Accounting Information Systems 13th Edition By Marshall-B.-Romney – Test Bank

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Accounting Information Systems 13th Edition By Marshall-B.-Romney – Test Bank

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

  1. A) many companies in one location can be seriously affected at one time by a disaster.
  2. B) losses are absolutely unpreventable.
  3. C) there are a large number of major disasters every year.
  4. 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?

  1. A) human errors and omissions
  2. B) physical threats such as natural disasters
  3. C) dishonest employees
  4. 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.

  1. A) natural and political disasters
  2. B) software errors and equipment malfunctions
  3. C) unintentional acts
  4. D) system inefficiency

Answer:  D

Objective:  Learning Objective 1

Difficulty:  Easy

AACSB:  Analytic

 

4) A power outage is an example of a(n) ________ threat.

  1. A) natural and political disasters
  2. B) software errors and equipment malfunctions
  3. C) unintentional acts
  4. D) system inefficiency

Answer:  B

Objective:  Learning Objective 1

Difficulty:  Moderate

AACSB:  Analytic

5) Excessive heat is an example of a(n) ________ threat.

  1. A) natural and political disasters
  2. B) software errors and equipment malfunctions
  3. C) unintentional acts
  4. D) system inefficiency

Answer:  A

Objective:  Learning Objective 1

Difficulty:  Moderate

AACSB:  Analytic

 

6) What was the first known cyber-attack intended to harm a real-world physical target?

  1. A) Sasser
  2. B) Stuxnet
  3. C) Michelangelo
  4. 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?

  1. A) U.S. Cyber Command
  2. B) Department of Network Security
  3. C) Department of Cyber Defense
  4. 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?

  1. A) software errors and equipment malfunctions
  2. B) unintentional acts
  3. C) intentional acts
  4. 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?

  1. A) natural and political disasters
  2. B) software errors and equipment malfunctions
  3. C) unintentional acts
  4. 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

  1. A) Zhou’s decision to invest was primarily based on Seble’s assertion that she had prior floral retail experience.
  2. 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.
  3. C) before Zhou invested, Seble prepared a detailed business plan and sales forecasts, and provided Zhou with copies.
  4. 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

  1. A) attempt to return or pay back stolen amounts soon after the initial theft, but find they are unable to make full restitution.
  2. B) use trickery or lies to gain the confidence and trust of others at the organization they defraud.
  3. C) become bolder and more greedy the longer the theft remains undetected.
  4. 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

  1. A) overstating inventory.
  2. B) accelerating recognition of revenue.
  3. C) inflating accounts payable.
  4. D) delaying recording of expenses.

Answer:  C

Objective:  Learning Objective 2

Difficulty:  Moderate

AACSB:  Analytic

 

4) SAS No. 99 requires that auditors

  1. A) plan audits based on an analysis of fraud risk.
  2. B) detect all material fraud.
  3. C) alert the Securities and Exchange Commission of any fraud detected.
  4. 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

  1. A) financial fraud.
  2. B) misstatement fraud.
  3. C) fraudulent financial reporting.
  4. 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?

  1. 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.
  2. B) An executive devised and implemented a plan to accelerate revenue recognition on a long-term 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.
  3. 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.
  4. 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

  1. A) a falsehood is made.
  2. B) about a material fact.
  3. C) to inflict pain.
  4. 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

  1. A) dishonest conduct by those in power.
  2. B) misrepresenting facts to promote an investment.
  3. C) using computer technology to perpetrate.
  4. 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

  1. A) applying cash receipts to a different customer’s account in an attempt to conceal previous thefts of cash receipts.
  2. B) inflating bank balances by transferring money among different bank accounts.
  3. C) stealing small amounts of cash, many times over a period of time.
  4. 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?

  1. A) revenge against the company
  2. B) intent to repay “borrowed” funds in the future
  3. C) sense of entitlement as compensation for receiving a lower than average raise
  4. 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

  1. A) they are more dishonest than outsiders.
  2. B) they need money more than outsiders.
  3. C) they are less likely to get caught than outsiders.
  4. 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?

  1. A) close relationship with the current audit engagement partner and manager
  2. B) pay for performance incentives based on short-term performance measures
  3. C) high management and employee turnover
  4. 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

  1. A) few differences exist between white-collar criminals and the general public.
  2. B) white-collar criminals eventually become violent criminals.
  3. C) most white-collar criminals invest their illegal income rather than spend it.
  4. 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.

  1. A) An employee’s spouse loses her job.
  2. B) An employee has a close association with suppliers or customers.
  3. C) An employee suddenly acquires lots of credit cards.
  4. 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?

  1. A) a feeling of not being appreciated
  2. B) failing to receive a deserved promotion
  3. C) believing that their pay is too low relative to others around them
  4. 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?

  1. A) lapping accounts receivable
  2. B) selling stolen inventory to get cash
  3. C) stealing inventory from the warehouse
  4. 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 ________ takes more time and effort than the ________.

  1. A) concealment; theft
  2. B) theft; concealment
  3. C) conversion; theft
  4. D) conversion; concealment

Answer:  A

Objective:  Learning Objective 3

Difficulty:  Easy

AACSB:  Analytic

10) Which of the following is the best way to hide theft of assets?

  1. A) creating “cash” through the transfer of money between banks
  2. B) conversion of stolen assets into cash
  3. C) stealing cash from customer A and then using customer B’s balance to pay customer A’s accounts receivable
  4. 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?

  1. A) kiting
  2. B) laundering
  3. C) lapping
  4. 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

  1. A) lapping.
  2. B) misappropriation of assets.
  3. C) kiting.
  4. 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?

  1. A) pressure
  2. B) opportunity
  3. C) rationalization
  4. 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?

  1. A) placing excessive trust in key employees
  2. B) inadequate staffing within the organization
  3. C) unclear company policies
  4. 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?

  1. A) lack of any internal controls
  2. B) failure to enforce the internal controls
  3. C) loopholes in the design of internal controls
  4. 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.

  1. A) pressure
  2. B) rationalization
  3. C) concealment
  4. D) opportunity

Answer:  B

Objective:  Learning Objective 3

Difficulty:  Easy

AACSB:  Analytic

 

17) The most efficient way to conceal asset misappropriation is to

  1. A) write-off a customer receivable as bad debt.
  2. B) alter monthly bank statements before reconciliation.
  3. C) alter monthly physical inventory counts to reconcile to perpetual inventory records.
  4. 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?

  1. A) releasing data to unauthorized users
  2. B) allowing computer users to test software upgrades
  3. C) allowing computer operators full access to the computer room
  4. 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?

  1. A) as any crime in which a computer is used
  2. B) as any act in which cash is stolen using a computer
  3. C) as an illegal act in which a computer is an integral part of the crime
  4. 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?

  1. A) because massive fraud can be committed in only seconds, leaving little-to-no evidence
  2. B) because most perpetrators invest their illegal income rather than spend it, concealing key evidence
  3. C) because most computer criminals are older and more cunning than perpetrators of other types of fraud
  4. 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?

  1. A) Rarely is cash stolen in computer fraud.
  2. B) The fraud may leave little or no evidence it ever happened.
  3. C) Computers provide more opportunities for fraud.
  4. 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?

  1. A) Major fraud is a public relations nightmare.
  2. B) Fraud is difficult, costly, and time-consuming to investigate and prosecute.
  3. C) Law enforcement and the courts are often so busy with violent crimes that little time is left for fraud cases.
  4. 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

  1. A) altering or falsifying source data.
  2. B) unauthorized use of computers.
  3. C) tampering with or copying software.
  4. 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

  1. A) alter computer input.
  2. B) alter computer output.
  3. C) modify the processing.
  4. 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

  1. A) data fraud.
  2. B) output theft.
  3. C) download fraud.
  4. 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

  1. A) external auditors.
  2. B) hotline tip.
  3. C) internal auditors.
  4. 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?

  1. A) encryption of data and programs
  2. B) use of forensic accountants
  3. C) adequate insurance coverage
  4. 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?

  1. A) ATC has a comprehensive disaster recovery plan.
  2. B) The hard drive was encrypted and password protected.
  3. C) The shipper has insurance that will reimburse ATC for the cost of the hard drive.
  4. 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.

  1. A) Requiring all employees to take annual vacations
  2. B) Monitoring employee bank accounts and net worth
  3. C) Monitoring employee behavior using video cameras
  4. 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?

  1. A) Adopt an organizational structure that minimizes the likelihood of fraud.
  2. B) Create an organizational culture that stresses integrity and commitment to ethical values.
  3. C) Create an audit trail so individual transactions can be traced.
  4. 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?

  1. A) Conduct periodic external and internal audits.
  2. B) Maintain adequate insurance.
  3. C) Use software to monitor system activity.
  4. 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?

  1. A) Install fraud detection software.
  2. B) Implement a fraud hotline.
  3. C) Employ a computer security officer.
  4. 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 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?

  1. A) Many companies do not realize that data security is crucial to their survival.
  2. B) LANs and client/server systems are easier to control than centralized, mainframe systems.
  3. C) Many companies believe that protecting information is a strategic requirement.
  4. 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)

  1. A) preventive control.
  2. B) detective control.
  3. C) corrective control.
  4. D) authorization control.

Answer:  A

Objective:  Learning Objective 1

Difficulty:  Moderate

AACSB:  Reflective Thinking

 

3) Identify the preventive control below.

  1. A) reconciling the bank statement to the cash control account
  2. B) approving customer credit prior to approving a sales order
  3. C) maintaining frequent backup records to prevent loss of data
  4. 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

  1. A) hiring and firing the external auditors.
  2. B) performing tests of the company’s internal control structure.
  3. C) certifying the accuracy of the company’s financial reporting process.
  4. D) overseeing day-to-day operations of the internal audit department.

Answer:  A

Objective:  Learning Objective 1

Difficulty:  Moderate

AACSB:  Analytic

5) Which of the following measures can protect a company from AIS threats?

  1. A) Take a proactive approach to eliminate threats.
  2. B) Detect threats that do occur.
  3. C) Correct and recover from threats that do occur.
  4. 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.

  1. A) event
  2. B) activity
  3. C) process
  4. D) system

Answer:  C

Objective:  Learning Objective 1

Difficulty:  Easy

AACSB:  Analytic

 

7) Duplicate checking of calculations is an example of a ________ control, and procedures to resubmit rejected transactions are an example of a ________ control.

  1. A) corrective; detective
  2. B) detective; corrective
  3. C) preventive; corrective
  4. D) detective; preventive

Answer:  B

Objective:  Learning Objective 1

Difficulty:  Easy

AACSB:  Analytic

 

8) Which type of control is associated with making sure an organization’s control environment is stable?

  1. A) general
  2. B) application
  3. C) detective
  4. 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?

  1. A) general
  2. B) application
  3. C) detective
  4. 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

  1. A) to require corporations to maintain a good system of internal control.
  2. B) to prevent the bribery of foreign officials by American companies.
  3. C) to require the reporting of any material fraud by a business.
  4. 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.

  1. A) Foreign Corrupt Practices Act of 1977
  2. B) The Securities Exchange Act of 1934
  3. C) The Sarbanes-Oxley Act of 2002
  4. 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?

  1. A) new roles for audit committees
  2. B) new rules for auditors and management
  3. C) new rules for information systems development
  4. 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.

  1. A) boundary system
  2. B) diagnostic control system
  3. C) interactive control system
  4. 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.

  1. A) boundary system
  2. B) diagnostic control system
  3. C) interactive control system
  4. 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

  1. A) asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process.
  2. B) hired the manager from the external audit team as company CFO twelve months after the manager had worked on the audit.
  3. C) selected the company’s Chief Financial Officer to chair the audit committee.
  4. 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

  1. A) all companies with gross annual revenues exceeding $500 million.
  2. B) publicly traded companies with gross annual revenues exceeding $500 million.
  3. C) all private and public companies incorporated in the United States.
  4. 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)

  1. A) boundary system.
  2. B) diagnostic control system.
  3. C) interactive control system.
  4. 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)

  1. A) boundary system.
  2. B) diagnostic control system.
  3. C) interactive control system.
  4. 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?

  1. A) monitoring
  2. B) control environment
  3. C) risk assessment
  4. 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

  1. A) risk management activities are an inherent part of all business operations and should be considered during strategy setting.
  2. B) effective risk management is comprised of just three interrelated components; internal environment, risk assessment, and control activities.
  3. C) risk management is the sole responsibility of top management.
  4. 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.

  1. A) COSO-Integrated Framework; COBIT
  2. B) COBIT; COSO-Integrated Framework
  3. C) COBIT; COSO-ERM
  4. D) COSO-Integrated Framework; COSO-ERM
  5. 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?

  1. A) 5
  2. B) 8
  3. C) 17
  4. 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?

  1. A) Congress required COSO to modernize.
  2. B) U.S. stock exchanges required more disclosure.
  3. C) to more effectively address technological advancements
  4. 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?

  1. A) COBIT
  2. B) COSO Integrated Control
  3. C) COSO Enterprise Risk Management
  4. D) Sarbanes-Oxley Control Framework

Answer:  B

Objective:  Learning Objective 2

Difficulty:  Moderate

AACSB:  Analytic

 

9) Identify the statement below that is not true of the 2013 COSO Internal Control updated framework.

  1. A) It more efficiently deals with control implementation and documentation issues.
  2. B) It more effectively deals with control implementation and documentation issues.
  3. C) It provides users with more precise guidance.
  4. 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?

  1. A) meeting stakeholder needs
  2. B) covering the enterprise end-to-end
  3. C) enabling a holistic approach
  4. D) improving organization efficiency

Answer:  D

Objective:  Learning Objective 2

Difficulty:  Difficult

AACSB:  Analytic

 

11) The COBIT5 framework primarily relates to

  1. A) best practices and effective governance and management of private companies.
  2. B) best practices and effective governance and management of public companies.
  3. C) best practices and effective governance and management of information technology.
  4. 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

  1. A) internal audit.
  2. B) external audit.
  3. C) management.
  4. 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

  1. A) the CEO.
  2. B) the CFO.
  3. C) the board of directors.
  4. 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?

  1. A) to improve the audit process
  2. B) to improve the risk management process
  3. C) to improve the financial reporting process
  4. 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?

  1. A) Companies are formed to create value for society.
  2. B) Management must decide how much uncertainty it will accept to create value.
  3. C) Uncertainty results in risk.
  4. 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

  1. A) IC is controls-based, while the ERM is risk-based.
  2. B) IC is risk-based, while ERM is controls-based.
  3. C) IC is required, while ERM is optional.
  4. 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?

  1. A) integrity and ethical values
  2. B) risk management philosophy
  3. C) restrict access to assets
  4. 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?

  1. A) analyzing past financial performance and reporting
  2. B) providing sufficient resources to knowledgeable employees to carry out duties
  3. C) disciplining employees for violations of expected behavior
  4. 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

  1. A) is usually chaired by the CFO.
  2. B) conducts testing of controls on behalf of the external auditors.
  3. C) provides a check and balance on management.
  4. 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

  1. A) control activities.
  2. B) organizational structure.
  3. C) budget framework.
  4. D) internal environment.

Answer:  B

Objective:  Learning Objective 3

Difficulty:  Easy

AACSB:  Analytic

5) Reducing management layers, creating self-directed work teams, and emphasizing continuous improvement are all related to which aspect of internal environment?

  1. A) organizational structure
  2. B) methods of assigning authority and responsibility
  3. C) management philosophy and operating style
  4. 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

  1. A) unintentional errors.
  2. B) employee fraud or embezzlement.
  3. C) fraud by outsiders.
  4. 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

  1. A) hiring practices.
  2. B) philosophy and operating style.
  3. C) internal environment.
  4. 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?

  1. A) enforcing a written code of conduct
  2. B) holding employees accountable for achieving objectives
  3. C) restricting access to assets
  4. 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

  1. A) inherent risk.
  2. B) residual risk.
  3. C) risk appetite.
  4. 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.

  1. A) compliance objectives
  2. B) operations objectives
  3. C) reporting objectives
  4. 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

  1. A) compliance objectives.
  2. B) operations objectives.
  3. C) reporting objectives.
  4. 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.

  1. A) compliance objectives
  2. B) operations objectives
  3. C) reporting objectives
  4. D) strategic objectives

Answer:  B

Objective:  Learning Objective 4

Difficulty:  Easy

AACSB:  Analytic

 

4) ________ objectives help ensure the accuracy, completeness and reliability of internal and external company reports, Applying the ERM framework.

  1. A) Compliance objectives
  2. B) Operations objectives
  3. C) Reporting objectives
  4. 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.

  1. A) An event identified by management will occur.
  2. B) An event identified by management may or may not occur.
  3. C) An event identified by management may not trigger other events.
  4. 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?

  1. A) performing internal analysis
  2. B) monitoring leading events
  3. C) conducting interviews
  4. 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.

  1. A) Acceptance
  2. B) Avoidance
  3. C) Monitoring
  4. 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

  1. A) is a violation of the Sarbanes-Oxley Act.
  2. B) violates the Securities and Exchange Act.
  3. C) increases the risk associated with an audit.
  4. 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).

  1. A) Inherent risk
  2. B) Residual risk
  3. C) Risk appetite
  4. 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.

  1. A) Inherent risk
  2. B) Residual risk
  3. C) Risk appetite
  4. D) Risk assessment

Answer:  A

Objective:  Learning Objective 6

Difficulty:  Easy

AACSB:  Analytic

 

 

5) How is expected loss calculated when performing risk assessment?

  1. A) impact times expected loss
  2. B) impact times likelihood
  3. C) inherent risk times likelihood
  4. 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

  1. A) identify controls to reduce all risk to zero.
  2. B) estimate the exposure from negative events.
  3. C) identify the threats that the company currently faces.
  4. 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?

  1. A) $50
  2. B) $650
  3. C) $50,000
  4. 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?

  1. A) $50
  2. B) $650
  3. C) $50,000
  4. D) $650,000

Answer:  B

Objective:  Learning Objective 6

Difficulty:  Easy

AACSB:  Analytic

 

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?

  1. A) $50
  2. B) $650
  3. C) $50,000
  4. 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?

  1. A) $50
  2. B) $500
  3. C) $600
  4. 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

  1. A) reporting potential risks to auditors.
  2. B) identifying events that could impact the enterprise.
  3. C) evaluating the impact of potential events on achievement of objectives.
  4. 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.

  1. A) reduce
  2. B) share
  3. C) avoid
  4. 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.

  1. A) reduce
  2. B) share
  3. C) avoid
  4. 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.

  1. A) reduce
  2. B) share
  3. C) avoid
  4. 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.

  1. A) reduce
  2. B) share
  3. C) avoid
  4. D) accept

Answer:  C

Objective:  Learning Objective 6

Difficulty:  Moderate

AACSB:  Reflective Thinking

 

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?

  1. 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.)
  2. B) A group of kids snuck into the theater through a back door when customers left after a show.
  3. C) The box office cashier accidentally gives too much change to a customer.
  4. 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?

  1. 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.)
  2. B) A group of kids snuck into the theater through a back door when customers left after a show.
  3. C) The box office cashier accidentally gives too much change to a customer.
  4. 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

  1. A) data input validation checks.
  2. B) reconciling hash totals.
  3. C) preparing a trial balance report.
  4. 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

  1. A) ensure that no collusion will occur.
  2. B) achieve an optimal division of labor for efficient operations.
  3. C) make sure that different people handle different transactions.
  4. 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.

  1. A) Requiring two signatures on checks over $20,000 is an example of segregation of duties.
  2. B) Although forensic specialists utilize computers, only people can accurately identify fraud.
  3. C) Internal auditors, rather than external auditors, can conduct evaluations of effectiveness of Enterprise Risk Management processes.
  4. 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.

  1. A) A mail room employee steals a check received from a customer and destroys the documentation.
  2. B) The accounts receivable clerk does not record sales invoices for friends or family, so they can receive free goods.
  3. 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.
  4. 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?

  1. A) locking blank checks in a drawer or safe
  2. B) sequentially prenumbering sales invoices
  3. C) reconciling the bank statement to the general ledger
  4. D) comparing physical inventory counts with perpetual inventory records

Answer:  B

Objective:  Learning Objective 7

Difficulty:  Easy

AACSB:  Analytic

 

8) Which of the following duties could be performed by the same individual without violating segregation of duties controls?

  1. A) approving accounting software change requests and testing production scheduling software changes
  2. B) programming new code for accounting software and testing accounting software upgrades
  3. C) approving software changes and implementing the upgraded software
  4. 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?

  1. A) updating the inventory subsidiary ledgers and recording purchases in the purchases journal
  2. B) approving a sales return on a customer’s account and depositing customers’ checks in the bank
  3. C) updating the general ledger and working in the inventory warehouse
  4. 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

  1. A) general authorization.
  2. B) specific authorization.
  3. C) special authorization.
  4. 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

  1. A) general authorization.
  2. B) specific authorization.
  3. C) special authorization.
  4. D) generic authorization.

Answer:  B

Objective:  Learning Objective 7

Difficulty:  Easy

AACSB:  Reflective Thinking

 

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

  1. A) performance evaluation.
  2. B) project development plan.
  3. C) data processing schedule.
  4. 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.

  1. A) performance evaluation
  2. B) project development plan
  3. C) steering committee
  4. 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.

  1. A) performance evaluation
  2. B) project development plan
  3. C) steering committee
  4. 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?

  1. A) assigning the programming and operating of the computer system to an independent control group which reports to the controller
  2. B) providing for maintenance of input data controls by an independent control group which reports to the controller
  3. C) periodically rotating assignment of application processing among machine operators, who all report to the information processing manager
  4. 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

 

16) Which of the following is an independent check on performance?

  1. A) The Purchasing Agent physically reviews the contents of shipments and compares them with the purchase orders he has placed.
  2. B) Production teams perform quality evaluations of the products that they produce.
  3. C) The General Manager compares budgeted amounts with expenditure records from all departments.
  4. 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.

  1. A) ideal
  2. B) effective
  3. C) ineffective
  4. 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.

  1. A) partial
  2. B) effective
  3. C) ineffective
  4. 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.

  1. A) custody; authorization
  2. B) custody; recording
  3. C) recording; authorization
  4. 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?

  1. A) information and communication
  2. B) internal environment
  3. C) event identification
  4. 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?

  1. A) Communicate relevant internal control matters to external parties.
  2. B) Obtain or generate relevant, high-quality information to support internal control.
  3. C) Surround internal control processes with information technology that enables discrepancies to be identified.
  4. 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?

  1. A) the external auditor
  2. B) appropriate federal, state, or local authorities
  3. C) the board of directors
  4. 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?

  1. A) performing internal control evaluation
  2. B) employing a chief risk officer
  3. C) implementing effective supervision
  4. D) monitoring system activities

Answer:  B

Objective:  Learning Objective 8

Difficulty:  Moderate

AACSB:  Analytic

 

5) To ensure compliance with copyrights and to protect itself from software piracy lawsuits, companies should ________.

  1. A) periodically conduct software audits
  2. B) update the operating system frequently
  3. C) buy software from legitimate suppliers
  4. 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?

  1. A) external audits
  2. B) internal audits
  3. C) network security audits
  4. 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?

  1. A) budgets
  2. B) quotas
  3. C) vendor analysis
  4. 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?

  1. A) external audit
  2. B) internal audit
  3. C) network security audit
  4. 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?

  1. A) the Sarbanes-Oxley Act
  2. B) new accounting rules
  3. C) audit fee increases
  4. 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

  1. A) the ability to read text.
  2. B) the ability to learn.
  3. C) the capability to extract information from an individual’s brain.
  4. 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 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.

  1. A) A newly designed AIS always meets user needs for a time period.
  2. B) Changes to the AIS are often difficult to make after requirements have been frozen into specifications.
  3. C) The development process can take so long that the system no longer meets company needs.
  4. 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

  1. A) becomes a make-or-buy decision.
  2. B) is combined with the physical design phase.
  3. C) is eliminated.
  4. 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

  1. A) does not involve designing and coding, although modifications may still need to be made.
  2. B) is combined with the conceptual design phase.
  3. C) is eliminated.
  4. 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

  1. A) involve the documentation step.
  2. B) require the company to have trained IS personnel.
  3. C) require the develop and test software step.
  4. 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

  1. A) is more costly.
  2. B) is not necessary and is eliminated.
  3. C) is usually the responsibility of the vendor.
  4. 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

  1. A) a turnkey system.
  2. B) cloud computing.
  3. C) an application service package.
  4. 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.

  1. A) A commercial software development company develops it.
  2. B) Canned software is sold on the open market to a broad range of users with similar requirements.
  3. C) Canned software may not meet all of a company’s information or data processing needs.
  4. 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?

  1. A) Canned software cannot be modified to meet unique user needs.
  2. B) Companies that buy, rather than develop, AIS software can still follow the SDLC process.
  3. C) Most canned software meets all of a company’s information or data processing needs.
  4. 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.

  1. A) leasing
  2. B) outsourcing
  3. C) prototyping
  4. 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.

  1. A) specific equipment needs
  2. B) general software needs
  3. C) exact hardware and software specifications
  4. 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

  1. A) a budget for software and hardware.
  2. B) detailed specifications for the AIS.
  3. C) a timeframe required for completion of the project.
  4. 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.

  1. A) Benchmarking
  2. B) Point scoring
  3. C) Prototyping
  4. 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.

  1. A) Benchmark problem; point scoring
  2. B) Point scoring; requirements drafting
  3. C) Requirements drafting; benchmark problem
  4. 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?

  1. A) All responses are in the same format and based on the same information.
  2. B) Both parties possess the same expectations and pertinent information is captured in writing.
  3. C) The chances of overlooking important factors are reduced.
  4. 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?

  1. A) Carefully compare proposals against the proposed AIS requirements.
  2. B) Determine how much of a given proposal meets the desired AIS requirements.
  3. C) Eliminate proposals that are missing important information or fail to meet minimum requirements.
  4. 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.

  1. A) benchmark problem
  2. B) mandatory requirements
  3. C) point scoring
  4. 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?

  1. A) Dollar estimates of costs and benefits are not included.
  2. B) Intangible factors such as reliability and vendor support are overlooked.
  3. C) The weights and points used are assigned subjectively.
  4. 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

  1. A) canned software.
  2. B) a turnkey system.
  3. C) an outsourced system.
  4. 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

  1. A) canned software.
  2. B) a turnkey system.
  3. C) an outsourced system.
  4. D) an end-user developed system.

Answer:  A

Objective:  Learning Objective 1

Difficulty:  Easy

AACSB:  Analytic

 

20) What is a benchmark problem?

  1. A) a difficulty encountered when attempting to bring an accounting information system up to industry best practices
  2. B) a method used to compare the efficiency of alternative accounting information systems
  3. C) the cost-benefit tradeoff defined by the relationship between increased costs and increased benefits from a system
  4. 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?

  1. A) point scoring
  2. B) resource clearing
  3. C) requirements costing
  4. 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)

  1. A) application service provider (ASP).
  2. B) Internet service provider (ISP).
  3. C) end-user system (EUS).
  4. 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

  1. A) do not expect to replace their current information systems.
  2. B) prefer to replace their current information systems.
  3. C) expect to replace their current information system(s) with commercially available packages.
  4. 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?

  1. A) an organization’s IT department
  2. B) the vendor who provides the system
  3. C) a third-party hired by the system vendor
  4. 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.

  1. A) Application service providers
  2. B) Turnkey vendors
  3. C) SDLC implementations
  4. 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.

  1. A) lower cost
  2. B) scalability
  3. C) greater effectiveness
  4. 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 ________ because unauthorized modifications may make the program unreliable.

  1. A) the vendor modifies the software
  2. B) a firm changes its business processes, not the software
  3. C) only programmers with software experience modify the software
  4. D) all of the above

Answer:  A

Objective:  Learning Objective 1

Difficulty:  Moderate

AACSB:  Analytic

 

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 well-informed on the latest technologies. When preparing an RFP, Moneka most likely should

  1. A) disclose exact hardware and software specifications.
  2. B) disclose specific performance objectives and requirements.
  3. C) disclose general software requirements.
  4. 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

  1. A) disclose exact hardware and software specifications.
  2. B) disclose specific performance objectives and requirements.
  3. C) disclose general software requirements.
  4. 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?

  1. A) canned software
  2. B) custom software
  3. C) modified software
  4. 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?

  1. A) An organization may have unique requirements that are not addressed by canned software packages.
  2. B) Canned software packages are often less expensive than software developed in house.
  3. C) The organization’s size and complexity necessitates the in-house development of software.
  4. 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, custom-system developer?

  1. A) The outside developer should have an in-depth understanding of how the company conducts its business.
  2. B) The outside developer should have experience in the company’s industry.
  3. C) The outside developer should possess a good understanding of business in general.
  4. 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

  1. A) it will be used for critical functions like accounts receivable.
  2. B) it will contribute to development of a significant competitive advantage.
  3. C) the firm has the necessary expertise available in-house.
  4. 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 in-house 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

 

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.

  1. A) from deciding how the software should be used
  2. B) from deciding what software should be used
  3. C) from the cost savings it gains by using canned software
  4. 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?

  1. A) Pepsi does not trust canned software.
  2. B) Using canned software actually cost Pepsi more than using custom software.
  3. C) Pepsi could not find canned software sophisticated enough to meet its needs.
  4. 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?

  1. A) performing statistical analyses
  2. B) preparing schedules and lists
  3. C) retrieving information from databases
  4. D) updating database records

Answer:  D

Objective:  Learning Objective 3

Difficulty:  Moderate

AACSB:  Analytic

 

2) What is the basic function of a help desk?

  1. A) control access to corporate data
  2. B) provide technical maintenance and support
  3. C) train end users and assist with application development
  4. 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.

  1. A) Amateur user computing (AUC)
  2. B) Competitive intra-organization systems development approach (CIOSDA)
  3. C) End-user computing (EUC)
  4. 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.

  1. A) a payroll processing program
  2. B) a program that performs “what-if” statistical modeling
  3. C) developing an application using prewritten software such as a spreadsheet or database system
  4. 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.

  1. A) IS personnel will not have enough work to do if users develop their own systems.
  2. B) Systems that have not been adequately tested may be implemented.
  3. C) System costs may skyrocket.
  4. 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?

  1. A) System users know best what they need, so should be able to create their own applications.
  2. B) End-users, while knowledgeable about their job, are not trained to create systems applications, and should not be allowed to do so.
  3. C) It is inefficient and costly to ask the IS department to create basic applications that only a few users need to use.
  4. 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

  1. A) handle complicated queries requiring research.
  2. B) provide callers with scripted answers.
  3. C) use expert systems to quickly find answers.
  4. 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)

  1. A) well tested system.
  2. B) well documented system.
  3. C) rapidly developed system.
  4. 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?

  1. A) end users
  2. B) help desk
  3. C) Information Technology Services Department
  4. 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 “what-if” 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?

  1. A) systems that process a large number of transactions
  2. B) systems that need to be developed rapidly
  3. C) systems that must be easy to use
  4. 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.

  1. A) an accounts receivable system
  2. B) a general ledger system
  3. C) an inventory system
  4. 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 ________ of all information processing by the end of 2020.

  1. A) 15% – 24%
  2. B) 20% – 49%
  3. C) 50% – 74%
  4. D) 75% or more

Answer:  D

Objective:  Learning Objective 3

Difficulty:  Moderate

AACSB:  Analytic

 

17) Why are end-user created systems often poorly documented?

  1. A) Users often do not know how to document systems properly.
  2. B) Users often consider systems documentation to be unimportant.
  3. C) Users often believe it is too expensive to properly document systems.
  4. 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?

  1. A) end-users
  2. B) management
  3. C) the IT department
  4. 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?

  1. A) by allowing a company to completely eliminate its IS department, which will reduce its payroll costs
  2. B) by allowing the company to sell assets to outsourcers and improve their cash position
  3. C) by eliminating the expense of keeping up with the latest technology and, thus, eliminate the drain on cash reserves
  4. 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?

  1. A) access to greater expertise and more advanced technology
  2. B) greater control
  3. C) improved development time
  4. 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

  1. A) focus reduction.
  2. B) loss of control.
  3. C) reduced competitive advantage.
  4. D) unfulfilled goals.

Answer:  C

Objective:  Learning Objective 4

Difficulty:  Moderate

AACSB:  Analytic

 

4) Why might outsourcing cause employee resistance?

  1. A) Outsourcing often allows a company to better use its assets and scarce resources.
  2. B) Outsourcing can lower a company’s overall IS costs.
  3. C) Outsourcing often facilitates downsizing.
  4. 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?

  1. A) a locked-in system
  2. B) a loss of control
  3. C) a reduced competitive advantage
  4. 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

  1. A) canned software.
  2. B) a turnkey system.
  3. C) an outsourced system.
  4. 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

  1. A) replace the existing system with one of a smaller scale.
  2. B) customize the existing system.
  3. C) outsource system operations.
  4. 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?

  1. 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.
  2. 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.
  3. 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.
  4. 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?

  1. A) a locked-in agreement
  2. B) a mainframe agreement
  3. C) a client/server agreement
  4. 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

  1. A) increased flexibility.
  2. B) increased innovation.
  3. C) reduce costs.
  4. 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?

  1. A) 5%
  2. B) 17%
  3. C) 33%
  4. D) 50%

Answer:  B

Objective:  Learning Objective 4

Difficulty:  Difficult

AACSB:  Analytic

 

14) Which or the following does not typically cause outsourcing failures?

  1. A) lukewarm company buy-in
  2. B) blind imitation of competitors
  3. C) ill-defined outsourcing agreements
  4. 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

  1. A) strategic organizational assets.
  2. B) a series of small tasks to be closely managed.
  3. C) related activities that, once perfected, should be managed on an exception basis.
  4. 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”?

  1. A) identifying process experts to oversee specific functions across units
  2. B) designating a process owner
  3. C) setting performance standards
  4. 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?

  1. A) ERP systems encompass all functions and processes in an organization, but BPM systems are implemented at process or unit levels in an organization.
  2. B) BPM systems are process-centered, but ERP systems are data-centered.
  3. C) Organizations can use both ERP and BPM systems at the same time.
  4. 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?

  1. A) Innovative technology allows access and authorization controls to be programmed at the transaction level.
  2. B) Documents or transactions that require approval can be electronically routed to a manager.
  3. C) Process rules are used to alert users when actions must be taken.
  4. 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?

  1. A) Business process reengineering (BPR)
  2. B) Business process management (BPM)
  3. C) Business process innovation (BPI)
  4. 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.

  1. A) ease of use
  2. B) processing speed
  3. C) cost
  4. 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.

  1. A) modified software
  2. B) outsourcing agreements
  3. C) prototyping
  4. D) turnkey systems

Answer:  C

Objective:  Learning Objective 6

Difficulty:  Easy

AACSB:  Analytic

2) Which statement below regarding prototyping is false?

  1. A) Prototypes are considered “first drafts,” which are quickly built and intended to be discarded when the real system is finished.
  2. B) Developers who use prototyping still go through the systems development life cycle.
  3. C) Prototypes help developers and end users make conceptual and physical design decisions.
  4. 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

 

3) The first step in developing a prototype emphasizes

  1. A) developing a good prototype into a fully functional system.
  2. B) speed and low cost rather than efficiency of operation.
  3. C) that users identify changes to be made in an iterative process.
  4. 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.

  1. A) decision support systems
  2. B) executive information systems
  3. C) expert systems
  4. 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.

  1. A) Developers may shortchange the testing and documentation process.
  2. B) Errors are likely to be detected and eliminated early in the development process.
  3. C) Prototyping may be less costly than other approaches.
  4. 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

  1. A) will be used for a critical function like accounts receivable.
  2. B) automates an unstructured or semi-structured task.
  3. C) can be produced using expertise available in-house.
  4. 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

  1. A) will be used for a critical function like inventory management.
  2. B) automates a structured task.
  3. C) can be produced using outside developers.
  4. 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

  1. A) CASE.
  2. B) an operational prototype.
  3. C) a RFP.
  4. 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

  1. A) CASE.
  2. B) an operational prototype.
  3. C) a RFP.
  4. 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

  1. A) there is a low level of uncertainty.
  2. B) it is clear which questions need to be addressed.
  3. C) there is a high likelihood of failure.
  4. 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?

  1. A) cost
  2. B) incompatibility
  3. C) lack of system documentation
  4. 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?

  1. A) replace skilled designers
  2. B) plan, analyze, design, program, and maintain an information system
  3. C) automate important aspects of the software development process
  4. 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?

  1. A) It exhibits a high degree of cross-system compatibility.
  2. B) It is an inexpensive technology that is accessible to small businesses.
  3. C) Documentation is generated automatically.
  4. 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

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