CHAPTER 9: Auditing the Revenue Cycle and AP subsidiary ledgers

c. the inventory control clerk authorizes inventory purchases

1. Which document is not prepared by the sales d. the AR clerk prepares customer statements
department? every month
a. packing slip
b. shipping notice 9. The bill of lading is prepared by the
c. bill of lading a. sales clerk.
d. stock release b. warehouse clerk.
c. shipping clerk.
2. Which document triggers the update of the d. billing clerk.
inventory subsidiary ledger?
a. bill of lading 10. Which of following functions should be segregated?
b. stock release a. opening the mail and recording cash receipts
c. sales order in the journal
d. shipping notice b. authorizing credit and determining reorder
quantities
3. Which function should not be performed by the c. shipping goods and preparing the bill of
billing department? lading
a. recording the sales in the sales journal d. providing information on inventory levels
b. sending the ledger copy of the sales order to and reconciling the bank statement
accounts receivable
c. sending the stock release document and the
shipping notice to the billing department as
proof of shipment
d. sending the stock release document to inventory control

4. When will a credit check approval most likely require

specific authorization by the credit department?
a. when verifying that the current transaction
does not exceed the customer’s credit limit
b. when verifying that the current transaction is
with a valid customer
c. when a valid customer places a materially
large order
d. when a valid customer returns goods

5. Which type of control is considered to be a compensating

control?
a. segregation of duties
b. access control
c. supervision
d. accounting records

6. Which of the following is not an output control?

a. The shipping department verifies that the
goods sent from the warehouse are correct in
type and quantity.
b. General ledger clerks reconcile journal vouchers that were
independently prepared in
various departments.
c. The sales clerk uses pre-numbered sales orders.

d. The billing department reconciles the shipping notice with the

sales invoice to ensure
that customers are billed only for the quantities shipped.

7. Which function or department below records the

decrease in inventory due to a sale?
a. warehouse
b. sales department
c. billing department
d. inventory control

8. Which situation indicates a weak internal control

structure?
a. the AR clerk authorizes the write off of bad
debts
b. the record-keeping clerk maintains both AR
CHAPTER 10: Auditing the Expenditure Cycle
1. Which document helps to ensure that the receiving clerks
actually count the number of goods
received?
a. packing list
b. blind copy of purchase order
c. shipping notice
d. invoice
2. When the goods are received and the receiving
report has been prepared, which ledger may be
updated?
a. standard cost inventory ledger
b. inventory subsidiary ledger
c. general ledger
d. accounts payable subsidiary ledger
3. Which statement is not correct for an expenditure
system with proper internal controls?
a. Cash disbursements maintain the check
register.
b. Accounts payable maintains the accounts
payable subsidiary ledger.
c. Accounts payable is responsible for paying
invoices.
d. Accounts payable is responsible for authorizing invoices.
4. Which duties should be segregated?
a. matching purchase requisitions, receiving reports, and invoices
and authorizing payment
b. authorizing payment and maintaining the
check register
c. writing checks and maintaining the check
register
d. authorizing payment and maintaining the accounts payable
subsidiary ledger
5. Which documents would an auditor most likely
choose to examine closely in order to ascertain
that all expenditures incurred during the accounting period have
been recorded as a liability?
a. invoices
b. purchase orders
c. purchase requisitions
d. receiving reports
6. Which task must still require human intervention
in an automated purchases/cash disbursements
system?
a. determination of inventory requirements
b. preparation of a purchase order
c. preparation of a receiving report
d. preparation of a check register
7. In a well-designed internal control structure, two
tasks that should be performed by different persons are
a. preparation of purchase orders and authorization of monthly
payroll.
b. preparation of bank reconciliations and recording of cash
disbursements.
c. distribution of payroll checks and approval of
credit sales.
d. posting of amounts from both the cash receipts journal and cash
disbursements journal to the general ledger.
e. posting of amounts from the cash receipts
journal to the general ledger and distribution
of payroll checks.
8. Which one of the following situations represents
a strength in the internal control for purchasing
and accounts payable?
a. Prenumbered receiving reports are issued
randomly.
b. Invoices are approved for payment by the
purchasing department.
c. Unmatched receiving reports are reviewed on
an annual basis.
d. Vendors’ invoices are matched against purchase orders and
receiving reports before a
liability is recorded.
e. The purchasing department reconciles the
accounts payable subsidiary vendor ledger
with the general ledger control account.
9. Which of the following tasks should the cash disbursement clerk
NOT perform?
a. review the supporting documents for completeness and accuracy
b. prepare checks
c. approve the liability
d. mark the supporting documents paid
10. Which of the following is true?
a. The cash disbursement function is part of
accounts payable.
b. Cash disbursements is an independent accounting function.
c. Cash disbursements is a treasury function.
d. The cash disbursement function is part of the
general ledger department.
11. The document that captures the total amount of
time that individual workers spend on each production job is called
a
a. time card.
b. job ticket.
c. personnel action form.
d. labor distribution form.
12. An important reconciliation in the payroll system
is when
a. the general ledger department compares the
labor distribution summary from cost accounting to the
disbursement voucher from
accounts payable.
b. the personnel department compares the
number of employees authorized to receive
a paycheck to the number of paychecks
prepared.
c. the production department compares the
number of hours reported on job tickets to
the number of hours reported on time
cards.
d. the payroll department compares the labor
distribution summary to the hours reported
on time cards.
13. Which internal control is not an important part
of the payroll system?
a. supervisors verify the accuracy of employee
time cards
b. paychecks are distributed by an independent
paymaster
c. the accounts payable department verifies the
accuracy of the payroll register before transferring payroll funds to
the general checking
account
d. the general ledger department reconciles the
labor distribution summary and the payroll
disbursement voucher

14. The department responsible for approving pay

rate changes is
a. payroll
b. treasurer
c. personnel
d. cash disbursements

15. Which function should distribute paychecks?

a. personnel
b. timekeeping
c. paymaster
d. payroll
CHAPTER 11: Leading ERP (Enterprise Resource Planning)
Products
1. Closed database architecture is
a. a control technique intended to prevent unauthorized access
from trading partners.
b. a limitation inherent in traditional information systems that
prevents data sharing.
c. a data warehouse control that prevents unclean data from
entering the warehouse.
d. a technique used to restrict access to data
marts.
e. a database structure that many of the leading
ERPs use to support OLTP applications.
2. Each of the following is a necessary element for
the successful warehousing of data EXCEPT
a. cleansing extracted data.
b. transforming data.
c. modeling data.
d. loading data.
e. all of the above are necessary.
3. Which of the following is typically NOT part of
an ERP’s OLAP applications?
a. decision support systems
b. information retrieval
c. ad hoc reporting/analysis
d. logistics
e. what-if analysis
4. There are a number of risks that may be associated with ERP
implementation. Which of the following was NOT stated as a risk
in the chapter?
a. A drop in firm performance after implementation because the
firm looks and works differently than it did while using a legacy
system.
b. Implementing companies have found that
staff members, employed by ERP consulting
firms, do not have sufficient experience in
implementing new systems.
c. Implementing firms fail to select systems that
properly support their business activities.
d. The selected system does not adequately
meet the adopting firm’s economic growth.
e. ERPs are too large, complex, and generic for
them to be well integrated into most company cultures.
5. Which statement is NOT true?
a. In a typical two-tier client-server architecture, the server handles
both application
and database duties.
b. Client computers are responsible for presenting data to the user
and passing user input
back to the server.
c. Two-tier architecture is for local area network applications
where the demand on the
server is restricted to a relatively small population of users.
d. The database and application functions are
separated in the three-tier model.
e. In three-tier client-server architectures, one
tier is for user presentation, one is for database and applications
access, and the third is
for Internet access.
6. Which statement is NOT true?
a. Drill-down capability is an OLAP feature of
data mining tools available to the user.
b. The data warehouse should be separate from
operational systems.
c. Denormalization of data involves dividing
the data into very small tables that support
detailed analysis.
d. Some decisions supported by a data warehouse are not
fundamentally different from
those that are supported by traditional
databases.
e. Data cleansing involves transforming data
into standard business terms with standard
data values.
7. Which statement is LEAST accurate?
a. Implementing an ERP system has more to do
with changing the way that an organization
does business than it does with technology.
b. The phased-in approach to ERP implementation is particularly
suited to diversified organizations whose units do not share
common
processes and data.
c. Because the primary reason for implementing
an ERP is to standardize and integrate operations, diversified
organizations whose units do
not share common processes and data do not
benefit and tend not to implement ERPs.
d. To take full advantage of the ERP process,
reengineering will need to occur.
e. A common reason for ERP failure is that the
ERP does not support one or more important
business processes of the organization.
8. SAP, one of the leading ERP producers, makes
several modules available to adopters. Which of
the following is not a SAP module?
a. Business Process Support
b. Internet Development Support
c. Logistics
d. E-Commerce Support
e. Human Resources
9. Auditors of ERP systems
a. need not be concerned about segregation of
duties because these systems possess strong
computer controls.
b. focus on output controls such as independent
verification to reconcile batch totals.
c. are concerned that managers fail to exercise
adequate care in assigning permissions.
d. do not see the data warehouse as an audit or
control issue at all because financial records
are not stored there.
e. need not review access levels granted to users
because these are determined when the system is configured and
never change.
10. Which statement is most correct?
a. SAP is more suited to service industries than
manufacturing clients.
b. J. D. Edwards’s ERP is designed to accept the
best-practices modules of other vendors.
c. Oracle evolved from a human resources
system.
d. PeopleSoft is the world’s leading supplier of
software for information management.
e. SoftBrands provides enterprise software for
the hospitality and manufacturing sectors.
Chapter 12: Business Ethics, Fraud, and Fraud Detection
1. All of the following are issues of computer security except
a. releasing incorrect data to authorized
individuals.
b. permitting computer operators unlimited access to the computer
room.
c. permitting access to data by unauthorized
individuals.
d. providing correct data to unauthorized individuals.
2. Which characteristic is not associated with software as
intellectual property?
a. uniqueness of the product
b. possibility of exact replication
c. automated monitoring to detect intruders
d. ease of dissemination
3. For an action to be called fraudulent, all of the
following conditions are required except
a. poor judgment.
b. false representation.
Fraud Detection Techniques 617
c. intent to deceive.
d. injury or loss.
4. One characteristic of employee fraud is that the
fraud
a. is perpetrated at a level to which internal
controls do not apply.
b. involves misstating financial statements.
c. involves the direct conversion of cash or other
assets to the employee’s personal benefit.
d. involves misappropriating assets in a series of
complex transactions involving third parties.
5. Forces that may permit fraud to occur do not
include
a. a gambling addiction.
b. lack of segregation of duties.
c. centralized decision-making environment.
d. questionable integrity of employees.
6. Who is responsible for establishing and maintaining the internal
control system?
a. the internal auditor
b. the accountant
c. management
d. the external auditor
7. Which of the following indicates a strong internal
control environment?
a. The internal audit group reports to the audit
committee of the board of directors.
b. There is no segregation of duties between organization
functions.
c. There are questions about the integrity of
management.
d. Adverse business conditions exist in the industry.
8. Employee fraud involves three steps. Of the following, which is
not involved?
a. concealing the crime to avoid detection
b. stealing something of value
c. misstating financial statements
d. converting the asset to a usable form
9. The importance to the accounting profession of
the Sarbanes-Oxley Act of 2002 is that
a. bribery will be eliminated.
b. management will not be able to override the
company’s internal controls.
c. firms are required to have an effective internal control system.
d. firms will not be exposed to lawsuits.
10. The board of directors consists entirely of the
CEO’s close business associates and management
of the organization. This
a. indicates a weakness in the accounting system.
b. is incompliant with the Sarbanes-Oxley Act.
c. is a red flag for auditors to review and report
on executive compensation.
d. is a normal board structure and not an issue
of audit concern.
11. Business ethics involves
a. how managers decide on what is right in
conducting business.
b. how managers achieve what they decide is
right for the business.
c. both a and b.
d. only a.
12. All of the following are conditions for fraud
except
a. false representation.
b. injury or loss.
c. intent.
d. material reliance.
13. Management can expect various benefits to follow
from implementing a system of strong internal
control. Which of the following benefits is least
likely to occur?
a. reduced cost of an external audit
b. preventing employee collusion to commit
fraud
c. availability of reliable data for decisionmaking purposes
d. some assurance of compliance with the
Foreign Corrupt Practices Act of 1977
e. some assurance that important documents
and records are protected
14. Which of the following situations is not a segregation of duties
violation?
a. The treasurer has the authority to sign
checks but gives the signature block to the
assistant treasurer to run the check-signing
machine.
b. The warehouse clerk, who has the custodial
responsibility over inventory in the warehouse, selects the vendor
and authorizes purchases when inventories are low.
c. The sales manager has the responsibility to
approve credit and the authority to write off
accounts.
d. The department time clerk is given the undistributed payroll
checks to mail to absent
employees.
e. The accounting clerk who shares the recordkeeping
responsibility for the accounts
receivable subsidiary ledger performs the
monthly reconciliation of the subsidiary ledger and the control
account.
 a. altering program logic to cause the application to process data
15. What does the underlying assumption of reasonable assurance incorrectly.
regarding implementation of internal control mean? b. misusing the firm’s computer resources.
a. Auditors are reasonably assured that fraud c. destroying or corrupting a program’s logic
has not occurred in the period. using a computer virus.
b. Auditors are reasonably assured that employee carelessness can d. creating illegal programs that can access data
weaken an internal files to alter, delete, or insert values
control structure.
c. Implementation of the control procedure
should not have a significant adverse effect
on efficiency or profitability.
d. Management assertions about control effectiveness should
provide auditors with reasonable assurance.
e. A control applies reasonably well to all forms
of computer technology.

16. To conceal the theft of cash receipts from customers in

payment of their accounts, which of the
following journal entries should the bookkeeper
make?
DR CR
a. Miscellaneous Expense Cash
b. Petty Cash Cash
c. Cash Accounts Receivable
d. Sales Returns Accounts Receivable
e. None of the above

17. Which of the following controls would best prevent the lapping
of accounts receivable?
a. Segregate duties so that the clerk responsible
for recording in the accounts receivable subsidiary ledger has no
access to the general
ledger.
b. Request that customers review their monthly
statements and report any unrecorded cash
payments.
c. Require customers to send payments directly
to the company’s bank.
d. Request that customers make the check payable to the company.

18. Providing timely information about transactions

in sufficient detail to permit proper classification
and financial reporting is an example of
a. the control environment.
b. risk assessment.
c. information and communication.
d. monitoring.

19. What fraud scheme is similar to the “borrowing

from Peter to pay Paul” scheme?
a. expense account fraud
b. kiting
c. lapping
d. transaction fraud

20. Which of the following best describes lapping?

a. applying cash receipts to a different customer’s account in an
attempt to conceal previous thefts of funds
b. inflating bank balances by transferring
money among different bank accounts
c. expensing an asset that has been stolen
d. creating a false transaction

21. Operations fraud includes