The chapter discussed four infamous ethics cases in accounting: (a) Charles Ponzi, (b)
Adelphia Communications Corporation, (c) Enron/Arthur Andersen and (d) Bernie
Madoff. Indicate which case is most closely associated with each of the following
items.
1> Created from a merger of two other companies in the natural gas and pipeline
industries
2> Filed for bankruptcy in December 2001
3> Filed for bankruptcy in June 2002
4> Harry Markopolos
5> International postal reply coupons
6> John and Gus Rigas
7> Most business came from the financial division
8> One family received more than $2 billion in loans from the company
9> Perpetrator was turned in by his sons
10> Sentenced to five years in federal prison for mail fraud
Russell had been asked by his supervisor to document the purchasing process in his
company, but did not specify any particular technique for doing so. If Russell uses
Steps for Better Thinking to choose a documentation technique, which of the following
statements is most true?
A. He should immediately choose the documentation technique with which he is most
comfortable.
B. Determining his supervisor’s objective in documenting the process should be part of
Step 1.
C. Completing a cost/benefit analysis of various documentation methods should be part
of the foundation level of Steps for Better Thinking.
D. None of these; Steps for Better Thinking is not an appropriate way to make the
decision.
Hewlett-Packard is a publicly traded corporation whose principal activity is making and
selling computers. Customers can buy an HP computer directly from HP online if they
pay with a bank credit card (such as Visa or Mastercard). HP’s risk exposures therefore
include all of the following except:
A. Market risk
B. Systems risk
C. Credit risk
D. Human error risk
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.
CNC uses block coding for its chart of accounts. Which of the following accounts will
have the same final digit?A. Cash
B. Inventory
C. Both cash and inventory
D. Neither cash nor inventory
Information technology controls can be classified as physical, technical or
administrative. Consider each independent situation below; suggest one control from
the indicated classification that would address (prevent/detect/correct) the risk.
a) A bank’s customer database is hacked.
Administrative: _____________________________________________
b) A careless employee spills coffee on a network server.
Physical: _____________________________________________
c) A corporation’s sales data are manipulated by a member of the sales staff.
Technical: _____________________________________________
d) A former employee introduces a logic bomb to a company’s payroll system.
Administrative: _____________________________________________
e) A political candidate’s web site is defaced.
Technical: _____________________________________________
f) A senior citizen sends money to a fake religious organization based on a fraudulent
e-mail.
Administrative: _____________________________________________
g) A waitress steals a customer’s credit card number.
Physical: _____________________________________________
h) An employee uses work time to shop online using the company’s computer.
Administrative: _____________________________________________
i) Corporate spies steal research and development information.
Technical: _____________________________________________
j) Fake compromising photos of a corporate CEO are posted to a social networking site.
Technical: _____________________________________________
Which of the following is most likely to be a primary key in an “employee” table?
A. Last name
B. Employee ID number
C. Both last name and employee ID number together
D. Either last name or employee ID number separately
Which of the following best explains the idea of “currency,” as the term is used in
evaluating information?
A. Information more than five years old should never be used.
B. Financial information is always more accurate than nonfinancial information.
C. Authors without a current college degree have no authority to publish.
D. Users should consider the relationship between the subject and the publication date.
Please consider these independent cases as you respond to the question:
-Austin is the managing partner of a small CPA firm. In an effort to standardize certain
internal business processes, Austin formed a team that developed a set of guidelines for
tasks such as expense reimbursements and information technology purchases. After
developing the guidelines, the team devised ways to determine if the processes are
performing as expected.
-Julie is the chief financial officer of PSC Corporation. She recently worked with a
team to develop a broad set of principles that should characterize PSC’s business
processes. The team has applied those principles to some tasks in the accounting
department; their next task is to teach other PSC employees about the principles.
-Rob is an accountant at CTR Company. The owners of CTR, Lynn and Mark, don’t
know much about accounting, so Rob completes accounting tasks in whatever way
seems best to him.
Based on the levels of the capability maturity model, which of the following statements
is most true?
A. Austin’s process is more advanced than Rob’s because Austin used a team to develop
the guidelines.
B. Julie’s process is more advanced than Rob’s because PSC is incorporated.
C. Austin’s process is more advanced than Julie’s because it incorporates metrics.
D. None of these statements is true.
Accounting information systems is an important area of study for future accountants
because: (i) Developing a strong accounting information system helps achieve some of
the components of the FASB Conceptual Framework of Accounting, (ii) Studying AIS
helps students develop many of the core competencies suggested by the AICPA, (iii)
Acquiring knowledge about AIS helps students learn more about common business
processes.
A. (i) and (ii) only
B. (ii) and (iii) only
C. (i) and (iii) only
D. (i), (ii) and (iii)
PRL Corporation’s internal control plan is based on the COSO framework. It includes
five items: (i) conducting ongoing evaluations of internal control during the normal
course of operations, (ii) hiring accountants who understand the importance of strong
internal control, (iii) including a segment in new employee orientation on the
importance of strong internal control, (iv) periodic employee surveys that identify new
issues that require internal controls, (v) a quarterly newsletter explaining elements of
the internal control plan. Based on those five items alone, which element of PRL’s
internal control plan is weakest?
A. Risk/control matrix
B. Control activities
C. Information and communication
D. Monitoring
I focuses on monitoring. II and III help establish a strong control environment. IV is a
type of risk assessment. V is a form of information and communication.
Robert and Claudia are partners in Retail Consulting Associates (RCA), a firm
specializing in enterprise risk management for small retail businesses. As their client
base expands, they want to develop a knowledge management system that will benefit
themselves, their employees and their clients. They have established three key
knowledge areas for RCA: costs of enterprise risk management, role of information
technology in enterprise risk management and communication with clients. Use those
three areas to complete the following knowledge map for RC
A.
AIS is an important area of study for future accountants because a well-designed AIS
can respond to many elements of the conceptual framework. Which of the following
best pairs an element of the conceptual framework with a specific example of that
element?
A. Relevance, land reported at historical cost
B. Consistency, land reported at historical cost
C. Matching, land is not depreciated
D. Gain, difference between historical cost and current market value for land used in
operations