CHAPTER 1

1 When a company receives returned goods from a customer, the business process to accept the return
would most likely be a(n) a. administrative process b. conversion process c. expenditure process d.
revenue process

2 Which of the following is least likely to be an output of the accounting information system? a. check b.
A report c. An invoice d. A bar code

3 Which of the following is not true of the supply chain? a. The supply chain includes vendors. b. The
supply chain excludes customers. c. The supply chain includes information flows. d. The supply chain
includes secondary suppliers.

4 Which of the following is not an objective of IT enablement? a. Increased accuracy of data b. Reduced
cost c. Reduced security problems d. Increased efficiency

5 The correct order of the computer data hierarchy is a. byte, bit, record, field, file, database b. bit, byte,
record, field, file, database c. bit, byte, field, record, file, database d. bit, byte, field, record, database,
file

6 The process of searching for identifiable patterns in data is called a. sequential processing b. data
warehousing c. data mining d. real‐time processing

7 An IT-enabled system for purchasing that is an “invoice‐less” system is called a(n) a. automated
matching system b. evaluated receipt settlement c. e‐payables d. point of sale system

8 The COSO report written for the purpose of assisting managers in the challenge of managing risk in
their organizations is entitled a. “Internal Controls—Integrated Framework” b. “Enterprise Risk
Management—Integrated Framework” c. “Corporate Governance Guidance” d. “IT Governance
Guidance”

9 Accountants have some form of use of the AIS in all but which role? a. User b. Programmer c. Auditor
d. Designer

10 Which of the following is not true of unethical behavior? a. The only category of unethical behavior
for accountants is inflating revenue. b. Accountants are often pressured to help commit or cover up
unethical behavior. c. Hacking is an unethical behavior that accountants should be concerned about. d.
An accounting information system can be used to cover up unethical behavior.

CHAPTER 3

1 The careful and responsible oversight and use of the assets entrusted to Management is called a. the
control environment b. stewardship c. preventive controls d. security

2 Which of the following is not a condition in the fraud triangle? a. Rationalization b. Incentive c.
Conversion d. Opportunity

3 There are many possible indirect benefits to management when management fraud occurs. Which of
the following is not an indirect benefit of management fraud? a. Delayed exercise of stock options b.
Delayed cash flow problems c. Enhanced promotion opportunities d. Increased incentive‐based
compensation
4 Which of the following is not an example of employee fraud? a. Skimming b. Larceny c. Kickbacks d.
Earnings management

5 Which of the following is not a common form of employee fraud? a. Inventory theft b. Expense
account fraud c. Payroll fraud d. Refund fraud

6 Segregation of duties is a fundamental concept in an effective system of internal controls.

Nevertheless, the effectiveness of this control can be compromised through which situation? a. A lack of
employee training b. Collusion among employees c. Irregular employee reviews d. The absence of an
internal audit function

7 The most difficult type of misstatement to discover is fraud that is concealed by a. over‐recording the
transactions b. nonrecorded transactions c. recording the transactions in subsidiary records d. related
parties

8 The review of amounts charged to the company from a seller that it purchased from is called a a.
vendor audit b. seller review c. collusion d. customer review

9 Which of the following is generally an external computer fraud, rather than an internal computer
fraud? a. Spoofing b. Input manipulation c. Program manipulation d. Output manipulation

10 Which control activity is intended to serve as a method to confirm the accuracy or completeness of
data in the accounting system? a. Authorization b. Segregation of duties c. Security of assets d.
Independent checks and reconciliations

11 COSO describes five components of internal control. Which of the following terms is best described
as “policies and procedures that help ensure manage- ment directives are carried out and management
objectives are achieved”? a. Risk assessment b. Information and communication c. Control activities d.
Control environment

12 Proper segregation of duties calls for separation of the functions of a. authorization, execution, and
payment b. authorization, recording, and custody c. custody, execution, and reporting d. authorization,
payment, and recording

13 The AICPA Trust Services Principles identify five categories of risks and controls. Which category is
best described by the statement, “Information processes could be inaccurate, incomplete, or not
properly authorized”? a. Security b. Availability c. Processing integrity d. Confidentiality

14 A company’s cash custody function should be separated from the related cash recordkeeping
function in order to a. physically safeguard the cash b. establish accountability for the cash c. prevent
the payment of cash disbursements from cash receipts d. minimize opportunities for misappropriations
of cash.

CHAPTER 6

1 Which of the following advantages is least likely to be experienced by a company implementing an

enterprise resource planning (ERP) system? a. Reduced cost b. Improved efficiency c. Broader access to
information d. Reduced errors
2 An ERP system is a software system that provides each of the following except a. collection,
processing, storage, and reporting of transactional data b. enhancement of e‐commerce and e‐business
c. coordination of multiple business processes d. physical controls for the prevention of inventory theft

3 Which of the following is not a feature of an ERP system’s database? a. Increased efficiency b.
Increased need for data storage within functional areas c. Increased customer service capability d.
Increased data sharing across functional areas

4 Manufacturing companies implement ERP systems for the primary purpose of a. increasing
productivity b. reducing inventory quantities c. sharing information d. reducing investments

5 What company developed the first true ERP systems? a. Microsoft b. PeopleSoft c. SAP d. IBM

6 In the late 1990s, the Y2K compatibility issue was concerned primarily with computer systems’ a. file
retrieval capability b. data storage c. human resource comparisons d. capital budgeting

7 The primary difference between ERP and ERP II systems is that ERP II may include a. Internet EDI b.
logistics modules c. reporting modules d. a data warehouse

8 Which of the following is not one of the reasons for increased spending on ERP systems in recent
years? a. The need for Sarbanes–Oxley compliance b. Globalization and increased competitive pressures
c. The need for earnings management d. The need for customer service enhancements

9 Supply chain management (SCM) is a critical business activity that connects a company more closely
with its a. customers b. suppliers c. subsidiaries d. customers and suppliers

10 The type of ERP system used by large, multinational corporations is known as a. big bang
implementation b. modular implementation c. tier one software d. tier two software

11 Which of the following ERP approaches accomplishes the ERP implementation beginning with one
department? a. The pilot method b. The modular implementation approach c. The big bang approach d.
The location‐wise implementation method

12 Which of the following statements best describes the risks of ERP systems? a. The risks of
implementing and operating ERP systems are nearly identical to the risks of implementing and operating
IT systems. b. The risks of operating and implementing ERP systems are greater than the risks of
implementing and operating IT systems, due to the scope, size, and complexity of ERP systems. c. The
risks of implementing ERP systems are greater than the risks of implementing IT systems, but the
operating risks are nearly identical. d. The risks of operating ERP systems are greater than the risks of
operating IT systems, but the implementation risks are nearly identical.

CHAPTER 9 AND 10

1 Within the purchasing processes, which of the following is the first document prepared and thereby
the one that triggers the remaining purchasing processes? a. The invoice b. The receiving report c. The
purchase order d. The purchase requisition

2 Personnel who work in the receiving area should complete all of the following processes except a.
counting the goods received b. inspecting goods received for damage c. preparing a receiving report d.
preparing an invoice
3 Which of the given departments will immediately adjust the vendor account for each purchase
transaction so that the company will know the correct amount owed to the vendor? a. Purchasing b.
Receiving c. Accounts payable d. Shipping

4 One of the most critical controls to prevent theft of inventory purchased is to a. require authorization
of the purchase requisition b. segregate inventory custody from inventory record keeping c. compare
the PO, receiving report, and invoice d. segregate the authorization of purchases from the inventory
record keeping

5 Internal control is strengthened by the use of a blind purchase order, upon which the quantity of
goods ordered is intentionally left blank. This blind copy is used in which department? a. The
department that initiated the purchase request b. The receiving department c. The purchasing
department d. The accounts payable department

6 Which of the following questions would most likely be included in an internal control questionnaire
concerning the completeness of purchase transactions? a. Is an authorized PO required before the
receiving department can accept a shipment or the accounts payable department can record a voucher?
b. Are prenumbered purchase requisitions used, and are they subsequently matched with vendor
invoices? c. Is there a regular reconciliation of the inventory records with the file of unpaid vouchers? d.
Are prenumbered POs, receiving reports, and vouchers used, and are the entire sequences accounted
for?

7 Which of the following controls is not normally performed in the accounts payable department? a. The
vendor’s invoice is matched with the related receiving report. b. Vendor invoices are selected for
payment. c. Asset and expense accounts to be recorded are assigned. d. Unused purchase orders and
receiving reports are accounted for.

8 In a system of proper internal controls, the same employee should not be allowed to a. sign checks
and cancel the supporting voucher package b. receive goods and prepare the related receiving report c.
prepare voucher packages and sign checks d. initiate purchase requisitions and inspect goods received

9 The document prepared when purchased items are returned is a(n) a. debit memo b. invoice c.
receiving report d. sales journal

10 Within cash disbursements, all of the following should be true before a check is prepared, except
that a. The PO, receiving report, and invoice have been matched b. The purchased goods have been
used c. Sufficient cash is available d. The invoice discount date or due date is imminent

11 A manager suspects that certain employees are ordering merchandise for themselves over the
Internet without recording the purchase or receipt of the merchandise. When vendors’ invoices arrive,
one of the employees approves the invoices for payment. After the invoices are paid, the employee
destroys the invoices and related vouchers. To trace whether this is actually happening, it would be best
to begin tracing from the a. cash disbursements b. approved vouchers c. receiving reports d. vendors’
invoices

12 Within accounts payable, to ensure that each voucher is submitted and paid only once, each invoice
approved to be paid should be a. supported by a receiving report b. stamped “paid” by the check signer
c. prenumbered and accounted for d. approved for authorized purchases
13 For proper segregation of duties in cash disbursements, the person who signs checks also a. reviews
the monthly bank reconciliation b. returns the checks to accounts payable c. is denied access to the
supporting documents d. is responsible for mailing the checks

14 Which of the following internal controls would help prevent overpayment to a vendor or duplicate
payment to a vendor? a. Review and cancellation of supporting documents after issuing payment b.
Requiring the check signer to mail the payment directly to the vendor c. Review of the accounts where
the expenditure transaction has been recorded d. Approving the purchase before the goods are ordered
from the vendor

15 Which of the following is not an independent verification related to cash disbursements? a. The cash
disbursements journal is reconciled to the general ledger. b. The stock of unused checks should be
adequately secured and controlled. c. The bank statement is reconciled on a monthly basis. d. The
accounts payable subsidiary ledger is reconciled to the general ledger.

16 Which of the following IT systems is designed to avoid the document matching process and is an
“invoiceless” system? a. Computer‐based matching system b. Electronic data interchange c. Evaluated
receipt settlement d. Microsoft Dynamics GP

17 Input controls such as field check, validity check, limit check, and reasonableness check are useful in
IT systems of purchasing processes to lessen which of the following risks? a. Unauthorized access b.
Invalid data entered by vendors c. Repudiation of purchase transactions d. Virus and worm attacks

18 Which of the following is most likely to be effective in deterring fraud by upper‐level managers? a.
Internal controls b. An enforced code of ethics c. Matching documents prior to payment d. Segregating
custody of inventory from inventory record keeping

CHAPTER 10

1 Which of the following statements about payroll and fixed asset processes is true? a. Both have only
routine processes. b. Both have only nonroutine processes. c. Both have routine and nonroutine
processes. d. Payroll has only routine processes, while fixed asset has only nonroutine processes.

2 For a given pay period, the complete listing of paychecks for the pay period is a a. payroll register b.
payroll ledger c. payroll journal d. paymaster

3 A payroll voucher a. authorizes an employee paycheck to be written b. authorizes the transfer of cash
from a main operating account to a payroll account c. authorizes the transfer of cash from a payroll
account to a main operating account d. authorizes the paymaster to distribute paychecks

4 For proper segregation of duties, the department that should authorize new employees for payroll
would be a. payroll b. human resources c. cash disbursement d. general ledger

5 Which of the following is not an independent check within payroll processes? a. Time sheets are
reconciled with production records. b. Time sheets are reconciled with the payroll register. c.
Paychecks are prepared on prenumbered checks. d. The payroll register is reconciled with the general
ledger.

6 An integrated IT system of payroll and human resources may have extra risks above those of a manual
system. Passwords and access logs are controls that should be used in these integrated systems to
lessen the risk of a. hardware failures b. erroneous data input c. payroll data that does not reconcile to
time cards d. unauthorized access to payroll data

7 Internal control problems would be likely to result if a company’s payroll department supervisor was
also responsible for a. reviewing authorization forms for new employees b. comparing the payroll
register with the batch transmittal data c. authorizing changes in employee pay rates d. hiring
subordinates to work in the payroll department

8 Which of the following procedures would be most useful in determining the effectiveness of a compa-
ny’s internal controls regarding the existence or occurrence of payroll transactions? a. Observe the
segregation of duties concerning personnel responsibilities and payroll disbursement. b. Inspect
evidence of accounting for prenumbered payroll checks. c. Recompute the payroll deductions for
employee fringe benefits. d. Verify the preparation of the monthly payroll account bank reconciliation.

9 In meeting the control objective of the safeguarding of assets, which departments should be
responsible for distribution of paychecks and custody of unclaimed paychecks, respectively?

Distribution of paychecks Custody of unclaimed paychecks

a.Treasurer Treasurer

b. Payroll Treasurer

c.Treasurer Payroll

d. Payroll Payroll

10 A company’s internal controls policies may mandate the distribution of paychecks by an independent
paymaster in order to determine that a. payroll deductions are properly authorized and computed b.
pay rates are properly authorized and separate from the operating function c. each employee’s
paycheck is supported by an approved time sheet d. employees included in the period’s payroll register
actually exist and are cur- rently employed

11 The purpose of segregating the duties of hiring personnel and distributing payroll checks is to
separate the a. authorization of transactions from the custody of related assets b. operational
responsibility from the record-keeping responsibility c. human resources function from the controller-
ship function d. administrative controls from the internal account- ing controls

12 Which of the following departments or positions most likely would approve changes in pay rates and
deductions from employee salaries? a. Human resources b. Treasurer c. Controller d. Payroll

13 The purchase of fixed assets is likely to require different authorization processes than the purchase of
inventory. Which of the following is not likely to be part of the authorization of fixed assets? a. Specific
authorization b. Inclusion in the capital budget c. An investment analysis or feasibility analysis of the
purchase d. Approval of the depreciation schedule

14 Which of the following is not a part of “adequate documents and records” for fixed assets? a. Fixed
asset journal b. Fixed asset subsidiary ledger c. Purchase order d. Fixed asset tags

15 Which of the following questions would be least likely to appear on an internal control questionnaire
regarding the initiation and execution of new property, plant, and equipment purchases? a. Are requests
for repairs approved by someone higher than the department initiating the request? b. Are
prenumbered purchase orders used and accounted for? c. Are purchase requisitions reviewed for
considera- tion of soliciting competitive bids? d. Is access to the assets restricted and monitored?

16 Which of the following reviews would be most likely to indicate that a company’s property, plant, and
equipment accounts are not understated? a. Review of the company’s repairs and maintenance expense
accounts b. Review of supporting documentation for recent equipment purchases c. Review and
recomputation of the company’s depreciation expense accounts d. Review of the company’s
miscellaneous rev- enue account.

17 Which of the following is not an advantage of fixed asset software systems when compared with
spreadsheets? a. Better ability to handle nonfinancial data such as asset location b. Easier to apply
different depreciation policies to different assets c. Manual processes to link to the general ledger d.
Expanded opportunities for customized reporting

18 The term “ghost employee” means that a. hours worked has been exaggerated by an employee b.
false sales have been claimed to boost commis- sion earned c. overtime hours have been inflated d.
someone who does not work for the company receives a paycheck