30) Control activities are a subcomponent of the information and communication component of
internal control.
31) Adequate documents and records is a subcomponent of the control environment.
32) The chart of accounts is helpful in preventing classification errors if it accurately describes
which type of transaction should be in each account.
33) Auditing standards prohibit reliance on the work of internal auditors due to the lack of
independence of the internal auditors.
34) If an auditor wishes to rely on the work of internal auditors (IA), the auditor must obtain
satisfactory evidence related to the IA’s competence, integrity, and objectivity.
35) An example of a specific authorization is management setting a policy authorizing the
ordering of inventory when less than a one-week supply is on hand.
36) Personnel responsible for performing internal verification procedures must be independent of
those originally responsible for preparing the data.
11.4 Learning Objective 11-4
1) Old and new systems operating simultaneously in all locations is a test approach known as
A) pilot testing.
B) horizontal testing.
C) integrative testing.
D) parallel testing.
2) Which of the following is a component of general controls?
A) processing controls
B) output controls
C) back-up and contingency planning
D) input controls
3) Which of the following statements related to application controls is correct?
A) Application controls relate to various aspects of the IT function including software
acquisition and the processing of transactions.
B) Application controls relate to various aspects of the IT function including physical security
and the processing of transactions in various cycles.
C) Application controls relate to all aspects of the IT function.
D) Application controls relate to the processing of individual transactions.
4) General controls include all of the following except
A) systems development.
B) online security.
C) processing controls.
D) hardware controls.
5) Which of the following describes the process of implementing a new system in one part of the
organization, while other locations continue to use the current system?
A) parallel testing
B) online testing
C) pilot testing
D) control testing
6) A ________ is responsible for controlling the use of computer programs, transaction files and
other computer records and documentation and releases them to the operators only when
authorized.
A) software engineer
B) chief computer operator
C) librarian
D) data control operator
7) Security controls should require that users enter a(n) ________ before being allowed access to
software and other related data files.
A) echo check
B) parity check
C) self-diagnosis test
D) authorized password
8) Typical controls developed for manual systems which are still important in IT systems include
A) management’s authorization of transactions.
B) competent personnel.
C) adequate preparation of input source documents.
D) all of the above.
9) Which of the following controls prevent and detect errors while transaction data are
processed?
A) software
B) application
C) processing
D) transaction
10) When purchasing software or developing in-house software,
A) cost should be the only factor.
B) extensive testing of the software is generally not required.
C) a team of both IT and non-IT personnel should be involved in the decision process.
D) the librarian and the IT manager should be the only ones involved in the decision process.
11) Output controls need to be designed for which of the following data integrity objectives?
A) detecting errors after the processing is completed
B) preventing errors before the processing is completed
C) detecting errors in the general ledger adjustment process
D) preventing errors in separation of duties for IT personnel
12) A control that relates to all parts of the IT system is called a(n)
A) general control.
B) systems control.
C) universal control.
D) applications control.
13) Controls that are designed for each software application and are intended to help a company
satisfy the transaction-related audit objectives are
A) user controls.
B) general controls.
C) audit controls.
D) application controls.
14) Which of the following is not an example of an applications control?
A) Back-up of data is made to a remote site for data security.
B) There is a preprocessing authorization of the sales transactions.
C) There are reasonableness tests for the unit selling price of a sale.
D) After processing, all sales transactions are reviewed by the sales department.
15) Which of the following is not a general control?
A) Computer performed validation tests of input accuracy.
B) Equipment failure causes error messages on monitor.
C) There is a separation of duties between programmer and operators.
D) There are adequate program run instructions for operating the computer.
16) Controls which are built in by the manufacturer to detect equipment failure are called
A) input controls.
B) data integrity controls.
C) hardware controls.
D) manufacturer’s controls.
17) Controls which are designed to assure that the information entered into the computer is
authorized, complete, and accurate are called
A) input controls.
B) processing controls.
C) output controls.
D) general controls.
18) When dealing with the administration of the IT function and the segregation of IT duties
A) in large organizations, management should assign technology issues to outside consultants.
B) programmers should investigate all security breaches.
C) the board of directors should not get involved in IT decisions since it is a routine function
handled by middle management.
D) in complex environments, management may establish IT steering committees.
19) Which of the following tests determines that every field in a record has been completed?
A) validation
B) sequence
C) completeness
D) programming
20) An example of a physical control is
A) a hash total.
B) a parallel test.
C) the matching of employee fingerprints to a database before access to the system is allowed.
D) the use of backup generators to prevent data loss during power outages.
21) Controls specific to IT include all of the following except for
A) adequately designed input screens.
B) pull-down menu lists.
C) validation tests of input accuracy.
D) separation of duties.
22) An internal control deficiency occurs when computer personnel
A) participate in computer software acquisition decisions.
B) design flowcharts and narratives for computerized systems.
C) originate changes in customer master files.
D) provide physical security over program files.
23) Which of the following best explains the relationship between general controls and
application controls?
A) Application controls are effective even if general controls are extremely weak.
B) Application controls are likely to be effective only when general controls are effective.
C) General controls have no impact on application controls.
D) None of the above
24) A(n) ________ total represents the summary total of codes from all records in a batch that do
not represent a meaningful total.
A) record
B) hash
C) output
D) financial
25) In an IT system, automated equipment controls or hardware controls are designed to
A) correct errors in the computer programs.
B) monitor and detect errors in source documents.
C) detect and control errors arising from the use of equipment.
D) arrange data in a logical sequential manner for processing purposes.
26) If a control total were to be computed on each of the following data items, which would best
be identified as a hash total for a payroll IT application?
A) gross wages earned
B) employee numbers
C) total hours worked
D) total debit amounts and total credit amounts
27) Which of the following is not an application control?
A) reprocessing authorization of sales transactions
B) reasonableness test for unit selling price of sale
C) post-processing review of sales transactions by the sales department
D) logging in to the company’s information systems via a password
28) Which of the following is not a general control?
A) separation of IT duties
B) systems development
C) processing controls
D) hardware controls
29) ________ is the information technology and internal control processes an organization has in
place to protect computers, networks, programs, and data from unauthorized access.
A) Encryption
B) A firewall
C) Cybersecurity
D) A processing control
30) The most important output control is
A) distribution control, which assures that only authorized personnel receive the reports
generated by the system.
B) review of data for reasonableness by someone who knows what the output should look like.
C) control totals, which are used to verify that the computer’s results are correct.
D) logic tests, which verify that no mistakes were made in processing.
31) Define control for general controls and application controls. Also list the categories of
controls included under general controls and application controls.
32) Identify the three categories of application controls, and give one example of each.
33) One category of general controls is physical and online access controls. Describe the control
and give at two examples of implementation of the control.
34) Match six of the terms (a-j) with the definitions provided below (1-6):
a. Application controls
b. Error listing
c. General controls
d. Hardware controls
e. Input controls
f. Output controls
g Parallel simulation
h. Parallel testing
i Pilot testing
j. Processing controls
________ 1. The new and old systems operate simultaneously in all locations.
________ 2. Controls that relate to all aspects of the IT system.
________ 3. Controls such as review of data for reasonableness, designed to assure that data
generated by the computer is valid, accurate, complete, and distributed only to authorized people.
________ 4. Controls that apply to processing of transactions.
________ 5. A new system is implemented in one part of the organization while other locations
continue to rely on the old system.
________ 6. Controls such as proper authorization of documents, check digits, and adequate
documentation, designed to assure that the information to be entered into the computer is
authorized, complete, and accurate.
35) Processing controls include the following tests:
Validation
Sequence
Data Reasonableness
Completeness
Describe what each control is designed to do:
36) What are the two software testing strategies that companies typically use? Which strategy is
more expensive?
37) Discuss the four areas of responsibility under the IT function that should be segregated in
large companies.
38) Identify the six categories of general controls and give one example of each.
39) Parallel testing is used when old and new systems are operated simultaneously in all
locations.
40) Programmers should only be allowed to work with test copies of programs and data.
41) In IT systems, if general controls are effective, it increases the auditor’s ability to rely on
application controls to reduce control risk.
42) Parallel testing can be used in combination with pilot testing to test new systems.
43) The effectiveness of automated controls depends solely on the competence of the personnel
performing the controls.
44) Backup and contingency plans should also identify alternative hardware that can be used to
process company data.
45) A large portion of errors in IT systems result from data entry errors.
46) Output controls focus on preventing errors during processing.
47) Processing controls are a category of application controls.
48) Controls that relate to a specific use of the IT system, such as the processing of sales or cash
receipts, are called application controls.
49) IT controls are classified as either input controls or output controls.
11.5 Learning Objective 11-5
1) A database management system
A) allows clients to create databases that include information that can be shared across multiple
applications.
B) stores data on different files for different purposes, but always knows where they are and how
to retrieve them.
C) allows quick retrieval of data, but at a cost of inefficient use of file space.
D) allows quick retrieval of data, but it needs to update files continually.
2) When auditing a client who uses a database management system, the auditor is principally
aware of elevated risk due to the fact that
A) multiple users can access and update data files.
B) the accounting information is only in one place.
C) the database administrator may lack appropriate accounting knowledge.
D) multiple users could all access the data simultaneously causing a system shutdown.
3) Firewalls are used to protect from
A) erroneous internal handling of data.
B) insufficient documentation of transactions.
C) illogical programming commands.
D) unauthorized external users.
4) What tools do companies use to limit access to sensitive company data?
A)
Encryption
techniques
Digital signatures
Firewall
Yes
Yes
Yes
B)
Encryption
techniques
Digital signatures
Firewall
Yes
No
No
C)
Encryption
techniques
Digital signatures
Firewall
No
Yes
Yes
D)
Encryption
techniques
Digital signatures
Firewall
Yes
Yes
No
5) Rather than maintain an internal IT center, many companies outsource their basic IT functions
such as payroll to an
A) external general service provider.
B) independent computer service center.
C) internal control service provider.
D) internal auditor.
6) When the auditor is obtaining an understanding of the independent computer service center’s
internal controls, the auditor should
A) use the same criteria used to evaluate the client’s internal controls.
B) use different criteria because the service center resides outside the company.
C) use the same criteria used to evaluate the client’s internal controls but omit tests of
transactions.
D) use different criteria for the service center by including substantive tests of balances.
7) ________ protect(s) the security of electronic communication when information is transmitted
and when it is stored.
A) Firewalls
B) Digital signatures
C) Encryption
D) A database
8) A(n) ________ is a computer resource deployment and procurement model that enables an
organization to obtain IT resources and applications from any location via an Internet
connection.
A) application service provider
B) firewall
C) cloud computing environment
D) local area network
9) From an internal control perspective, what challenges arise when a company outsources
computer functions?
10) Firewalls can protect company data and software programs.
11) LANs link equipment within a single or small cluster of buildings and are used within a
company.
12) Companies using e-commerce systems to transact business electronically do not need to be
concerned about how their e-commerce partners manage IT systems risks.