AIS MIDTERM PREP (CHAP 2-3) Flashcards
1
Q
Subsystems of Expenditure Cycle
A
- Purchasing/ Accounts Payable
- Cash Disbursements
- Payroll
- Fixed Assets
2
Q
Subsystems of Conversion Cycle
A
- Production Planning and Control
- Cost Accounting
3
Q
Subsystems of Revenue Cycle
A
- Sales Order Pricing
- Cash Receipts
4
Q
The 2 Subsystems of each cycle - Expenditure Cycle
A
- Physical Component - acquisition of goods
- Financial Component - Cash disbursement to the supplier
Note: Time lag exist between the two,
(credit relation to supplier)
5
Q
The 2 Subsystems of each cycle - Conversion Cycle
A
- Production System - planning, scheduling, and control of the physical product through the manufacturing process
- Cost Accounting System - monitors the flow of cost information related to production
6
Q
The 2 Subsystems of each cycle - Revenue Cycle
A
- Physical Component - sales order processing
- Financial Component - cash receipts
7
Q
used to capture and formalize transaction data needed for transaction processing
A
Source Documents
8
Q
The result of transaction processing
A
Product Documents
9
Q
A product document of one system becomes the source document for another system
A
Turnaround Documents
10
Q
A record of chronological entry
A
Journals
11
Q
Specific classes of transaction that occur in high frequency
A
Special Journals
12
Q
Nonrecurring, infrequent, and dissimilar transactions
A
General Journal
13
Q
A book of financial accounts
A
Ledger
14
Q
shows activity for each account listed on the chart of accounts
A
general ledger
15
Q
shows activity by detail for each account type
A
subsidiary ledger
16
Q
What is Audit Trail in terms of tracing and vouching?
A
Tracing:
1. Source Documents
2. Journal
3. General Ledger
4. Financial Statements
Vouching:
1. Financial Statements
2. General Ledger
3. Journal
4. Source Documents
17
Q
What does tracing aims for?
A
Accuracy
18
Q
What does vouching aims for?
A
Evidence
19
Q
The two common techniques in Audit Trail
A
Sampling and confirmation
20
Q
True or False:
The audit trail is less observable in tradition manual systems than computer-based systems.
A
False.
Answer: less observable in computer-based systems than traditional manual systems.
21
Q
Enumeration: (Computer Files)
A
- Manual File
- Transaction File
- Reference File
- Archive File
22
Q
A documentation technique to represent the relationship between entities in a system.
A
Entity Relationship Diagram (ERD)
23
Q
Model Version of ERD that is widely used in AIS
A
REA
1. Resources - (cash, raw materials)
2. Events - (release of raw materials into production process)
3. Agents (inventory clerk, vendor, production worker)
24
Q
This represent the numerical mapping between entities
A
Cardinalities
1. One-to-one
2. One-to-many
3. Many-to-many
25
use symbols to represent the process, data sources, data flows, and entities in a system
Data Flow Diagrams (DFD)
26
Illustrate the relationship among processes and the documents that flow between them. Containing more details than data flow diagram
Documents Flowcharts
27
used to represent the relationship between key elements, input sources, programs and output products of computer systems
System Flowcharts
28
Illustrate the logic used in programs
Program Flowcharts
29
A group of similar transactions that are accumulated over time and then processed together.
Time lag exist between event and the processing.
Batch
30
Steps in Batch Processing/Sequential File
source documents are transcribed by a clerk to magnetic tape for processing later
Keystroke
31
Steps in Batch Processing/Sequential File
identifies clerical errors in the batch and places them into an error file
Edit Run
32
Steps in Batch Processing/Sequential File
places the transaction file in the same order as the master file using primary key
Sort Run
33
Steps in Batch Processing/Sequential File
changes the value of appropriate fields in the master file to reflect the transaction
Update Run
34
Steps in Batch Processing/Sequential File
the original master continues to exist and a new master file is created
Backup Procedure
35
True or False:
Organizations can increase efficiency by grouping large numbers of transactions into batches rather than processing each event separately.
True
36
True or False:
Batch processing provides control over the
transaction process via control figures.
True
37
have no time lag between the economic event
and the processing
Real-time systems
38
Characteristics of Real-time Data Processing
1. Processing takes place when the economic event occurs.
2. More resources are required than batch processing.
3. All records pertaining to the event are processed immediately.
39
Characteristics of Batch Data Processing
1. Lag exist
2. Generally, fewer resources are needed compared to real-time
3. Certain records are processed after the event to avoid operational delays.
40
2 broad classes of systems
1. Batch System
2. Real-time System
41
In business ethics, conflict may arise between?
1. employees
2. management
3. stakeholders
4. litigation
42
True or False:
Business ethics involves finding the answers to two questions:
Question 1: How do managers decide on what is right in conducting their business?
Question 2: Once managers have recognized what is right, how do they achieve it?
True.
Both questions (1 & 2) are correct
43
Ethical Issues in Business
1. Equity
2. Rights
3. Honesty
4. Exercise of Corporate Power
44
concerns the social impact of computer technology (hardware, software, and telecommunications).
Computer Ethics
45
Main Computer ethics issues
1. Privacy
2. Security - accuracy and confidentiality
3. Ownership of property
4. Environmental Issues
5. Artificial Intelligence
6. Unemployment and displacement
7. Misuse of Computer
46
false statement or disclosure
False Representation
47
A fact must be substantial in inducing someone to act
Material Fact
48
_____ to deceive must exist
(Intent) to deceive must exist
49
The misrepresentation must have resulted in _________ upon information, which caused someone to act
The misrepresentation must have resulted in (justifiable reliance) upon information, which caused someone to act
50
The misrepresentation must have caused
________
The misrepresentation must have caused
(injury or loss)
51
Fraud Triangle:
includes personal and job-related stresses that could cause cohere and individual or act of honesty. (Pressure and Oppourtunity)
Situational Pressure
52
Fraud Triangle:
involves direct access to the asset or information that controls the asset.
Opportunity
53
Fraud Triangle:
refers to the character of someone as well of the degree of moral opposition to act dishonesty.
Ethics
54
*Tanong ni Sir
"Enron includes the following except:"
Parts of Enron:
1. Lack of Auditor Independence
2. Lack of Director Independence
3. Questionable Executive Compensation Schemes
4. Inappropriate Accounting Principles
Note: Hindi kasama yung appropriate accounting principles.
55
PCAOB means?
Creation of Public Company Accounting Oversight Board
56
*committed by non-management personnel/employee.
*usually consist of an employee taking cash or other assets for personal gain by circumventing a company's system of financial records.
Employee Fraud
57
● Perpetrated at levels of management above the one to which internal control structure relates
● Frequently involves using financial statements to create an illusion that an entity is more healthy
and prosperous than it actually is
● Involves misappropriation of assets, it frequently is shrouded in a maze of complex business transactions
Management Fraud
58
Difference of Employee and Management Fraud
Employee Fraud - more on assets, physical assets misappropriation.
Management Fraud - more on intangibles such as management override of control especially in FS.
59
3 Categories of Fraud Schemes
A. Fraudulent Statements
B. Corruption
C. Asset Misappropriation
60
*Tanong ni sir "Except the following"
**Review each items
A. Fraudulent Statements
● Misstating the financial statements to make the copy appear better than it is
● Usually occurs as management fraud
● May be tied to focus on short-term financial measures for success
● May also be related to management bonus packages being tied to financial statements
61
*Tanong ni sir "Except the following"
**Review each items
B. Corruption
● Examples:
● bribery
● illegal gratuities
● conflicts of interest
● economic extortion
● Foreign Corrupt Practice Act of 1977:
● indicative of corruption in business world
● impacted accounting by requiring accurate
records and internal controls
62
*Tanong ni sir "Except the following"
**Review each items
C. Asset Misappropriation
● Most common type of fraud and often occurs as employee fraud
● Examples:
● making charges to expense accounts to cover theft of asset (especially cash)
● lapping: using customer’s check from one account to cover theft from a different account
● transaction fraud: deleting, altering, or adding false transactions to steal assets
63
Internal Control Objectives According to AICPA SAS
1. Safeguard assets of the firm
2. Ensure accuracy and reliability of accounting
records and information
3. Promote efficiency of the firm’s operations
4. Measure compliance with management’s
prescribed policies and procedures
64
The establishment and maintenance of a system of internal control is the responsibility of management.
Management Responsibility
65
The cost of achieving the objectives of internal control should not outweigh its benefits.
Reasonable Assurance
66
The techniques of achieving the objectives will vary with different types of technology.
Methods of Data Processing
67
Enumeration:
Limitations of Internal Controls
● Possibility of honest errors
● Circumvention via collusion
● Management override
● Changing conditions--especially in companies with high growth
68
Enumeration:
Exposures of Weak Internal Controls (Risk)
● Destruction of an asset
● Theft of an asset
● Corruption of information
● Disruption of the information system
69
The Internal Controls Shield
Undesirable Events:
1. Access
2. Fraud
3. Errors
4. Mischief
70
passive techniques designed to reduce the frequency of occurrence on undesirable events
Preventive Controls
71
2nd line of defense, this device, techniques and procedures which is design to identify and expose undesirable event that could elude preventive control
Example: paglalagay ng CCTV
Detective Control
72
True or False:
The weaker the internal control structure, the higher the assessed level of risk; the higher the risk, the more auditor procedures applied in the audit.
True
73
Five Internal Control
Components: SAS 78 / COSO
1. Control environment
2. Risk assessment
3. Information and communication
4. Monitoring
5. Control activities
74
This pertains to:
● Integrity and ethics of management
● Organizational structure
● Role of the board of directors and the audit
committee
● Management’s policies and philosophy
● Delegation of responsibility and authority
● Performance evaluation measures
● External influences—regulatory agencies
● Policies and practices managing human
resources
The Control Environment
75
This pertains to:
Identify, analyze and manage risks relevant to
financial reporting which includes:
● changes in external environment
● risky foreign markets
● significant and rapid growth that strain internal
controls
● new product lines
● restructuring, downsizing
● changes in accounting policies
Risk Assessment
76
This pertains to:
The AIS should produce high quality information which:
● identifies and records all valid transactions
● provides timely information in appropriate detail to permit proper classification and financial reporting
● accurately measures the financial value of transactions
● accurately records transactions in the time period in which they occurred
Information and Communication
77
This pertains to:
The process for assessing the quality of internal control design and operation
Accomplished by :
● Separate procedures—test of controls by internal auditors
● Ongoing monitoring:
● computer modules integrated into routine operations
● management reports which highlight trends and exceptions from normal performance
Monitoring
78
This pertains to:
Policies and procedures to ensure that the appropriate actions are taken in response to identified risks
● Fall into two distinct categories:
● IT controls—relate specifically to the computer environment
● Physical controls—primarily pertain to human activities
Control Activities
79
Two Types of IT Controls:
1. General controls -entity wide
computer environment
2. Application controls -ensure the integrity of
specific systems
80
● used to ensure that employees are carrying out only authorized transactions
● general (everyday procedures) or specific (nonroutine transactions) authorizations
● The rules are often embedded within computer programs.
● EDI/JIT: automated re-ordering of inventory
without human intervention
Transaction Authorization
81
● A computer program may perform many tasks that are
deemed incompatible.
● Thus the crucial need to separate program development,
program operations, and program maintenance.
● In manual systems, separation between:
● authorizing and processing a transaction
● custody and recordkeeping of the asset
● subtasks
● In computerized systems, separation between:
● program coding
● program processing
● program maintenance
Segregation of Duties
82
● a compensation for lack of segregation; some may be built into computer systems
● The ability to assess competent employees becomes more challenging due to the greater technical knowledge required.
Supervision
83
● provide an audit trail
● ledger accounts and sometimes source documents are kept magnetically
● no audit trail is readily apparent
Accounting Records
84
● help to safeguard assets by restricting physical access to them
● Data consolidation exposes the organization to computer fraud and excessive losses from disaster
Access Controls
85
● reviewing batch totals or reconciling subsidiary accounts with control accounts
● When tasks are performed by the computer rather than manually, the need for an independent check is not necessary.
● However, the programs themselves are checked.
Independent Verification
