Information Systems Control Activities Quiz

Operating management is ultimately responsible for the implementation of cost-effective controls in an automated system. They are responsible for overseeing the day-to-day operations of the organization and have the authority to make decisions regarding the implementation of controls. The director of internal auditing may provide guidance and recommendations, but the ultimate responsibility lies with operating management. The computer processing audit manager and the control group in the computer processing department may have specific roles in assessing and monitoring controls, but they do not have the overall responsibility for implementation.

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.

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.

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.

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.

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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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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.