Instruction: This is a multiple-choice question.

Choose your answer and have it in the answer sheet provided at

the last part of the midterm examination. Please have this uploaded in the google drive of the class. For
the true or false statements, choose:

a. If both statements are true c. If Only Statement 1 is true

b. If both statements are false d. If Only Statement 2 is true

1. Statement 1 - Information is a business resource.

Statement 2 - IT outsourcing is location-independent computing.

2. Statement 1 - Transaction processing systems convert non-financial transactions into financial

transactions.
Statement 2 -Information lacking reliability may still have value.

3. Statement 1 - A balance sheet prepared in conformity with GAAP is an example of discretionary

reporting.
Statement 2 -The Management Reporting System provides the internal financial information
needed to manage a business.

4. Statement 1 - Most of the inputs to the General Ledger System come from the Financial Reporting
System.
Statement 2 -When preparing discretionary reports, organizations can choose what information to
report and how to present it.

5. Statement 1 - Retrieval is the task of permanently removing obsolete or redundant records from the
database.
Statement 2 -Systems development represents 80 to 90 percent of the total cost of a computer system.

6. Statement 1 - The database administrator is responsible for the security and integrity of the
database.
Statement 2 -Custom software is completely finished, tested, and ready for implementation.

7. Statement 1 - The internal auditor represents the interests of third-party outsiders.

Statement 2 -Information Technology (IT) audits can be performed by both internal and external
auditors.

8. Statement 1 - Custom software is the most affordable systems development option.

Statement 2 -A database is a collection of interconnected computers and communications devices that
allows users to communicate, access data and applications, and share information and resources.

9. Statement 1 - Systems maintenance consumes the majority of a system’s total costs.

Statement 2 -Cloud computing is a practice in which the organization sells its IT resources to a third-
party outsourcing vendor then leases back IT services from the vendor for a contract period.

10. Statement 1 - A potential benefit of cloud computing is that the client firm does not need to know where
its data are bring processed.
Statement 2 -One of the greatest disadvantages of database systems is that all data is always available to
all users.
11. Statement 1 - Under SOX legislation public accounting firms are no longer allowed to provide
consulting services to audit clients.
Statement 2 -One member of a company’s audit committee must be an independent CPA.

12. Statement 1 - Processing more transactions at a lower unit cost makes batch processing more
efficient than real-time systems.
Statement 2 -The process of acquiring raw materials is part of the conversion cycle.

13. Statement 1 - Directing work-in-process through its various stages of manufacturing is part of the
conversion cycle.
Statement 2 -The portion of the monthly bill from a credit card company is an example of a turn-
around document.

14. Statement 1 - The general journal is used to record recurring transactions that are similar in nature.
Statement 2 -Document flowcharts are used to represent systems at different levels of detail.

15. Statement 1 - Data flow diagrams represent the physical system.

. Statement 2 -System flowcharts are often used to depict processes that are handled in batches.

16. Statement 1 - Program flowcharts depict the type of media being used (paper, magnetic tape, or disks)
and terminals.
. Statement 2 -System flowcharts represent the input sources, programs, and output products of a
computer system.

17. Statement 1 - Program flowcharts are used to describe the logic represented in system flowcharts.
Statement 2 -Batch processing systems can store data on direct access storage devices.

18. Statement 1 - Selecting a specific record from a master file containing millions of records requires a
direct access file environment.
Statement 2 -The box symbol represents a temporary file.

19. Statement 1 - Auditors may prepare program flowcharts to verify the correctness of program logic.
Statement 2 -A control account is a general ledger account which is supported by a subsidiary
ledger.

20. Statement 1 - The most significant characteristic of direct access files is access speed.
Statement 2 -Real time processing is used for routine transactions in large numbers.

21. Statement 1 - Batch processing is best used when timely information is needed because this method
processes data efficiently.
Statement 2 -An inverted triangle with the letter “N” represents a file in “name” order.

22. Statement 1 - Real-time processing in systems that handle large volumes of transactions each day
can create operational inefficiencies.
Statement 2 -Operational inefficiencies occur because accounts unique to many concurrent transactions
need to be updated in real time.

23. Statement 1 - Operational inefficiencies occur because accounts common to many concurrent
transactions need to be updated in real time.
Statement 2 -Batch processing of non-critical accounts improves operational efficiency.
24. Statement 1 - Batch processing of accounts common to many concurrent transactions reduces operational
efficiency.
Statement 2 -The block code is the coding scheme most appropriate for a chart of accounts.

25. Statement 1 - Sequential codes may be used to represent complex items or events involving two or more
pieces of related data.
Statement 2 -Block codes restrict each class to a pre-specified range.

26. Statement 1 - For a given field size, a system that uses alphabetic codes can represent far more
situations than a system with that uses numeric codes.
Statement 2 -Mnemonic codes are appropriate for items in either an ascending or descending sequence,
such as the numbering of checks or source documents.

27. Statement 1 - The flat-file approach is most often associated with so-called legacy systems.
Statement 2 -In a flat-file system, files are easily shared by users.

28. Statement 1 - The ethical principle of justice asserts that the benefits of the decision should be
distributed fairly to those who share the risks.
Statement 2 -The ethical principle of informed consent suggests that the decision should be implemented
so as to minimize all of the risks and to avoid any unnecessary risks.

29. Statement 1 - Employees should be made aware of the firm’s commitment to ethics.
Statement 2 -Business ethics is the analysis of the nature and social impact of computer technology, and
the corresponding formulation and justification of policies for the ethical use of such technology.

30. Statement 1 - Para computer ethics is the exposure to stories and reports found in the popular media
regarding the good or bad ramifications of computer technology.
Statement 2 -Computer programs are intellectual property.

31. Statement 1 - Copyright laws and computer industry standards have been developed jointly and rarely
conflict.
Statement 2 -Business bankruptcy cases always involve fraudulent behavior.

32. Statement 1 - Defalcation is another word for financial fraud.

Statement 2 -According to the Association of Certified Fraud Examiners (ACFE) study, most frauds are
committed by employees in management positions.

33. Statement 1 - The external auditor is responsible for establishing and maintaining the internal control
system.
Statement 2 -Segregation of duties is an example of an internal control procedure.

34. Statement 1 - Of the three fraud factors (situational pressure, ethics, and opportunity), situational
pressure is the factor that actually facilitates the act.
Statement 2 -Preventive controls are passive techniques designed to reduce fraud.

35. Statement 1 - Ethical issues and legal issues are essentially the same.
Statement 2 -Internal control systems are recommended but not required of firms subject to the Sarbanes-
Oxley Act.

36. Statement 1 - Collusion among employees in the commission of a fraud is difficult to prevent but easy to
detect.
 Statement 2 -The Sarbanes-Oxley Act requires only that a firm keep good records.

37. Statement 1 - A key modifying assumption in internal control is that the internal control system is
the responsibility of management.
Statement 2 -Database management fraud includes altering, updating, and deleting an organization’s
data.

38. Statement 1 - While the Sarbanes-Oxley Act prohibits auditors from providing non-accounting
services to their audit clients, they are not prohibited from performing such services for non-audit
clients or privately held companies.
Statement 2 -The Sarbanes-Oxley Act requires the audit committee to hire and oversee the external
auditors.

39. Statement 1 - Section 404 requires that corporate management (including the CEO) certify their
organization’s internal controls on a quarterly and annual basis.
Statement 2 -Section 302 requires the management of public companies to assess and formally report on
the effectiveness of their organization’s internal controls.

40. Statement 1 - The objective of SAS 99 is to seamlessly blend the auditor’s consideration of fraud
into all phases of the audit process.
Statement 2 -The fraud triangle represents a geographic area in Southeast Asia where international fraud
is prevalent.

41. Statement 1 - Situational pressure includes personal or job-related stresses that could coerce an
individual to act dishonestly.
Statement 2 -Opportunity involves direct access to assets and/or access to information that controls
assets.

42. Statement 1 - Cash larceny involves stealing cash from an organization before it is recorded on the
organization’s books and records.
Statement 2 -Skimming involves stealing cash from an organization after it is recorded on the
organization’s books and records

43. Statement 1 - A check digit is a method of detecting data coding errors.

Statement 2 -Input controls are intended to detect errors in transaction data after processing.

44. Statement 1 - A run-to-run control is an example of an output control.

Statement 2 -Shredding computer printouts is an example of an output control.

45. Statement 1 - In a computerized environment, all input controls are implemented after data is input.
Statement 2 -Spooling is a form of processing control.

46. Statement 1 - An input control that tests time card records to verify than no employee has worked more
50 hours in a pay period is an example of a range test.
Statement 2 -Systems that use sequential master files employ a backup technique called destructive
update.

47. 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

48. An internal audit department’s independence is compromised when the department reports to:
a. the company controller
b. the audit committee of the board of directors
c. Both a. and b.
d. Neither a. nor b.

49. What factor conceptually distinguishes external auditing and internal auditing?
a. Tests of controls
b. Substantive tests
c. Education
d. Constituencies

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

a. relevance
b. precision
c. accuracy
d. completeness

The End!