Chapter 1The Information System: An Accountants Perspective

TRUE/FALSE

1. Information is a business resource.

ANS: T

2. An information system is an example of a natural system.

ANS: F

3. Transaction processing systems convert non-financial transactions into financial transactions.

ANS: F

4. Information lacking reliability may still have value.

ANS: F

5. A balance sheet prepared in conformity with GAAP is an example of discretionary reporting.

ANS: F

6. The Management Reporting System provides the internal financial information needed to manage a
business.

ANS: T

7. Most of the inputs to the General Ledger System come from the Financial Reporting System.

ANS: F
 8. When preparing discretionary reports, organizations can choose what information to report and how to
present it.

ANS: T

9. Retrieval is the task of permanently removing obsolete or redundant records from the database.

ANS: F

10. Systems development represents 80 to 90 percent of the total cost of a computer system.

ANS: F

11. The database administrator is responsible for the security and integrity of the database.

ANS: T

12. A backbone system is completely finished, tested, and ready for implementation.

ANS: F

13. The internal auditor represents the interests of third-party outsiders.

ANS: F

14. Information Technology (IT) audits can be performed by both internal and external auditors.

ANS: T

15. The single largest user of computer services is the personnel function.

ANS: F
 16. Increased control is one of the key advantages of distributed data processing.

ANS: F

17. The flat-file approach is most often associated with so-called legacy systems.

ANS: T

18. In a flat-file system, files are easily shared by users.

ANS: F

19. Legacy systems were eliminated in the effort to make systems Y2K compliant.

ANS: F

20. One of the greatest disadvantages of database systems is that all data is always available to all users.

ANS: F

21. Under SOX legislation auditors are no longer allowed to provide consulting services to audit clients.

ANS: T

22. Under SOX legislation auditors are no loger allowed to provide consulting services to their clients.

ANS: F

They cannot provide such services to audit clients but may still provide them to non-audit clients

MULTIPLE CHOICE
1. Which of the following is not a business resource?

a raw material
.

b labor
.

c information
.

d all are business resources

ANS: D

2. Which level of management is responsible for short-term planning and coordination of activities
necessary to accomplish organizational objectives?

a operations management
.

b middle management
.

c top management
.

d line management
.

ANS: B

3. Which level of management is responsible for controlling day-to-day operations?

a top management
.

b middle management
.

c operations management
 a top management
.

d executive management
.

ANS: C

4. The ability to achieve the goals of a system depends upon the effective functioning and harmonious
interaction between its subsystems. This is called

a system decomposition
.

b system redundancy
.

c backup system
.

d subsystem interdependency
.

ANS: D

5. The value of information for users is determined by all of the following but

a reliability
.

b relevance
.

c convenience
.

d completeness
.
 ANS: C

6. An example of a nonfinancial transaction is

a sale of products
.

b cash disbursement
.

c log of customer calls

d purchase of inventory
.

ANS: C

7. An example of a financial transaction is

a the purchase of computer

b a suppliers price list

c a delivery schedule
.

d an employee benefit brochure

ANS: A

8. Which subsystem is not part of the Accounting Information System?

a Transaction Processing System

b Expert System
 a Transaction Processing System
.

c General Ledger/Financial Reporting System

d Management Reporting System

ANS: B

9. The major difference between the Financial Reporting System (FRS) and the Management Reporting
System (MRS) is the

a FRS provides information to internal and external users; the MRS provides information
. to internal users

b FRS provides discretionary information; the MRS provides nondiscretionary information

c FRS reports are prepared using information provided by the General Ledger System; the
. MRS provides information to the General Ledger System

d FRS reports are prepared in flexible, nonstandardized formats; the MRS reports are
. prepared in standardized, formal formats

ANS: A

10. The purpose of the Transaction Processing System includes all of the following except

a converting economic events into financial transactions

b recording financial transactions in the accounting records

c distributing essential information to operations personnel to support their daily

d measuring and reporting the status of financial resources and the changes in those
 a converting economic events into financial transactions
.

. resources

ANS: D

11. The Transaction Processing System includes all of the following cycles except

a the revenue cycle

b the administrative cycle

c the expenditure cycle

d the conversion cycle

ANS: B

12. The primary input to the Transaction Processing System is

a a financial transaction
.

b an accounting record
.

c an accounting report
.

d a nonfinancial transaction
.

ANS: A
13. When designing the data collection activity, which type of data should be avoided?

a data that is relevant

b data that is efficient

c data that is redundant

d data that is accurate

ANS: C

14. The most basic element of useful data in the database is

a the record
.

b the key
.

c the file
.

d the attribute
.

ANS: D

15. In a database, a complete set of attributes for a single occurrence of an entity class is called

a a key
.

b a file
.

c a record
 a a key
.

d a character
.

ANS: C

16. Effective information has all of the following characteristics except

a relevance
.

b completeness
.

c summarization
.

d structure
.

ANS: D

17. Database management tasks do not include

a summarization
.

b storage
.

c retrieval
.

d deletion
.
 ANS: A

18. The author distinguishes between the Accounting Information System and the management Information
System based on

a whether the transactions are financial or nonfinancial

b whether discretionary or nondiscretionary reports are prepared

c the end users of the reports

d the organizational structure of the business

ANS: A

19. Which activity is not part of the finance function?

a cash receipts
.

b portfolio management
.

c credit
.

d general ledger
.

ANS: D

20. Market research and advertising are part of which business function?
 a materials management
.

b finance
.

c marketing
.

d production
.

ANS: C

21. Which function manages the financial resources of the firm through portfolio management, banking,
credit evaluation, and cash receipts and disbursements?

a accounting
.

b finance
.

c materials management
.

d distribution
.

ANS: B

22. Which of the following is not part of the accounting function?

a managing the financial information resource of the firm

b capturing and recording transactions in the database

c distributing transaction information to operations personnel

d managing the physical information system of the firm

ANS: D

23. The term accounting independence refers to

a data integrity
.

b separation of duties, such as record keeping and custody of physical resources

c generation of accurate and timely information

d business segmentation by function

ANS: B

24. In the distributed data processing approach

a computer services are consolidated and managed as a shared organization resource

b the computer service function is a cost center

c the end users are billed using a charge-back system

d computer services are organized into small information processing units under the
. control of end users

ANS: D
25. The data control group is responsible for

a performing the day-to-day processing of transactions

b security and integrity of the database

c liaison between the end user and data processing

d providing safe storage for off-line data files

ANS: C

26. Data processing does not involve

a data control
.

b computer operations
.

c system maintenance
.

d data conversion
.

ANS: C

27. Independent auditing is performed by

a external auditors
.

b internal accountants
.

c licensed auditors
 a external auditors
.

d third-party accountants
.

ANS: A

28. Which individual is least involved in new systems development?

a systems analyst
.

b external auditor
.

c end user
.

d data librarian
.

ANS: D

29. The objectives of all information systems include all of the following except

a support for the stewardship function of management

b evaluating transaction data

c support for the day-to-day operations of the firm

d support for management decision making

30. Which individuals may be involved in the Systems Development Life Cycle?

a accountants
.

b systems professionals
.

c end users
.

d all of the above

ANS: D

31. An appraisal function housed within the organization that performs a wide range of services for
management is

a internal auditing
.

b data control group

c external auditing
.

d database administration
.

ANS: A

32. Advantages of a database system include all of the following except

b open access to all data by all users

c single update for changes in data

d confidence that all data is current

ANS: B

33. Disadvantages of distributed data processing include all of the following except

a mismanagement of organizationwide resources

b hardware and software incompatibility

c cost reductions
.

d difficulty in hiring qualified IT professionals

ANS: C

34. Advantages of distributed data processing include each of the following except

a cost reductions
.

b better management of organization resources

c improved operational efficiency

d increased user satisfaction

ANS: B

35. Disadvantages of the distributed data processing approach include all of the following except

a possible mismanagement of organization resources

b redundancy of tasks
.

c software incompatibility
.

d system is not responsive to the users situation

ANS: D

36. ERP packages include all of the following modules except

a human resources
.

b general ledger
.

c inventory management
.

d they include all of the above

ANS: D
37. All of the following are external end users except

a cost accountants
.

b creditors
.

c stockholders
.

d tax authorities
.

ANS: A

38. Useful information must possess all of the following characteristics except

a relevance
.

b timelessness
.

c accuracy
.

d completeness
.

ANS: B

39. The objectives of an information system include each of the following except

a support for the stewardship responsibilities of management

b furthering the financial interests of shareholders

c support for management decision making

d support for the firms day-to-day operations

ANS: B

40. Accountants play many roles relating to the accounting information system, including all of the following
except

a system users
.

b system designers
.

c system auditors
.

d system converters
.

ANS: D