Accounting Information Systems, 8e—Test Bank, Chapter 15
Chapter 15—IT Controls Part I: Sarbanes-Oxley and IT Governance
TRUE/FALSE
1. Corporate management (including the CEO) must certify monthly and annually their organization’s
internal controls over financial reporting.
2. Both the SEC and the PCAOB require management to use the COBIT framework for assessing
internal control adequacy.
3. Both the SEC and the PCAOB require management to use the COSO framework for assessing internal
control adequacy.
4. A qualified opinion on management’s assessment of internal controls over the financial reporting
system necessitates a qualified opinion on the financial statements?
5. The same internal control objectives apply to manual and computer-based information systems.
6. To fulfill the segregation of duties control objective, computer processing functions (like authorization
of credit and billing) are separated.
7. To ensure sound internal control, program coding and program processing should be separated.
8. Some systems professionals have unrestricted access to the organization’s programs and data.
9. Application controls apply to a wide range of exposures that threaten the integrity of all programs
processed within the computer environment.
10. The database administrator should be separated from systems development.
11. A disaster recovery plan is a comprehensive statement of all actions to be taken after a disaster.
12. IT auditing is a small part of most external and internal audits.
13. Assurance services is an emerging field that goes beyond the auditor’s traditional attestation function.
14. An IT auditor expresses an opinion on the fairness of the financial statements.
15. External auditing is an independent appraisal function established within an organization to examine
and evaluate its activities as a service to the organization.
16. External auditors can cooperate with and use evidence gathered by internal audit departments that are
organizationally independent and that report to the Audit Committee of the Board of Directors.
17. Tests of controls determine whether the database contents fairly reflect the organization’s transactions.
18. Audit risk is the probability that the auditor will render an unqualified opinion on financial statements
that are materially misstated.
19. A strong internal control system will reduce the amount of substantive testing that must be performed.
20. Substantive testing techniques provide information about the accuracy and completeness of an
application’s processes.
21. The most common access point for perpetrating computer fraud is at the data collection stage.
22. Changing the Hours Worked field in an otherwise legitimate payroll transaction to increase the amount
of the paycheck is an example of data collection fraud.
Accounting Information Systems, 8e—Test Bank, Chapter 15
23. Scavenging is a form of fraud in which the perpetrator uses a computer program to search for key
terms in a database and then steal the data.
24. Transaction cost economics (TCE) theory suggests that firms should outsource specific non−core IT
assets.
25. Commodity IT assets easily acquired in the marketplace and should be outsourced under the core
competency theory.
MULTIPLE CHOICE
1. Which of the following is NOT an implication of section 302 of the Sarbanes-Oxley Act?
a.
Auditors must determine, whether changes in internal control has, or is likely to,
materially affect internal control over financial reporting.
b.
Auditors must interview management regarding significant changes in the design or
operation of internal control that occurred since the last audit.
c.
Corporate management (including the CEO) must certify monthly and annually their
organization’s internal controls over financial reporting.
d.
Management must disclose any material changes in the company’s internal controls that
have occurred during the most recent fiscal quarter.
2. Which of the following is NOT a requirement in management’s report on the effectiveness of internal
controls over financial reporting?
a.
A statement of management’s responsibility for establishing and maintaining adequate
internal control user satisfaction.
b.
A statement that the organization’s internal auditors has issued an attestation report on
management’s assessment of the company’s internal controls.
c.
A statement identifying the framework used by management to conduct their assessment
of internal controls.
d.
An explicit written conclusion as to the effectiveness of internal control over financial
reporting.
3. In a computer-based information system, which of the following duties needs to be separated?
a.
program coding from program operations
b.
program operations from program maintenance
c.
program maintenance from program coding
d.
all of the above duties should be separated
4. Supervision in a computerized environment is more complex than in a manual environment for all of
the following reasons except
a.
rapid turnover of systems professionals complicates management’s task of assessing the
competence and honesty of prospective employees
b.
many systems professionals have direct and unrestricted access to the organization’s
programs and data
c.
rapid changes in technology make staffing the systems environment challenging
d.
systems professionals and their supervisors work at the same physical location
5. Adequate backups will protect against all of the following except
a.
natural disasters such as fires
b.
unauthorized access
c.
data corruption caused by program errors
d.
system crashes
6. Which is the most critical segregation of duties in the centralized computer services function?
a.
systems development from data processing
b.
data operations from data librarian
c.
data preparation from data control
d.
data control from data librarian
7. Systems development is separated from data processing activities because failure to do so
a.
weakens database access security
b.
allows programmers access to make unauthorized changes to applications during
execution
c.
results in inadequate documentation
d.
results in master files being inadvertently erased
8. Which organizational structure is most likely to result in good documentation procedures?
a.
separate systems development from systems maintenance
b.
separate systems analysis from application programming
c.
separate systems development from data processing
d.
separate database administrator from data processing
9. All of the following are control risks associated with the distributed data processing structure except
a.
lack of separation of duties
b.
system incompatibilities
c.
system interdependency
d.
lack of documentation standards
10. Which of the following is not an essential feature of a disaster recovery plan?
a.
off-site storage of backups
Accounting Information Systems, 8e—Test Bank, Chapter 15
b.
computer services function
c.
second site backup
d.
critical applications identified
11. A cold site backup approach is also known as
a.
internally provided backup
b.
recovery operations center
c.
empty shell
d.
mutual aid pact
12. The major disadvantage of an empty shell solution as a second site backup is
a.
the host site may be unwilling to disrupt its processing needs to process the critical
applications of the disaster stricken company
b.
intense competition for shell resources during a widespread disaster
c.
maintenance of excess hardware capacity
d.
the control of the shell site is an administrative drain on the company
13. An advantage of a recovery operations center is that
a.
this is an inexpensive solution
b.
the initial recovery period is very quick
c.
the company has sole control over the administration of the center
d.
none of the above are advantages of the recovery operations center
14. For most companies, which of the following is the least critical application for disaster recovery
purposes?
a.
month-end adjustments
b.
accounts receivable
c.
accounts payable
d.
order entry/billing
15. The least important item to store off-site in case of an emergency is
a.
backups of systems software
b.
backups of application software
c.
documentation and blank forms
d.
results of the latest test of the disaster recovery program
16. Some companies separate systems analysis from programming/program maintenance. All of the
following are control weaknesses that may occur with this organizational structure except
a.
systems documentation is inadequate because of pressures to begin coding a new program
before documenting the current program
b.
illegal lines of code are hidden among legitimate code and a fraud is covered up for a long
period of time
Accounting Information Systems, 8e—Test Bank, Chapter 15
c.
a new systems analyst has difficulty in understanding the logic of the program
d.
inadequate systems documentation is prepared because this provides a sense of job
security to the programmer
17. All of the following are recommended features of a fire protection system for a computer center except
a.
clearly marked exits
b.
an elaborate water sprinkler system
c.
manual fire extinguishers in strategic locations
d.
automatic and manual alarms in strategic locations
18. Which concept is not an integral part of an audit?
a.
evaluating internal controls
b.
preparing financial statements
c.
expressing an opinion
d.
analyzing financial data
19. Which statement is not true?
a.
Auditors must maintain independence.
b.
IT auditors attest to the integrity of the computer system.
c.
IT auditing is independent of the general financial audit.
d.
IT auditing can be performed by both external and internal auditors.
20. Typically, internal auditors perform all of the following tasks except
a.
IT audits
b.
evaluation of operational efficiency
c.
review of compliance with legal obligations
d.
internal auditors perform all of the above tasks
21. The fundamental difference between internal and external auditing is that
a.
internal auditors represent the interests of the organization and external auditors represent
outsiders
b.
internal auditors perform IT audits and external auditors perform financial statement audits
c.
internal auditors focus on financial statement audits and external auditors focus on
operational audits and financial statement audits
d.
external auditors assist internal auditors but internal auditors cannot assist external
auditors
22. Internal auditors assist external auditors with financial audits to
a.
reduce audit fees
b.
ensure independence
c.
represent the interests of management
Accounting Information Systems, 8e—Test Bank, Chapter 15
d.
the statement is not true; internal auditors are not permitted to assist external auditors with
financial audits
23. Which statement is not correct?
a.
Auditors gather evidence using tests of controls and substantive tests.
b.
The most important element in determining the level of materiality is the mathematical
formula.
c.
Auditors express an opinion in their audit report.
d.
Auditors compare evidence to established criteria.
24. All of the following are steps in an IT audit except
a.
substantive testing
b.
tests of controls
c.
post-audit testing
d.
audit planning
25. When planning the audit, information is gathered by all of the following methods except
a.
completing questionnaires
b.
interviewing management
c.
observing activities
d.
confirming accounts receivable
26. Substantive tests include
a.
examining the safety deposit box for stock certificates
b.
reviewing systems documentation
c.
completing questionnaires
d.
observation
27. Tests of controls include
a.
confirming accounts receivable
b.
counting inventory
c.
completing questionnaires
d.
counting cash
28. All of the following are components of audit risk except
a.
control risk
b.
legal risk
c.
detection risk
d.
inherent risk
29. Control risk is
a.
the probability that the auditor will render an unqualified opinion on financial statements
that are materially misstated
b.
associated with the unique characteristics of the business or industry of the client
c.
the likelihood that the control structure is flawed because controls are either absent or
inadequate to prevent or detect errors in the accounts
d.
the risk that auditors are willing to take that errors not detected or prevented by the control
structure will also not be detected by the auditor
30. All of the following tests of controls will provide evidence about the physical security of the computer
center except
a.
review of fire marshal records
b.
review of the test of the backup power supply
c.
verification of the second site backup location
d.
observation of procedures surrounding visitor access to the computer center
31. All of the following tests of controls will provide evidence about the adequacy of the disaster recovery
plan except
a.
inspection of the second site backup
b.
analysis of the fire detection system at the primary site
c.
review of the critical applications list
d.
composition of the disaster recovery team
32. Which of the following is true?
a.
In the CBIS environment, auditors gather evidence relating only to the contents of
databases, not the reliability of the computer system.
b.
Conducting an audit is a systematic and logical process that applies to all forms of
information systems.
c.
Substantive tests establish whether internal controls are functioning properly.
d.
IT auditors prepare the audit report if the system is computerized.
33. Inherent risk
a.
exists because all control structures are flawed in some ways.
b.
is the likelihood that material misstatements exist in the financial statements of the firm.
c.
is associated with the unique characteristics of the business or industry of the client.
d.
is the likelihood that the auditor will not find material misstatements.
34. Attestation services require all of the following except
a.
written assertions and a practitioner’s written report
b.
the engagement is designed to conduct risk assessment of the client’s systems to verify
their degree of SOX compliance
c.
the formal establishment of measurements criteria
Accounting Information Systems, 8e—Test Bank, Chapter 15
d.
the engagement is limited to examination, review, and application of agreed-upon
procedures
35. The financial statements of an organization reflect a set of management assertions about the financial
health of the business. All of the following describe types of assertions except
a.
that all of the assets and equities on the balance sheet exist
b.
that all employees are properly trained to carry out their assigned duties
c.
that all transactions on the income statement actually occurred
d.
that all allocated amounts such as depreciation are calculated on a systematic and rational
basis
36. All of the following are issues of computer security except
a.
releasing incorrect data to authorized individuals
b.
permitting computer operators unlimited access to the computer room
c.
permitting access to data by unauthorized individuals
d.
providing correct data to unauthorized individuals
37 . Operations fraud includes
a.
altering program logic to cause the application to process data incorrectly
b.
misusing the firm’s computer resources
c.
destroying or corrupting a program’s logic using a computer virus
d.
creating illegal programs that can access data files to alter, delete, or insert values
38. Segregation of duties in the computer-based information system includes
a.
separating the programmer from the computer operator
b.
preventing management override
c.
separating the inventory process from the billing process
d.
performing independent verifications by the computer operator
39. Computer fraud can take on many forms, including each of the following except
a.
theft or illegal use of computer-readable information
b.
theft, misuse, or misappropriation of computer equipment
c.
theft, misuse, or misappropriation of assets by altering computer-readable records and files
d.
theft, misuse, or misappropriation of printer supplies
40. The following are examples of commodity assets except
a.
network management
b.
systems operations
c.
systems development
d.
server maintenance
Accounting Information Systems, 8e—Test Bank, Chapter 15
41. The following are examples of specific assets except
a. application maintenance
b. data warehousing
c. highly skilled employees
d. server maintenance
42. Which of the following is true?
a. Core competency theory argues that an organization should outsource specific core assets.
b. Core competency theory argues that an organization should focus exclusively on its core business
competencies
c. Core competency theory argues that an organization should not outsource specific commodity
assets.
d. Core competency theory argues that an organization should retain certain specific non−core assets
in-house.
43. Which of the following is not true?
a. Large-scale IT outsourcing involves transferring specific assets to a vendor
b. Specific assets, while valuable to the client, are of little value to the vendor
c. Once an organization outsources its specific assets, it may not be able to return to its pre-outsource
state.
d. Specific assets are of value to vendors because, once acquired, vendors can achieve economies of
scale by employing them with other clients
44. Which of the following is not true?
a. When management outsources their organization’s IT functions, they also outsource responsibility
for internal control.
b. Once a client firm has outsourced specific IT assets, its performance becomes linked to the
vendor’s performance.
c. IT outsourcing may affect incongruence between a firm’s IT strategic planning and its business
planning functions.
d. The financial justification for IT outsourcing depends upon the vendor achieving economies of
scale.
45. Which of the following is not true?
a. Management may outsource their organizations’ IT functions, but they cannot outsource their
management responsibilities for internal control.
Accounting Information Systems, 8e—Test Bank, Chapter 15
b. section 404 requires the explicit testing of outsourced controls.
c. The SAS 70 report, which is prepared by the outsourcer’s auditor, attests to the adequacy of the
vendor’s internal controls.
d. Auditors issue two types of SAS 70 reports: SAS 70 Type I report and SAS 70 Type II report.
SHORT ANSWER
1. Both the SEC and the PCAOB have expressed an opinion as which internal control framework an
organization should use to comply with SOX legislation. Explain.
2. COSO identifies two broad groupings of information system controls. What are they?
3. The Sarbanes-Oxley Act contains many sections. Which sections are the focus of this chapter?
4. What control framework is recommended by the PCAOB?
5. What are the objectives of application controls?
6. Define general controls.
Accounting Information Systems, 8e—Test Bank, Chapter 15
7. Discuss the key features of Section 302 of the Sarbanes-Oxley Act.
8. What primary IT functions must be separated in a centralized firm?
9. List three pairs of system functions that should be separated in the centralized computer services
organization. Describe a risk exposure if the functions are not separated.
Functions to Separate
Risk Exposure
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10. For disaster recovery purposes, what criteria are used to identify an application or data as critical?