or control consists of
Answer (c) is correct because the accounts receivable master
transmitting data back to the source unit for comparison
file will be accessed during the revenue cycle and does not
with the original data that were transmitted. In this case, the
appear elsewhere on the flowchart. Answers (a), (b), and (d)
print command is sent to the printer and then returned to
are all incorrect because remittance advices, receiving reports,
the CPU to verify that the proper command was received. A
and cash disbursements transaction files are not a primary
validity check [answer (b)] consists of the examination of a
transaction file accessed during the revenue cycle.
bit pattern to determine that the combination is legitimate for
the system character set (i.e., that the character represented 142. (d) The requirement is to determine what the symbol B
by the bit combination is valid per the system). Answer (c), a represents in the flowchart of a client’s revenue cycle.
signal control or signal check, appears to be a nonsense term. Answer (d) is correct because it represents the only major
Answer (d), check digit control, is a programmed control document of the revenue cycle that is not presented elsewhere
wherein the last character or digit can be calculated from the on the flowchart and because one would expect generation of a
previous digits. sales invoice in the cycle. Answer (a) is incorrect because the
customer order appears in the top left portion of the flowchart.
137. (b) The requirement is to identify an example of
Answer (b) is incorrect because no receiving report is being
a check digit. Answer (b) is correct because a check digit
generated during the revenue cycle. Answer (c) is incorrect
is an extra digit in an identification number, algebraically
because the customer’s check (remittance) is represented on
determined, that detects specified types of data input,
the top portion of the flowchart.
transmission, or conversion errors. Answer (a) is incorrect
because the agreement of the total number of employees to the 143. (d) The requirement is to identify the correct
checks printed is an example of a control total. Answer (c) is statement concerning an auditor’s flowchart of a client’s
incorrect because ensuring that all employee numbers are nine accounting system. Answer (d) is correct because a flowchart
digits could be considered a logic check, a field size check, is a diagrammatic representation that depicts the auditor’s
or a missing data check. Answer (d) is incorrect because understanding of the system. See AU 319 for various
determining that no employee has more than fifty hours per procedures auditors use to document their understanding of
workweek is a limit check. internal control. Answer (a) is incorrect because the flowchart
depicts the auditor’s understanding of the system, not the
138. (b) The requirement is to determine the most likely
assessment of control risk. Answer (b) is incorrect because
significant deficiency in internal control. Answer (b) is
while the flowchart may be used to identify weaknesses, it
correct because the systems programmer should not maintain
depicts the entire system—strengths as well as weaknesses.
custody of output in a computerized system. At a minimum,
Answer (c) is incorrect because the flowchart is of the
the programming, operating, and library functions should be
accounting system, not of the control environment.
segregated in such computer systems.
144. (b) The requirement is to determine the approach
139. (c) The requirement is to identify the weakness
illustrated in the flowchart. Answer (b) is correct because
in internal control relating to a function performed by
parallel simulation involves processing actual client data
computer department personnel. Answer (c) is correct
through an auditor’s program. Answer (a) is incorrect because
because individuals outside of the computer department
program code checking involves an analysis of the client’s
should originate changes in master files; this separates the
actual program. Answer (c) is incorrect because an integrated
authorization of changes from the actual processing of
test facility approach introduces dummy transactions into
records. Answer (a) is incorrect because participation of
a system in the midst of live transaction processing and
computer department personnel in making computer software
is usually built into the system during the original design.
acquisition decisions is often appropriate and desirable given
Answer (d) is incorrect because controlled reprocessing often
their expertise in the area. Answer (b) is incorrect for similar
includes using the auditor’s copy of a client program, rather
reasons as (a). In addition, computer department personnel will
than the auditor’s program.
often be able to effectively design the required documentation
for computerized systems. Answer (d) is incorrect because
 Module 41: Information Technology
145. (b) The requirement is to identify the item represented
by the “X” on the flowchart. Answer (b) is correct because
the existence of a credit memo, in addition to a sales invoice,
would indicate that this portion of the flowchart deals
with cash receipts; therefore, the “X” would represent the
remittance advices. Thus, the receipt transactions are credited
to the accounts receivable master file, and an updated master
file, a register of receipts, and exception reports are generated.
Answer (a) is incorrect because an auditor’s test data will
not result in an input into the transactions file. Answer (c) is
incorrect because since no processing has occurred at the point
in question—an error report is unlikely. Answer (d) is incorrect
because credit authorization will generally occur prior to the
preparation of credit memos.
146. (d) The requirement is to determine the symbolic
representations that indicate that a file has been consulted.
Answer (d) indicates that a manual operation (the trapezoid
symbol) is accessing data from a file and returning the data
129
to the file (i.e., “consulting” the file). Answer (a) is incorrect
because it represents a processing step (the rectangle) being
followed by a manual operation. Answer (b) is incorrect
because it represents a document being filed. Answer (c) is
incorrect because the diamond symbol represents a decision
process.
147. (c) The requirement is to determine a benefit of a well-
prepared flowchart. Answer (c) is correct because a flowchart
may be used to document the auditor’s understanding of the
flow of transactions and documents. Answer (a) is incorrect
because while an audit procedures manual may suggest the
use of flowcharts, flowcharts will not in general be used to
prepare such a manual. Answer (b) is less accurate than (c)
because while it may be possible to obtain general information
on various jobs, the flowchart will not allow one to obtain
a detailed job description. Answer (d) is incorrect because
a flowchart does not directly address the actual accuracy of
financial data within a system.
 Module 42: Economics, Strategy, and Globalization 167

Multiple-Choice Questions (1–126)

Demand, Supply, and Market Equilibrium c. Remain the same.

d. Cannot be determined.
**1. If both the supply and the demand for a good increase,
the market price will **6. Which one of the following has an inverse relationship
with the demand for money?
a. Rise only in the case of an inelastic supply function.
b. Fall only in the case of an inelastic supply function. a. Aggregate income.
c. Not be predictable with only these facts. b. Price levels.
d. Rise only in the case of an inelastic demand function. c. Interest rates.
d. Flow of funds.
**2. A supply curve illustrates the relationship between
**7. An improvement in technology that in turn leads to
a. Price and quantity supplied. improved worker productivity would most likely result in
b. Price and consumer tastes.
c. Price and quantity demanded. a. A shift to the right in the supply curve and a lowering
d. Supply and demand. of the price of the output.
b. A shift to the left in the supply curve and a lowering
3. As a business owner you have determined that the demand of the price of the output.
for your product is inelastic. Based upon this assessment you c. An increase in the price of the output if demand is
understand that unchanged.
a. Increasing the price of your product will increase total d. Wage increases.
revenue. 8. Which of the following market features is likely to cause a
b. Decreasing the price of your product will increase surplus of a particular product?
total revenue.
c. Increasing the price of your product will have no a. A monopoly.
effect on total revenue. b. A price floor.
d. Increasing the price of your product will increase c. A price ceiling.
competition. d. A perfect market.
Items 4 and 5 are based on the following information: **9. A decrease in the price of a complementary good will

Assume that demand for a particular product changed as a. Shift the demand curve of the joint commodity to the
shown below from D1 to D2. left.
b. Increase the price paid for a substitute good.
Price c. Shift the supply curve of the joint commodity to the
left.
d. Shift the demand curve of the joint commodity to the
S
right.
**10. Demand for a product tends to be price inelastic if

D1 D2 a. The product is considered a luxury item.

Quantity b. People spend a large percentage of their income on
the product.
c. The population in the market area is large.
4. Which of the following could cause the change shown in d. Few good substitutes for the product are available.
the graph?
11. Which of the following has the highest price elasticity
a. A decrease in the price of the product. coefficient?
b. An increase in supply of the product.
a. Milk.
c. A change in consumer tastes.
b. Macaroni and cheese.
d. A decrease in the price of a substitute for the product.
c. Bread.
5. What will be the result on the equilibrium price for the d. Ski boats.
product? **12. The local video store’s business increased by 12% after
a. Increase. the movie theater raised its prices from $6.50 to $7.00. Thus,
b. Decrease. relative to movie theater admissions, videos are

** CMA adapted
168 Module 42: Economics, Strategy, and Globalization

a. Substitute goods. **19. In a competitive market for labor in which demand is

b. Superior goods. stable, if workers try to increase their wage
c. Complementary goods.
a. Employment must fall.
d. Public goods.
b. Government must set a maximum wage below the
*13. An individual receives an income of $3,000 per month, equilibrium wage.
and spends $2,500. An increase in income of $500 per month c. Firms in the industry must become smaller.
occurs, and the individual spends $2,800. The individual’s d. Product supply must decrease.
marginal propensity to save is *20. A polluting manufacturing firm tends, from the societal
a. 0.2 viewpoint, to
b. 0.4
a. Price its products too low.
c. 0.6
b. Produce too little output.
d. 0.8
c. Report too little profitability.
**14. In any competitive market, an equal increase in both d. Employ too little equity financing.
demand and supply can be expected to always **21. If the federal government regulates a product or service
a. Increase both price and market-clearing quantity. in a competitive market by setting a maximum price below the
b. Decrease both price and market-clearing quantity. equilibrium price, what is the long-run effect?
c. Increase market-clearing quantity.
d. Increase price. a. A surplus.
**15. Given the following data, what is the marginal
b. A shortage.
c. A decrease in demand.
propensity to consume? d. No effect on the market.
Level of
**22. A valid reason for the government to intervene in the
Disposable income Consumption
$40,000 $38,000 wholesale electrical power market would include which one of
48,000 44,000 the following?
a. 1.33 a. A price increase that is more than expected.
b. 1.16 b. Electricity is an essential resource and the wholesale
c. 0.95 market is not competitive.
d. 0.75 c. The electricity distribution companies are losing
money.
*16. Which of the following will cause a shift in the supply
d. Foreign power generators have contracts with the local
curve of a product?
government at very high prices.
a. Changes in the price of the product.
23. If the income elasticity of demand coefficient for a
b. Changes in production taxes.
particular product is 3.00, the good is likely
c. Changes in consumer tastes.
d. Changes in the number of buyers in the market.
a. A luxury good.
**17. When the federal government imposes health and safety b. A complementary good.
regulations on certain products, one of the most likely results is c. An inferior good.
d. A necessity.
a. Greater consumption of the product.
b. Lower prices for the product. **24. Long Lake Golf Course has raised greens fees for a
c. Greater tax revenues for the federal government. nine-hole game due to an increase in demand.
d. Higher prices for the product.
18. In which of the following situations would there be
Average
inelastic demand?
games Average
a. A 5% price increase results in 3% decrease in the played at games
quantity demanded. Previous New previous played at
b. A 4% price increase results in a 6% decrease in the rate rate rate new rate
quantity demanded. Regular $10 $11 80 70
c. A 4% price increase results in a 4% decrease in the weekday
quantity demanded. Senior 6 8 150 82
d. A 3% price decrease results in a 5% increase in the citizen
quantity demanded. Weekend 15 20 221 223

* CIA adapted
** CMA adapted
 Module 42: Economics, Strategy, and Globalization 169

Which one of the following is correct? Using the arc method, the price elasticity of demand for this
product when the price decreases from $50 to $45 is
a. The regular weekday and weekend demand is
inelastic. a. 0.20
b. The regular weekday and weekend demand is elastic. b. 10.00
c. The senior citizen demand is elastic, and weekend c. 0.10
demand is inelastic. d. 3.80
d. The regular weekday demand is inelastic, and **30. As the price for a particular product changes, the
weekend demand is elastic.
quantity of the product demanded changes according to the
**25. Which one of the following would cause the demand following schedule:
curve for a commodity to shift to the left?
a. A rise in the price of a substitute product. Total quantity demanded Price per unit
b. A rise in average household income. 100 $50
c. A rise in the price of a complementary commodity. 150 45
d. A rise in the population. 200 40
225 35
**26. Price ceilings 230 30
232 25
a. Are illustrated by government price support programs
in agriculture.
b. Create prices greater than equilibrium prices. Using the arc method, the price elasticity of demand for this
c. Create prices below equilibrium prices. product when the price decreases from $40 to $35 is
d. Result in persistent surpluses.
a. 0.20
*27. X and Y are substitute products. If the price of product Y
b. 0.88
increases, the immediate impact on product X is c. 10.00
a. Price will increase. d. 5.00
b. Quantity demanded will increase.
**31. If a group of consumers decide to boycott a particular
c. Quantity supplied will increase.
d. Price, quantity demanded, and supply will increase. product, the expected result would be

28. Wilson Corporation has a major competitor that produces a. An increase in the product price to make up lost
a product that is a close substitute for Wilson’s good. If the revenue.
coefficient of cross-elasticity of demand for Wilson’s product b. A decrease in the demand for the product.
with respect to the competitor’s product is 2.00 and the c. An increase in product supply because of increased
competitor decreases its price by 5%, what is the expected availability.
effect on demand for Wilson’s product? d. That demand for the product would become
completely inelastic.
a. A 5% increase in demand.
b. A 5% decrease in demand. 32. Which of the following is not likely to affect the supply
c. A 10% increase in demand. of a particular good?
d. A 10% decrease in demand.
a. Changes in government subsidies.
1
**29. As the price for a particular product changes, the b. Changes in technology.
quantity of the product demanded changes according to the c. Changes in consumer income.
following schedule: d. Changes in production costs.
**33. If a product’s demand is elastic and there is a decrease in
Total quantity demanded Price per unit price, the effect will be
100 $50
150 45 a. A decrease in total revenue.
200 40 b. No change in total revenue.
225 35 c. A decrease in total revenue and the demand curve
230 30 shifts to the left.
232 25 d. An increase in total revenue.

* CIA adapted
** CMA adapted