ACC 260 EXAM #1 Study Sheet PDF

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ACC 260 Accounting Information Systems (Spring 2018) Exam #1 Guidance The Exam will be in five parts as follows: Part I: Basic concepts (20% of grade) Part II: Identification of internal controls through analyzing a flow chart (30% of grade) Part III: A short narrative question (10% of grade) Part IV: Multiple Choice (40% of grade) Part V: Bonus question (10% bonus) The exam is worth 10% of your overall grade The first-page reference below is to the global edition and the second to the US hardback edition. Part I: Basic concepts (20%) You will be asked to list (simple bullet list) 1.

The four main objectives of internal control and the five subsidiary objectives.

(For the answer see slide 7-7.1), and two of the following: - COBIT Framework for IT control - COSO Framework for enterprise internal controls (control-based approach) - COSO-ERM Expands COSO framework taking a risk-based approach

A.

The eight interrelated risk and control components of Enterprise Risk

Management (ppt 7-12) (fig 7.3 page 222 or page 196) KNOW TWO 1. Internal Environment 2. Objective Setting 3. Event Identification 4. Risk Assessment 5. Risk Response 6. Control Activities 7. Information/Communication 8. Monitoring B. TWO

The three important functions that internal control performs(ppt 7-6) KNOW

1. Preventive Controls (Deter problems from occurring) 2. Detective Controls (Discover problems that are not prevented) 3. Corrective Controls (Identify/Correct problem; correct from problems) C

The seven kinds of activities that help an organization implement internal

control (ppt 7 7-18)(page 230 or 204) KNOW TWO 1. Proper authorization of transactions and activities 2. Segregation of duties 3. Project development and acquisition controls 4. Change management controls 5. Design and use of documents and records 6. Safeguarding assets, records, and data 7. Independent checks on performance

D.

The three accounting duties that it is important to keep separate in order to

maintain effective internal control (ppt 7-19) (page 231 or 205) -

E.

Segregation of Duties: -

CUSTODIAL FUNCTIONS 1. Handling cash 2. Handling inventories, tools, or fixed assets 3. Writing checks 4. Receiving checks in the mail

-

RECORDING FUNCTIONS 1. Preparing source documents or entering data online 2. Maintaining journals, ledgers, files, databases 3. Preparing reconciliations 4. Preparing performance reports

-

AUTHORIZATION FUNCTIONS 1. Authorization of transactions or decisions

The four main steps in an Accounting Information System and the two other

elements that are an integral part of an accounting information system. (For the answer see slide 1-12.4)

Part II: Identification of internal controls through analyzing a flow chart (30%) I will provide you with a copy of one of the sales and cash receipt flow charts from the SUA and ask you to identify 3 internal controls and fully explain them in terms of internal control objectives, the functions that internal control performs, the seven internal control activities, segregation of duties (if applicable) and how they work. (You’ll need to write about 3 to 5 sentences for each internal control)

Part III: A short narrative question (10%) I will provide a question on one of the following: •

The Supply chain: - It is an extended system that includes an organization’s value chain as well as its suppliers, distributors, and customers. An organization’s value chain is part of this larger system. If a company pays attention to its supply chain, it can improve its performance by helping others in the supply chain to improve its performance. This is where a manufacturing organization interacts with its suppliers and distributors.

EX: Raw Materials Supplier→ Manufacturer→ Distributor→Retailer→Consumer •

Enterprise Resource Planning Systems: - A system that integrates all aspects of an organization activities-such as accounting, finance, marketing, human resources, manufacturing, inventory management- into one system. An ERP system is modularized: companies can purchase individual modules that meet their specific needs. An ERP facilitates information flow among the company’s various business functions and manage communications with outside stakeholders. An advantage is that downloading data from one system to another is no longer needed. A disadvantage that the program can be very expensive for a company.

characteristic of Answer: Reliability. 2. ________ are examples of activities that constitute inbound logistics Answer: Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells 3.Message left on voicemail: "Hi Nikki! Just landed at the airport. How about dinner this evening if you're available. Call me!" Which of the following characteristics of useful information is absent in the situation described above? Answer: complete

Part IV: Multiple Choice (40%) -

Quiz #2-5 Questions and

Answers 25 multiple-choice questions based on the guidance provided for online quizzes 2 to 4 and 5 a. Note the questions will come from the pool of questions used for these online quizzes. QUIZ #2: 1. Data must be converted into information to be considered useful and meaningful for decision making. There are six characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the

4. Cheryl Metrejean has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Ms. Metrejean. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above? Answer: verifiable 5. An AIS provides value by Answer: both improving products or services through the information that increases quality and reduces costs and providing timely and reliable

information to decision-makers 6. An accounting information system (AIS) processes ________ to provide users with ________. Answer: data; information 7. Information that is free from error or bias and accurately represents the events or activities of the organization is Answer: reliable. 8. Information that does not omit important aspects of the underlying events or activities that it measures is Answer: complete. 9. The value of information can best be determined by Answer: the benefits associated with obtaining the information minus the cost of producing it. 10. A well-designed AIS can improve decision making in an organization. Identify the statement below that describes a situation where an AIS may actually inhibit effective decision making. Answer: An AIS provides to its users an abundance of information without any filtering or condensing of such information. 11. Which of the following statements below shows the contrast between data and information? Answer: Information is the primary output of an AIS. 12. Transaction cycles can be

summarized on a high level as "give-get" transactions. An example of "give-get" in the revenue cycle would be Answer: give goods, get cash. 13. ________ are examples of activities that constitute inbound logistics Answer: Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells 14. The ________ is not a transaction cycle. Answer: general ledger and reporting cycle 15. An AIS provides value by: Answer: both improving products or services through the information that increases quality and reduces costs and providing timely and reliable information to decision-makers 16. A frantic Barney Rubble lost a large sale because he could not access the system to verify the inventory was in stock and ready to be shipped. Which of the following characteristics of useful information is absent in the situation described above? Answer: accessible 17. Inventory information is provided in real-time by a firm's accounting information system. The accuracy of this information is questionable, however, since the production manager often reports stock-outs of components that the system indicates are in stock. Which of the following characteristics

of useful information is absent in the situation described above? Answer: reliable QUIZ #4: 1. Regularly reviewing an accounts receivable aging report can help management do what?

2. Checking the quantity of inventory available before accepting a sales order is a good practice for all of the reasons except to Answer: verify the accuracy of the perpetual inventory records.

Answer: determine whether changes are needed in the firm's credit policies

3. A picking ticket is generated by the

4. The ________ normally triggers the customer payment recording process.

12. A remittance list is

Answer: remittance advice 5. When a customer places an order (on account) for a certain product, what should be done before the order is checked for inventory availability? 12. A remittance list is Answer: The customer's available credit should be checked.

Answer: sales order entry process.

Answer: A document listing names and amounts of all customer payments received in the mail

6. The benefits of a lockbox arrangement with a bank are maximized when 7. ________ is not a basic activity of the revenue cycle.

6. Two documents usually accompany goods shipped to a customer. What are the two documents? Answer: a packing slip and a bill of lading

8. The ________ normally triggers the customer payment recording process.

which part of the original document is returned to the source for further processing is called a ________ document.

Answer: remittance advice

Answer: turnaround

9. Special software packages called ________ can help an organization manage customer service.

11.The benefits of a lockbox arrangement with a bank are maximized when

Answer: CRM systems

Answer: several banks around the country are used, in order to minimize the time payments spend in the mail.

Answer: Receiving

10. A type of business document in

2002 2. Accountants Answer: Use flow charts and systems documentation to understand how systems work and evaluate internal control strengths and weaknesses 3. As a result of an internal risk assessment, Allstate Insurance decided it was not profitable to provide hurricane insurance in the state of Florida. Allstate apparently chose to ________ the risk of paying hurricane claims in Florida. Answer: avoid 4. Which of the following was not an important change introduced by the Sarbanes-Oxley Act of 2002? Answer: new rules for information systems development 5. Sarbanes-Oxley requires that Answer: Auditors evaluate management's assessment of internal control and attest to its accuracy 6.Why did COSO develop the Enterprise Risk Management framework? Answer: to improve the risk management process

QUIZ #5A 1. Congress passed this federal law for the purpose of preventing financial statement fraud, to make financial reports more transparent and to strengthen the internal control of public companies. Answer: The Sarbanes-Oxley Act of

7. According to The Sarbanes-Oxley Act of 2002, the audit committee of the board of directors is directly responsible for Answer: hiring and firing the external auditors. 8. A threat is a Answer: Any potential adverse

occurrence or unwanted event that could injure the AIS or the organization 9. Likelihood is Answer: The probability that a threat will come to pass

with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the impact of this risk without insurance? Answer: $650,000

9. According to the ERM, high level goals that are aligned with and support the company's mission are

15. According to the ERM, high level goals that are aligned with and support the company's mission are

Answer: strategic objectives.

Answer: strategic objectives.

10. Upon getting into your new car, you suddenly became worried that you might become injured in an auto accident. You decided to buckle your seat belt in response. You chose to ________ the risk of being injured in an auto accident.

16. Which of the following is not a basic principle of the COSO ERM framework?

Answer: reduce

Answer: An event identified by management may or may not occur.

11. Identify the preventive control below.

Answer: Companies are formed to create value for society. 17. Identify the most correct statement with regards to an event.

Answer: approving customer credit prior to approving a sales order

18. According to the COSO Enterprise Risk Management Framework, the risk assessment process incorporates all of the following components except

12. How is expected loss calculated when performing risk assessment?

Answer: reporting potential risks to auditors.

Answer: impact times likelihood 13. The audit committee of the board of directors Answer: 14. Whitewater Rapids provides canoes to tourists eager to ride Whitewater River's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $650,000. Insurance

19. Duplicate checking of calculations is an example of a ________ control, and procedures to resubmit rejected transactions are an example of a ________ control. Answer: detective; corrective...