Information Systems Control Activities Quiz

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  • 1/22 Questions

    Who is ultimately responsible for the implementation of cost-effective controls in an automated system?

    • The director of internal auditing
    • Operating management
    • The computer processing audit manager
    • The control group in the computer processing department
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About This Quiz

Don’t let the name information systems control activities quiz fool you to thinking that this quiz is easy or hard, you might just be surprised. If you love things to do with Information Systems, try it out and see for yourself.

Information Systems Control Activities Quiz - Quiz

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  • 2. 

    The most common computer-related problem confronting organizations is

    • Hardware malfunction

    • Input errors and omissions

    • Disruption to computer processing caused by natural disasters

    • Fraud

    Correct Answer
    A. Input errors and omissions
    Explanation
    Input errors and omissions are the most common computer-related problem confronting organizations because they can occur due to human error during data entry or data processing. These errors can lead to inaccurate or incomplete information, which can have negative consequences for the organization's operations and decision-making. Hardware malfunctions, disruption caused by natural disasters, and fraud are also common computer-related problems, but input errors and omissions are more prevalent and can occur on a daily basis in any organization.

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  • 3. 

    Transaction authorization within an organization may be either specific or general. An example of specific transaction authorization is the

    • Setting of automatic reorder points for material or merchandise

    • Approval of a detailed construction budget for a warehouse

    • Establishment of requirements to be met in determining a customer’s credit limit

    • Establishment of sales prices for products to be sold to any customer

    Correct Answer
    A. Approval of a detailed construction budget for a warehouse
    Explanation
    Approval of a detailed construction budget for a warehouse is an example of specific transaction authorization because it involves a specific action (approving a budget) for a specific purpose (construction of a warehouse). This type of authorization is typically required for major expenditures or projects within an organization to ensure that the budget is properly reviewed and approved before funds are allocated.

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  • 4. 

    A proper segregation of duties requires

    • That an individual authorizing a transaction records it

    • That an individual authorizing a transaction maintain custody of the asset that resulted from the transaction

    • That an individual maintaining custody of an asset be entitled to access the accounting records for the asset

    • That an individual recording a transaction not compare the accounting record of the asset with the asset itself

    Correct Answer
    A. That an individual recording a transaction not compare the accounting record of the asset with the asset itself
    Explanation
    In order to have a proper segregation of duties, it is important that the individual who is recording a transaction does not compare the accounting record of the asset with the asset itself. This is because comparing the two could lead to potential errors or manipulation of the records. By keeping the recording and comparison tasks separate, it helps to ensure accuracy and integrity in the accounting process.

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  • 5. 

    Regardless of the nature of the client’s information processing system, the auditor must consider internal control. In a computer environment, the auditor must at a minimum, have

    • A basic familiarity with the computer’s operating systems

    • A sufficient understanding of the entire computer system

    • An expertise in computer systems analysis

    • A background in programming procedures

    Correct Answer
    A. A sufficient understanding of the entire computer system
    Explanation
    The auditor must have a sufficient understanding of the entire computer system in order to effectively assess and evaluate the internal control. This includes understanding the different components of the system, how they interact with each other, and any potential vulnerabilities or risks that may exist. By having a comprehensive understanding of the computer system, the auditor can identify any weaknesses in the internal control and make appropriate recommendations for improvement. This knowledge also allows the auditor to effectively plan and execute their audit procedures in the computer environment.

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  • 6. 

    A reason to establish internal control is to 

    • Safeguard the resources of the organization

    • Provide reasonable assurance that the objectives of the organization are achieved

    • Encourage compliance with organizational objectives

    • Ensure the accuracy, reliability, and timeliness of information

    Correct Answer
    A. Provide reasonable assurance that the objectives of the organization are achieved
    Explanation
    Internal control is established to provide reasonable assurance that the objectives of the organization are achieved. This means that internal control measures are put in place to ensure that the organization's goals and targets are met effectively and efficiently. It helps to identify and mitigate risks, monitor operations, and ensure compliance with policies and procedures. By providing reasonable assurance, internal control helps to enhance the overall performance and success of the organization.

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  • 7. 

    Which of the following statements most likely represents a disadvantage for an entity that keeps data files on a server rather than on a manual system?

    • Attention is focused on the accuracy of the programming process rather than errors in individual transactions

    • It is usually easier for unauthorized personas to access and alter the files

    • Random error associated with processing similar transactions in different ways is usually greater

    • It is usually more difficult to compare recorded accountability with the physical count of assets

    Correct Answer
    A. It is usually easier for unauthorized personas to access and alter the files
  • 8. 

    Management's aggressive attitude toward financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when

    • The audit committee is active in overseeing the entity's financial reporting policies

    • External policies established by parties outside the entity affect its accounting practices

    • Management is dominated by one individual who is also a shareholder

    • Internal auditors have direct access to the board of directors and entity management

    Correct Answer
    A. Management is dominated by one individual who is also a shareholder
    Explanation
    When management is dominated by one individual who is also a shareholder, there is a higher likelihood that the individual's aggressive attitude toward financial reporting and focus on meeting profit goals would significantly influence the control environment of the entity. This is because the dominant individual has significant control and influence over the decision-making process and may prioritize short-term financial gains over accurate and transparent reporting. This could lead to a culture of aggressive accounting practices and a lower emphasis on ethical financial reporting.

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  • 9. 

    Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entitiy's internal control?

    • Incompatible duties

    • Management override

    • Mistakes in judgment

    • Collusion among employees

    Correct Answer
    A. Incompatible duties
    Explanation
    Incompatible duties would not be considered an inherent limitation of the potential effectiveness of an entity's internal control because it refers to the separation of duties within an organization. By assigning different responsibilities to different individuals, the risk of fraud or error is reduced. Therefore, having incompatible duties is actually a measure that enhances the effectiveness of internal control rather than being a limitation.

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  • 10. 

    Proper segregation of duties reduces the opportunities for persons to be in positions to both

    • Journalize entries and prepare financial statements

    • Record cash receipts and cash disbursements

    • Establish internal control and authorize transactions

    • Perpetrate and conceal errors or fraud

    Correct Answer
    A. Perpetrate and conceal errors or fraud
    Explanation
    Proper segregation of duties reduces the opportunities for persons to be in positions to both perpetrate and conceal errors or fraud. This means that when different individuals are responsible for different tasks, it becomes more difficult for someone to manipulate or cover up mistakes or fraudulent activities. By separating the tasks of journalizing entries and preparing financial statements, recording cash receipts and cash disbursements, and establishing internal control and authorizing transactions, there is a system of checks and balances in place that helps prevent errors and fraud from occurring unnoticed.

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  • 11. 

    Management activites can be classified in three levels: strategic planning, management control, and operational control. Information requirements vary with the level of management activity. Which of the following best describes the information requirements for strategic planning?

    • Frequent use, external, aggregate information

    • Future-oriented, outdated, detailed information

    • Highly current, accurate, largely internal information

    • Wide scope, aggregate, future-oriented information

    Correct Answer
    A. Wide scope, aggregate, future-oriented information
    Explanation
    The information requirements for strategic planning involve a wide scope, meaning that it encompasses a broad range of information. It also requires aggregate information, which involves summarizing and combining data from various sources. Additionally, strategic planning requires future-oriented information, as it focuses on long-term goals and objectives. Therefore, the answer "Wide scope, aggregate, future-oriented information" best describes the information requirements for strategic planning.

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  • 12. 

    The Sarbanes-Oxley Act of 2002 requires management of issuers to do all of the following except

    • Establish and document internal control procedures and to include in their annual reports a report on the company's internal control over financial reporting

    • Provide a report to include a statement of management's responsibility for and assessment of internal control

    • Provide an identification of the framework used to evaluate the effectiveness of internal control

    • Provide a statement that the board approves changes in internal control procedures

    Correct Answer
    A. Provide a statement that the board approves changes in internal control procedures
    Explanation
    The Sarbanes-Oxley Act of 2002 requires management of issuers to establish and document internal control procedures and to include in their annual reports a report on the company's internal control over financial reporting. They are also required to provide a report that includes a statement of management's responsibility for and assessment of internal control, as well as an identification of the framework used to evaluate the effectiveness of internal control. However, they are not required to provide a statement that the board approves changes in internal control procedures.

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  • 13. 

    Control activities include procedures that pertain to physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that

    • Access to the safe-deposit box requires two officers

    • Only storeroom personnel and line supervisors have access to the raw materials storeroom

    • The mail clerk compiles a list of the checks received in the incoming mail

    • Only salespersons and sales supervisors use sales department vehicles

    Correct Answer
    A. Only storeroom personnel and line supervisors have access to the raw materials storeroom
    Explanation
    The correct answer is "Only storeroom personnel and line supervisors have access to the raw materials storeroom." This is a departure from the purpose of control activities because it limits access to the raw materials storeroom to only specific individuals who may not be the most appropriate or qualified to handle or manage the assets. Control activities are designed to ensure that access to assets and records is properly restricted and controlled to prevent unauthorized use or misuse. By limiting access to only storeroom personnel and line supervisors, there may be a lack of segregation of duties and a higher risk of errors or fraud.

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  • 14. 

    An auditor should obtain sufficient knowledge of an entity's information system relevant to financial reporting to understand the

    • Safeguards used to limit access to computer facilties

    • Process used to prepare significant accounting estimates

    • Procedures used to assure the proper supervision of staff

    • Programs and controls intended to address the risks of fraud

    Correct Answer
    A. Process used to prepare significant accounting estimates
    Explanation
    An auditor should obtain sufficient knowledge of an entity's information system relevant to financial reporting to understand the process used to prepare significant accounting estimates. This is because significant accounting estimates are a crucial part of financial reporting and can have a significant impact on the financial statements. By understanding the process used to prepare these estimates, the auditor can assess the reasonableness of the estimates and ensure that they are in accordance with the applicable accounting standards.

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  • 15. 

    In gaining an understanding of internal control, the auditor may trace several transactions through the control process, including how the transactions interface with any service organizations whose services are part of the information system. The primary purpose of this task is to

    • Replace substantive tests

    • Determine whether the controls have been implemented

    • Determine the effectiveness of the control procedures

    • Detect fraud

    Correct Answer
    A. Determine whether the controls have been implemented
    Explanation
    The auditor traces transactions through the control process to determine whether the controls have been implemented. By doing so, the auditor can verify if the control procedures are being followed as intended. This helps in assessing the reliability and effectiveness of the internal control system. It also ensures that the controls are in place and functioning properly to mitigate risks and prevent errors or fraud.

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  • 16. 

    Audit evidence concerning segregation of duties ordinarily is best obtained by

    • Performing tests of transactions that corroborate management’s financial statement assertions

    • Observing the employees as they apply specific controls

    • Obtaining a flowchart of activities performed by available personnel

    • Developing audit objectives that reduce control risk

    Correct Answer
    A. Observing the employees as they apply specific controls
    Explanation
    Observing the employees as they apply specific controls is the best way to obtain audit evidence concerning segregation of duties. By directly observing the employees, auditors can verify that the necessary segregation of duties is being followed. This allows them to assess whether there are any potential risks or weaknesses in the internal control system. Performing tests of transactions that corroborate management's financial statement assertions may provide some evidence, but it may not specifically address segregation of duties. Obtaining a flowchart of activities performed by available personnel may provide an overview of the process, but it may not provide direct evidence of segregation of duties. Developing audit objectives that reduce control risk may be a part of the overall audit strategy, but it does not directly address obtaining evidence concerning segregation of duties.

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  • 17. 

    Which one of the following statements about an accounting information system (AIS) is false?

    • An AIS supports day-to-day operations by collecting and sorting data about an organization’s transactions

    • The information produced by an AIS is made available to all levels of management for use in planning and controlling and organization’s activates

    • An AIS is best suited to solve problems where there is great uncertainty and ill-defined reporting requirements

    • An AIS is often referred to as a transaction processing system

    Correct Answer
    A. An AIS is best suited to solve problems where there is great uncertainty and ill-defined reporting requirements
    Explanation
    An AIS is not best suited to solve problems where there is great uncertainty and ill-defined reporting requirements. An AIS is designed to collect, sort, and process data about an organization's transactions, and provide information to all levels of management for planning and controlling activities. However, when there is great uncertainty and ill-defined reporting requirements, an AIS may not be able to effectively handle and provide the necessary information.

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  • 18. 

    Which of the following risks are greater in computerized systems than in manual systems? I               Erroneous data conversion II             Erroneous source document preparation III            Repetition of erros IV            Concentration of data

    • I and II

    • II and III

    • I, III, and IV

    • I, II, III, and IV

    Correct Answer
    A. I, III, and IV
    Explanation
    In computerized systems, the risk of erroneous data conversion is greater because there is a higher chance of errors occurring during the process of converting data from one format to another. Additionally, the risk of repetition of errors is greater in computerized systems because automated processes can easily reproduce the same mistake multiple times. Lastly, the concentration of data in computerized systems poses a greater risk as a single error or breach can potentially affect a large amount of data. Therefore, the correct answer is I, III, and IV.

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  • 19. 

    The two broad groupings of information systems control activities are general controls and application controls. General controls include controls

    • Designed to assure that only authorized users receive output from processing

    • For developing, modifying and maintaining computer programs

    • Relating to the correction and resubmission of faulty data

    • Designed to ensure that all data submitted for processing have been properly authorized

    Correct Answer
    A. For developing, modifying and maintaining computer programs
    Explanation
    General controls are a set of controls that are designed to ensure the overall effectiveness and efficiency of an organization's information systems. These controls include activities such as developing, modifying, and maintaining computer programs. This means that general controls are responsible for overseeing the processes and procedures involved in creating and updating computer programs, ensuring that they are developed and maintained in a secure and reliable manner. By having these controls in place, organizations can minimize the risk of errors, unauthorized access, and other security breaches that could compromise the integrity of their information systems.

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  • 20. 

    Control activities constitute one of the five components of internal control. Control activities do not encompass.

    • Performance reviews

    • Information processing

    • Physical controls

    • An internal auditing function

    Correct Answer
    A. An internal auditing function
    Explanation
    Control activities are one of the components of internal control, which help to ensure that the organization's objectives are achieved effectively and efficiently. These activities include performance reviews, information processing, and physical controls. However, an internal auditing function is not considered as a part of control activities. Internal auditing is a separate function that evaluates and assesses the effectiveness of internal controls, providing independent and objective assurance to management and stakeholders.

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  • 21. 

    Monitoring is an important component of internal control. Which of the following items is not an example of monitoring?

    • Management regularly compares divisional performance with budgets for the division

    • Data processing management regularly generates exception reports for unusual transactions or volumes of transactions and follows up with investigation as to cause

    • Data processing management regularly reconciles batch control for items processed with batch controls for items submitted

    • Management has asked internal auditing to perform regular audits of the controls over cash processing

    Correct Answer
    A. Data processing management regularly reconciles batch control for items processed with batch controls for items submitted
    Explanation
    The correct answer is "Data processing management regularly reconciles batch control for items processed with batch controls for items submitted." This is not an example of monitoring because it is a control activity rather than a monitoring activity. Monitoring activities involve ongoing assessment of the effectiveness of internal controls, while this activity is focused on ensuring the accuracy and completeness of data processing.

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  • 22. 

    If internal control is properly designed, the same employee may be permitted to 

    • Receive and deposit checks and also approve write-offs of customer accounts

    • Approve vouchers for payment and also sign checks

    • Reconcile the bank statements and also receive and deposit cash

    • Sign checks and also cancel supporting documents

    Correct Answer
    A. Sign checks and also cancel supporting documents
    Explanation
    If internal control is properly designed, the same employee may be permitted to sign checks and also cancel supporting documents. This is because having the same employee responsible for both tasks helps to ensure accountability and prevent fraud. By signing checks, the employee can verify that the payment is legitimate and authorized. By canceling supporting documents, the employee can ensure that any related invoices or receipts are properly voided and not used for fraudulent purposes. This segregation of duties helps to create a system of checks and balances within the organization's internal control framework.

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  • Current Version
  • Sep 19, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 05, 2010
    Quiz Created by
    Whatdoiput
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