CH6 QB Introduction to financial information

Question 1

Moreton plc produces monthly variance reports for all its production managers. These
show the extent and cause of all variances from the company’s production plans. The
reports enable managers to take corrective action during the following month. In terms of
financial information, these reports can be classified as:
A planning information
B operational information
C tactical information
D strategic information

Answer 1

C Tactical information (C) helps staff deal with short-term issues and opportunities.
Planning information specifically helps staff involved in the planning process (A).
Operational information (B) is concerned with day-to-day issues. Strategic information
(D) has longer-term concerns than both tactical and operational information.

Question 2

The area outside an information systems boundary is known as the:
A location
B setting
C context
D environment

Answer 2

D Systems sit within an environmental setting (D).

Question 3

The directors of Royguard plc have recently decided to establish an extensive management
information system within one of its subsidiaries. In arriving at this decision, the directors
were likely to have been conscious that the subsidiary’s operations were largely
characterised by:
A structured decisions
B unstructured decisions
C non-programmable decisions
D non-routine decisions

Answer 3

A Structured decisions can be reduced to a series of rules which, if followed, will lead to
the correct decision being made. This is what management information systems
specialise in.

Question 4

The information systems manager of Detrex plc wants all data input into the company’s
databases to be complete and accurate. As part of his information management role, he
makes use of range checks. The use of range checks should help to deliver:
A completeness only
B accuracy only
C both accuracy and completeness
D neither accuracy nor completeness

Answer 4

B A range check can give some assurance that a value is accurate (for example, months
in a date should be from 1 to 12). A range check can give no assurance that all
transactions have been accounted for.

Question 5

The manager of Hettie plc’s information systems wants all data input into the company’s
databases to be accurate and complete. As part of her information management role, she
makes use of control totals. The use of control totals should help to deliver:
A accuracy only
B completeness only
C both accuracy and completeness
D neither accuracy nor completeness

Answer 5

C A pre-established control total will reconcile if data is subsequently entered
inaccurately or not all data is entered. The control total, therefore, addresses both
completeness and accuracy.

Question 6

Ranger plc’s information systems manager wants all data on the company’s databases to be
the same as their sources and not to have been accidentally or deliberately altered,
destroyed or disclosed. His concern, therefore, is with:
A data accuracy
B data integrity
C data authenticity
D data completeness

Answer 6

B The manager’s comments are a definition of the ACIANA quality of data integrity. It is
achieved by preventing accidental or deliberate but unauthorised insertion,
modification or destruction of data in the database

Question 7

Zing plc’s information system automatically maintains a log of user activity. This log contains
details of identity, log-on and log-off times and details of processing carried out and access
attempts made. All transactions are tagged to identify the person responsible for that
processing. The log-on details of the user determine processing access.
Which three of the following control objectives does this system effectively address?
A Prevention
B Detection
C Deterrence
D Correction
E Accuracy
F Completeness

Answer 7

A, B, C
The log should help to prevent (A) unauthorised processing as processing privileges
are defined by the log-in details. Because any transaction can be traced to the
perpetrator, the log will aid detection (B) and deterrence (C). The log can do little
about correction, completeness or accuracy of what the user enters.

Question 8

Which of the following statements concerning management information systems and
transaction processing systems is correct?
A A management information system is likely to be the foundation of a transaction
processing system.
B Management information systems and transaction processing systems are usually
independent.
C Management information systems and transaction processing systems are synonymous.
D A transaction processing system is likely to be the foundation of a management
information system.

Answer 8

D A management information system concentrates on producing useful reports from
internal data. Much of the internal data will arise from transactions that have been
recorded by the transaction processing system.

Question 9

Which of the following characteristics relates to strategic information as opposed to
operational information?
A Often based on estimates
B Often very detailed
C Mostly very accurate
D Usually routine

Answer 9

A Strategic information is used by an organisation’s senior managers to plan its longterm future. Therefore, much use is made of estimates (A) about future sales, costs etc.
Because strategic planning is undertaken at a level removed from day-to-operations
the information is not likely to be very detailed (B). Characteristics C and D are
associated with operational information.

Question 10

Which three of the following are essential qualities of good information?
A Detailed
B Immediate
C Accurate
D Profuse
E User-targeted
F Complete

Answer 10

C,E,F
This is based on the ACCURATE model of good information. Information does not
need to be detailed (A); in fact, too much detail could detract from it by undermining
its ease of use. Nor does it have to be immediate (B) – it only needs to be available
when it is required (timely). Profuse (D) implies lots of information and this can obscure
the important information which could undermine both relevance and ease of use.

Question 11

A company correctly records and analyses all its sales transactions. At the end of each
month, a report is produced for the sales director listing details of every sales transaction:
customer, products, quantities and prices. Which of the following describes the quality of
the report’s data and information?
A Good quality of data, but poor quality of information
B Good quality of both data and information
C Poor quality of data, but good quality of information
D Poor quality of both data and information

Answer 11

A The data is both accurate and complete, so as data it must be classed as good data.
However, the report is completely inappropriate for the sales director – too much
detail, no aggregation, not particularly relevant – so it fails the ACCURATE
requirements of being easy to use, user-targeted, relevant or cost-beneficial.

Question 12

An information system that fails to collect information from its environment will be ignoring
information about which three of the following?
A Its transactions
B Its budgets
C Competitor action
D Legislation
E Its share price
F Its mission

Answer 12

C,D,E
All external information will be missed or ignored by this closed system. Therefore,
there will be no information about competitors, legislation or share price.

Question 13

Royston is the Information Systems Manager of Alnwick plc. He is constructing a system for
use by the company which includes both a ‘knowledge base’ and an ‘inference engine’.
What is Royston constructing?
A A transaction processing system
B A management information system
C An expert system
D A relational database

Answer 13

C These terms are part of an expert system. The knowledge base contains the expert’s
set of decision-making rules and the inference engine applies the rules to the given
circumstances.

Question 14

Arkwright Ltd analyses huge quantities of data about a wide variety of issues from a wide
variety of sources. Arkwright Ltd is seeking competitive advantage from:
A its transaction processing system
B big data
C cybersecurity
D its strategic planning process

Answer 14

B A company which uses big data for competitive advantage streams in huge quantities
from a variety of internal and external sources, and applies data analytics to obtain as
much value from the data as possible.

Question 15

The depreciation policies adopted by Plumtree Ltd have not changed for the past five
years. According to the IASB’s Conceptual Framework for Financial Reporting, this supports
the qualitative characteristic for its financial information of:
A understandability
B relevance
C timeliness
D comparability

Answer 15

D Comparability from one year to the next is helped by companies choosing a particular
accounting policy and remaining with it.

Question 16

The IASB’s Conceptual Framework for Financial Reporting states that financial information is
useful when it both influences the decisions of users of the information and:
A is produced in a timely fashion
B is complete and accurate
C establishes management accountability
D is produced in a cost-beneficial way

Answer 16

C In addition to helping users make decisions, the IASB’s Conceptual Framework for
Financial Reporting states that financial information, in general, is useful when it shows
the results of management’s stewardship of the resources entrusted to it, so that
managers are thereby accountable to shareholders.

Question 17

As a result of reading the financial statements of Tatra plc, Michaela decided to increase her
shareholding in the company. In terms of the IASB’s Conceptual Framework for Financial
Reporting, this confirms that the information in Tatra plc’s financial statements was:
A positive
B timely
C material
D relevant

Answer 17

D When financial information influences the decisions of users it is said to be relevant.

Question 18

Changes to Merrick Ltd’s transaction processing system can only be made by people who
are accountable for the changes. This contributes towards which one of the essential
qualities of a secure information system?
A Confidentiality
B Integrity
C Non-repudiation
D Authorisation

Answer 18

D Authorisation, in this context, is the fact that changes can only be made by accountable
individuals. It is one of the ACIANA qualities of a secure system.

Question 19

Each month the Business School at Newtown University receives financial performance data
for the previous month. Each month the senior managers of the Business School complain
that they cannot rely on this information as it contains errors. The information, therefore, is
often ignored by managers. In terms of the qualities of a secure information system, the
actions of the managers show that the system lacks the quality of:
A confidentiality
B availability
C non-repudiation
D authorisation

Answer 19

C Non-repudiation refers to the fact that information should not be open to being
rejected by its recipients on the grounds of faults in the information system. It is one of
the ACIANA qualities of a secure system.

Question 20

The chief executive of Table plc is not convinced about the usefulness of much of the
information in the company’s financial statements. He makes three statements about the
specific characteristics of the information that he believes may undermine its usefulness.
Statement (1) It lacks timeliness
Statement (2) A high level of regulation applies to it
Statement (3) It contains a high level of aggregation
Which of these statements identify characteristics that are likely to undermine the
information’s usefulness?
A Statements (1) and (2) only
B Statements (2) and (3) only
C Statements (1) and (3) only
D Statements (1), (2) and (3)

Answer 20

C Its lack of timeliness undermines usefulness.
The high level of regulation does not undermine usefulness.
The high level of aggregation it contains undermines usefulness.
By definition financial statements are produced some months after a company’s
financial year end so the information they contain is not timely; lack of timeliness
undermines relevance, even though figures may thereby be a more faithful
representation. The level of aggregation in the figures can obscure important details
and so undermine usefulness. The level of regulation, however, adds to faithful
representation and comparability, both of which add to rather than detract from their
usefulness.

Question 21

Which of the following issues are key in relation to information processing in a company's
accounting systems?
Issue 1 Completeness
Issue 2 Non-repudiation
Issue 3 Verifiability
A Issues 1 and 2 only
B Issues 2 and 3 only
C Issues 1 and 3 only
D Issues 1, 2 and 3

Answer 21

C To be effective, information processing should meet the CATIVA criteria –
completeness, accuracy, timeliness, inalterability, verifiability and assessability. Nonrepudiation is one of the ACIANA qualities of information systems security

Question 22

In relation to users of financial information, which of the following statements is true?
A External users evaluate the performance of a company’s management using
management accounting.
B Financial reporting provides information to managers and people outside the
company, such as investors.
C Management accounting provides information to managers and people outside the
company, such as investors.
D Financial reporting generates confidential information for internal decision makers
such as executives and management.

Answer 22

B External users do not have access to management accounting information (A) and (C).
Financial reporting does provide information to both managers and people outside
the company, such as investors (B) but it is not confidential (D).

Question 23

The IASB’s Conceptual Framework for Financial Reporting states that, to support the
effective working of capital markets for the benefit of businesses, financial statements must
have which two fundamental qualitative characteristics?
A Understandability
B Relevance
C Faithfulness of representation
D Comparability
E Timeliness
F Verifiability

Answer 23

B,C These are the fundamental qualitative characteristics. The enhancing qualitative
characteristics are understandability, comparability, verifiability and timeliness. If
financial statements demonstrate at least the fundamental characteristics then investors
will be able to rely on them in making their decisions; this reliance is enhanced if the
further characteristics are also displayed.

Question 24

Russell is an accountant working for Forsell plc. He has made the following points
concerning financial statements. Which of Russell’s points is true?
A Financial statements are used mainly by management
B Financial statements are used by parties internal to the business only
C Financial statements are used only by investors
D Financial statements are used by investors, payables (creditors) and management

Answer 24

D General purpose financial statements are used by investors, payables (creditors) and
management.

Question 25

The characteristic that determines whether information is both of good quality and valuable
is:
A accuracy
B accessibility
C timeliness
D relevance

Answer 25

D Good quality information must be accurate (A) and timely (C), and valuable information
must be accessible (B), but to be both good quality and valuable it must be relevant (D).
SAMPLE PAPER

Question 26

An information system combines data and analytical models to help with semi-structured
and unstructured problem solving of an operational nature. This is called:
A an expert support system
B a decision support system
C a knowledge work system
D an office automation system

Answer 26

B An information system which combines data and analytical models to help with semistructured and unstructured problem solving and decision making in an operational
context is a decision support system (B). An expert support system (A) is a
sophisticated database that pools data from internal and external sources and makes
information available to senior managers in an easy-to-use form so they can make
strategic, unstructured decisions. A knowledge work system (C) facilitates the creation
and integration of new knowledge into an organisation while an office automation
system (D) increases the productivity of data and information workers

Question 27

Compared with operations management, which of the following is a characteristic that is
unique to big data?
A Volume
B Variety
C Velocity
D Visibility

Answer 27

C Big data is typically streamed into the business at great speed or velocity (C). Big data
shares the characteristics of volume (A) and variety (B) with operations management;
visibility (D) is also a feature of operations management, not of big data.

Question 28

The ability to stream big data into an organisation's systems in real time is an example of
which feature of big data?
A Volume
B Veracity
C Velocity
D Variety

Answer 28

C Velocity concerns the speed of data and is therefore connected to the ability to stream
large amounts of data into an organisation’s systems in real time. If velocity was not
quick enough, the data would be subject to a time-lag. SAMPLE PAPER

Question 29

Which of the following features of big data concerns the fact that data sets contain
anomalies and errors?
A Veracity
B Variety
C Volume
D Velocity

Answer 29

A Veracity concerns the trustworthiness or accuracy of big data. All data sets have
inaccuracies, bias, anomalies and ‘noise’ in them and it is important that as much is
possible is done to clean up this ‘dirty data’ so that it can be relied upon

Question 30

Which three of the following are ways in which data analytics of big data can create value
for a business?
A Risk management
B Innovation
C Development of corporate mission
D Change management
E Performance improvement
F Creation of HR policies

Answer 30

A, B, E
Consultants McKinsey found that data analytics of big data can create value for a
business in relation to: transparency, performance improvement, market segmentation
and customisation, decision making, innovation and risk management.

Question 31

Rees Ltd uses data analytics to enhance transparency. Insights into which of the following
are provided for Rees Ltd by using data analytics in this way?
A Customer buying patterns
B Customer needs
C New products and services
D Risk identification

Answer 31

A In terms of transparency, data analytics creates insights into issues affecting the
business that may not have previously been fully understood, such as customer buying
patterns (A) or market price fluctuations.
The other options are insights provided by other uses of data analytics:
Customer needs (B) are in connection with market segmentation and customisation.
New products and services are in connection with innovation.
Risk identification is in connection with risk management. SAMPLE PAPER

Question 32

Which of the following is a disadvantage for a small business of using cloud accounting?
A It is expensive, difficult and time-consuming for the business to upgrade cloud
accounting software
B Only one person in the business can have access to the cloud accounting software at
any one time
C Accounting data has to be moved from computer to computer manually by the
business’s finance function employees
D The small business relies completely on the security and backup measures of the
provider of the cloud accounting software

Answer 32

D In cloud accounting, the accounting software is stored in the cloud and accessed by
the user through the internet. Security, including file backups, is provided by the
service provider. The other options are disadvantages of traditional accounting
software.

Question 33

Priya is investigating the use of cloud accounting for her employer, Withit plc. She has
discovered that accounting information stored in the cloud can be added to or accessed
from anywhere, using any device with an internet connection. She is making a
recommendation to her managers on the use of cloud accounting which contains the
following statements.
Statement (1) With the adoption of cloud accounting, Withit’s project managers at client
sites can check whether a payment has been received.
Statement (2) With the adoption of cloud accounting, accounts staff will have the ability
to work from home.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate

Answer 33

C The fact that the information can be accessed and added to from anywhere does open
up the opportunity for home working, and staff can access accounting information to
get quick answers to questions.

Question 34

Big Data analytics typically involves the analysis of unstructured data. Which of the following
is an example of unstructured data for a company that operates a chain of coffee shops?
A Spreadsheet analysis of the purchase of new chairs for store refurbishments
B Data tables showing monthly sales figures at each store
C A table of supplier names and addresses
D Email communications between a customer and the marketing department

Answer 34

D Structured data refers to any data that is contained within a field in a data record or file.
This includes data contained in databases and spreadsheets. Unstructured data is data
that is not easily contained within structured data fields, including the content of
pictures, videos, webpages, emails etc.

Question 35

Data science has great importance to big data and data analytics.
Statement (1) Data science deals with analysing and interpreting data rather than how it
is collected.
Statement (2) One objective of data science is to extract value from data.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate

Answer 35

D Data science deals with all aspects of data, including how it is collected and how value
can be extracted from it.

Question 36

Modern businesses may create digital assets and earn revenue by licensing other
organisations to use them.
Statement (1) Watermarks can be used to protect the security of digital assets.
Statement (2) Once a user has obtained a licence to use a digital asset they are free to
use or distribute the asset as they wish.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate

Answer 36

A The security of digital assets can be protected by encoding, encryption or watermarks.
If a user obtains a licence to use a digital asset then they can only use it in accordance
with the terms of the licence, because they do not own the asset itself. Licences usually
restrict users to use the asset themselves and must not distribute it to others.

Question 37

Finax plc is a credit referencing organisation. It collects data on the credit transactions of
millions of people and commercial organisations worldwide. Vertex Ltd has an arrangement
with Finax plc to access its store of big data so that it can make decisions on whether to
extend credit to new customers.
Which type of big data does Finax plc supply?
A Created big data
B Provoked big data
C Transacted big data
D Compiled big data

Answer 37

D Compiled big data is collected by a third party (such as Finax plc) and accessed by a
business (such as Vertex Ltd). SAMPLE PAPER

Question 38

There are several sources of big data available to business organisations.
Statement (1) Open data is data primarily sourced from public sector data, such as
transport data and government financial data.
Statement (2) Human-sourced data is primarily from social networks, emails and text
messages.
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate

Answer 38

C Open data refers to the release of large amounts of primarily public sector data, such
as geo-spatial data, transport data, government financial data and public service data.
Human-sourced data is from social networks, blogs, emails, text messages and internet
searches.

Question 39

A system that allows people who do not know each other to trust a shared record of events
is an example of which type of technology?
A Distributed ledger
B Cloud computing
C Internet of things
D Data analytics

Answer 39

A Distributed ledger technology allows people who do not know each other to trust a
shared record of events.

Question 40

Tech Ltd has invented a device that allows the temperature controller of the user’s home to
be adjusted automatically by an app on their smartphone, using data about the weather.
Of which of the following types of technology is this an example?
A Distributed ledger
B Cloud computing
C Internet of things
D Data analytics

Answer 40

C The internet of things is a system of interrelated computing devices, mechanical and
digital machines or objects with the ability to transfer data over a network without
requiring human-to-human or human-to-computer interaction. Tech Ltd has developed
a device that allows the transfer of data from a smartphone to a temperature controller
so this is an example of the internet of things. SAMPLE PAPER