AIS MOD 3

Question 1

Four main areas of business ethics

Answer 1

equity
rights
honesty
exercise of corporate power

Question 2

concerns the social impact of computer technology

Answer 2

computer ethics

Question 3

what are the three social impact of computer technology

Answer 3

hardware
software
telecommunications

Question 4

What are the main computer ethics issues?

Answer 4

● Privacy
● Security—accuracy and confidentiality
● Ownership of property
● Equity in access
● Environmental issues
● Artificial intelligence
● Unemployment and displacement
● Misuse of computer

Question 5

false statement or disclosure

Answer 5

false representation

Question 6

a fact must be substantial in inducing someone to act

Answer 6

material fact

Question 7

this must exist in order to be called a fraud

Answer 7

intent to deceive

Question 8

The misrepresentation must have resulted in _________ upon information, which caused someone to act

Answer 8

justifiable reliance

Question 9

fraud: the misrepresentation must have caused?

Answer 9

injury or loss

Question 10

Enron, WorldCom, Adelphia
Underlying Problems

Answer 10

-lack of auditor independence
-lack of director independence
-questionable executive compensation schemes
-inappropriate accounting practices

Question 11

Committed by non-management personnel

Answer 11

employee fraud

Question 12

employee fraud is committed by?

Answer 12

non-management personnel

Question 13

examples of employee fraud

Answer 13

an employee taking cash or other assets for personal gain by circumventing a company’s system of internal controls

Question 14

Perpetrated at levels of management above the one to which internal control structure relates

Answer 14

management fraud

Question 15

Frequently involves using financial statements to create an illusion that an entity is more healthy and prosperous than it actually is

Answer 15

management fraud

Question 16

Involves misappropriation of assets, it frequently is shrouded in a maze of complex business transactions

Answer 16

management fraud

Question 17

three categories of fraud schemes

Answer 17

A. fraudulent statements
B. corruption
C. asset misappropriation

Question 18

Misstating the financial statements to make the copy appear better than it is

Answer 18

fraudulent statements

Question 19

Usually occurs as management fraud

Answer 19

fraudulent statements

Question 20

May be tied to focus on short-term financial measures for success

Answer 20

fraudulent statements

Question 21

May also be related to management bonus packages being tied to financial statements

Answer 21

fraudulent statements

Question 22

examples of corruption

Answer 22

●bribery
●illegal gratuities
●conflicts of interest
●economic extortion

Question 23

●indicative of corruption in business world
●impacted accounting by requiring accurate records and internal controls

Answer 23

Foreign Corrupt Practice Act of 1977

Question 24

Most common type of fraud and often occurs as employee fraud

Answer 24

asset misappropriation

Question 25

asset misappropriation examples

Answer 25

●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

Question 26

internal control objectives

Answer 26

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

Question 27

Modifying Assumptions to the Internal Control Objectives

Answer 27

management responsibility
reasonable assurance
methods of data processing

Question 28

The establishment and maintenance of a system of internal control is the responsibility of management.

Answer 28

management responsibility

Question 29

The cost of achieving the objectives of internal control should not outweigh its benefits.

Answer 29

reasonable assurance

Question 30

The techniques of achieving the objectives will vary with different types of technology.

Answer 30

methods of data processing

Question 31

Limitations of Internal Controls

Answer 31

●Possibility of honest errors
●Circumvention via collusion
●Management override
●Changing conditions

Question 32

Exposures of Weak Internal Controls (Risk)

Answer 32

• destruction
• theft
• corruption
• disruption

Question 33

five internal control components SAS 78/COSO

Answer 33

1. Control environment
2. Risk assessment
3. Information and communication
4. Monitoring
5. Control activities

Question 34

●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

Answer 34

The control environment

Question 35

Identify, analyze and manage risks relevant to financial reporting

Answer 35

risk assessment

Question 36

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

Answer 36

information and communication

Question 37

The process for assessing the quality of internal control design and operation

Answer 37

monitoring

Question 38

test of controls by internal auditors

Answer 38

separate procedures

Question 39

Policies and procedures to ensure that the appropriate actions are taken in response to identified risks

Answer 39

control activities

Question 40

control activities two distinct categories

Answer 40

IT controls
physical controls

Question 41

relate specifically to the computer environment

Answer 41

IT controls

Question 42

primarily pertain to human activities

Answer 42

physical controls

Question 43

two types of IT controls

Answer 43

general controls
application controls

Question 44

pertain to the entitywide computer environment

Answer 44

general controls

Question 45

ensure the integrity of specific systems

Answer 45

application controls

Question 46

six types of physical controls

Answer 46

●Transaction Authorization
●Segregation of Duties
●Supervision
●Accounting Records
●Access Control
●Independent Verification

Question 47

used to ensure that employees are carrying out only authorized transactions

Answer 47

transaction authorization

Question 48

general (everyday procedures) or specific (non-routine transactions) authorizations

Answer 48

transaction authorization

Question 49

In manual systems, separation between:
●authorizing and processing a transaction
●custody and recordkeeping of the asset
●subtasks

Answer 49

segregation of duties

Question 50

In computerized systems, separation between:
●program coding
●program processing
●program maintenance

Answer 50

segregation of duties

Question 51

a compensation for lack of segregation; some may be built into computer systems

Answer 51

supervision

Question 52

provide an audit trail

Answer 52

accounting records

Question 53

help to safeguard assets by restricting physical access to them

Answer 53

access controls

Question 54

reviewing batch totals or reconciling subsidiary accounts with control accounts

Answer 54

independent verification

Question 55

automated re-ordering of inventory without human intervention

Answer 55

EDI/JIT

Question 56

A computer program may perform many tasks that are deemed incompatible.

Answer 56

segregation of duties

Question 57

Thus the crucial need to separate program development, program operations, and program maintenance.

Answer 57

segregation of duties

Question 58

The ability to assess competent employees becomes more challenging due to the greater technical knowledge required.

Answer 58

supervision

Question 59

ledger accounts and sometimes source documents are kept magnetically

Answer 59

accounting records

Question 60

no audit trail is readily apparent

Answer 60

accounting records

Question 61

Data consolidation exposes the organization to computer fraud and excessive losses from disaster.

Answer 61

access control

Question 62

●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.

Answer 62

independent verification