The last generic step in a financial statement audit has the strongest relationship to one
of the ___ standards in GAAS.
A. General
B. Field work
C. Reporting
D. Documentation
Ray has worked in the mailroom at MNG Corporation for five years, and is widely
respected throughout the organization. Jon, the chief financial officer, started working at
MNG six months ago after holding a similar position with one of MNG’s competitors.
Which of the following statements is most true?
A. Both Ray and Jon can help establish a strong control environment, but only Jon can
effectively identify risks and suggest control activities.
B. Both Ray and Jon can effectively identify risks and suggest control activities, but
only Ray can help establish a strong control environment.
C. Neither Ray nor Jon should participate in the development of an internal control
plan.
D. Both Ray and Jon can influence most aspects of an internal control plan for MNG.
Liam has developed a good process for safeguarding his company’s information
technology assets. He has talked about his methodology with some of his co-workers
and has created a schedule for applying his process to various kinds of information
technology assets. Using the capability maturity model, the process is best described as:
A. Chaotic
B. Repeatable
C. Managed
D. Optimized
Consider the statements below as you answer the question:
-The chief financial officer of TNL Corporation is a certified public accountant.
-OBP Corporation’s internal audit manager is a certified fraud examiner.
-CPQ Corporation maintains a set of systems flowcharts that describe current business
processes.
-DKM Corporation encrypts all data transmitted over its wireless network.
Which corporation will require the least amount of compliance testing?
A. CPQ
B. OBP
C. Either TNL or DKM
D. Cannot be determined from the information given
Consider the following partially completed risk/control matrix as you answer the
questions:
Assume the risk/control matrix is organized like the one presented in the chapter. The
best entry for Item F is:
A. Preventive
B. Safeguard assets
C. Corrective
D. Control environment
Consider the following short case as you respond to the next nine questions:
ABC Consulting’s employees include management, consultants and office staff. The
company accepts engagements related to internal control design and evaluation, as well
as enterprise risk management plans. A customer can purchase the two services
independently of one another. The office staff bills clients on a monthly basis with
terms of 2/10, n/30. All consulting clients must sign a contract, which is also signed by
an ABC manager. One member of ABC’s management team assigns at least one
consultant to work with the customer until the engagement is complete. Consultants can
be assigned to multiple engagements simultaneously, but every consultant must always
be working on at least one engagement. Each client may have only one contract with
ABC at a time.
A REA model of the case would include ___ resources.
A. Zero
B. One or two
C. Three or four
D. More than four
A department manager at TRS Corporation attended a seminar on internal control;
afterward, the manager formed a five-person departmental team to create an internal
control plan for the department. After a one-day off-site meeting, the team produced a
document titled “Departmental Internal Control Plan.” It was formatted as a risk/control
matrix. One member of the team commented that, although the work was interesting,
the team was glad the task was complete and wouldn’t have to be redone. Which of the
following statements is most true?
A. A risk/control matrix is inappropriate, since risk assessment and control activities
must be done separately according to the COSO framework.
B. A department manager cannot establish a proper control environment.
C. The team member’s comment indicates a weakness in monitoring.
D. Information and communication should always happen in at least two ways.
Which of the following transactions is commonly associated with the financing
process?
A. Issuance of equity securities
B. Issuance of debt securities
C. Both issuance of equity securities and issuance of debt securities
D. Neither issuance of equity securities nor issuance of debt securities
At the end of 2014, CNC Corporation’s accounting information system produced the
following trial balance:
CNC completed the following transactions in January 2015:
a. Purchased inventory on account, $300.
b. Collected cash from customers for prior year sales, $500.
c. Paid current month’s wages, $900.
d. Had land appraised. Cost of doing the appraisal (paid in cash), $700. Appraised value
of land, $3,000.
e. Sold inventory with a cost basis of $200 on account, $800.
f. Declared dividends, $50.
g. Hired additional sales staff. Expected monthly salaries, $80.
h. Purchased supplies for cash, $150.
i. Paid creditors for previous purchases, $150.
j. Signed a contract for annual employee retreat, $450.
Sequential numbering is a common internal control applied to source documents in the
accounting information system. Which of the following transactions will involve
sequential numbering?A. Transaction A.
B. Transaction F.
C. Transaction G.
D. Transaction J.
Brett and Erin are accountants working for XMP Corporation; Brett is very interested in
working his way up to being XMP’s chief financial officer. He is confident that he can
complete all his assigned tasks well before their established deadlines and control costs
in his area. Which elements of expectancy theory are illustrated in that example?
A. Expectancy and instrumentality
B. Instrumentality and valence
C. Expectancy and valence
D. Expectancy, instrumentality and valence
Which type of adjusting entry is most likely to involve human judgment?
A. Uncollectible accounts
B. Accrued liabilities
C. Deferred revenue
D. Prepaid expenses
Ethan is an accountant for a small startup business. He is trying to decide if the business
should use paper-based journals and ledgers or a spreadsheet to record transactions. He
is therefore making a decision about which generic element of the AIS?
A. Inputs
B. Processes
C. Outputs
D. Technology
RVW Corporation uses an enterprise resource planning system. An accountant wants to
create a report of the last month’s sales sorted by client that also includes the name of
the salesperson who assisted with each transaction. Which modules of the ERP system
will provide the relevant information?
A. Customer relationship management and financial management
B. Human resource management and financial management
C. Customer relationship management and human resource management
D. Such a report cannot be generated from the ERP system.
Which of the following is associated with Charles Ponzi?
A. international postal reply coupons
B. Bernie Madoff
C. Adelphia Communications Corporation
D. none of these
Consider the following examples of risk:
i. A corporation is unable to issue bonds because its credit rating is too low.
ii. A U.S. auto manufacturer tries to market a car in Mexico. The car does not sell
because the Spanish translation of its name means “it doesn’t go.”
iii. An employee receives insufficient training in how to use specialized software.
iv. Due to employee theft, a corporation spends more money than anticipated buying
new tools.
Which pair of risks belongs to the same category in Brown’s risk taxonomy?
A. I and II
B. II and III
C. I and III
D. I and IV
both I and IV are forms of financial risk
Indicate one ERP module where you would expect to find information about each of the
following items.
a. Accrued vacation time
b. All transactions affecting cash
c. Chart of accounts
d. Client name
e. Date of last inventory purchase
f. Pension plan data
g. Projected profits
h. Sales history
i. Shareholder names and addresses
j. Vendor quality ratings