Practice Multiple Choice from:
Test on Internal Control: Chapter 14
Note: There are
pages and 74 points on this exam.
Please scan the entire exam before you begin. This will allow you to start with the question with
which you feel the most comfortable. GOOD LUCK!!!!!!!!!!!!!!!!!!!!!!
PART 1: MULTIPLE CHOICE and short answer
74 points
1. Which of the following terms best describes the type of control evidenced by a segregation of
duties between computer operators and computer programmers?
a.
System development control
b.
Hardware control
c.
Applications control
d.
Organizational control
2. Your firm has recently converted its purchasing cycle from a manual process to an online
computer system. Which of the following is a probable result associated with conversion to the
new automatic system?
a.
Processing errors are increased
b.
The firm=s risk exposures are reduced
c.
Processing time is increased
d.
Traditional duties are less segregated
3. Within a computer processing activity, which control procedure typically leaves no visible or
machine-readable evidence that the procedure was performed?
a.
Proper segregation of functions
b.
Program changes for a computer application
c.
Approval of the program changes
d.
Computer-generated exception reports
4. Feedforward, feedback, and preventive control procedures are an important part of every
system. Feedback refers to a process of
a.
Communicating organizational plans
b.
Adjusting the system after the fact
c.
Adjusting a system during operation
d.
Adjusting a system according to prediction
5. Which of the following is the best program for the protection of a company=s vital information
resources from computer viruses?
a.
Stringent corporate hiring policies for staff working with computerized functions.
b.
Existence of a software program for virus prevention.
c.
Prudent management policies and procedures instituted in conjunction with
technological safeguards.
d.
Physical protection devices in use for hardware, software, and library facilities.
6. Program documentation is a control designed primarily to ensure that
a.
Programmers have access to the tape library or information on disk files
b.
Programs do not make mathematical errors
c.
Programs are kept up to date and perform as intended
d.
No one has made use of the computer hardware for personal reasons
7. Alex, Inc. is in the process of designing a new sales order processing system. The data
processing department has completed the process of design, programming, and debugging.
Before it is placed in operation, the computer processing department should test the program
using not only typical data but also
a.
Incorrect or incomplete data
b.
Live data
c.
Source data
d.
Debug data
8. Which one of the following control functions is not the responsibility of the input-output control
group of the data processing department?
a.
Review of the efficiency and effectiveness of systems design
b.
Scanning the console log
c.
Review and distribution of computer output and resolution of control totals
d.
Maintenance of an error log
9. When erroneous data are detected by computer program controls, such data may be excluded
from processing and printed on an error report. This error report should be reviewed and
followed up by the
a.
Supervisor of Computer Operations
b.
Systems analyst
c.
Application owner
d.
Computer programmer
10. The online data entry control called preformatting is:
a.
A program initiated prior to regular input to discover errors in data before entry so
that the errors can be corrected.
b.
A check to determine if all data items for a transaction have been entered by the
terminal operator.
c.
A series of requests for required input data that requires an acceptable
response to each request before a subsequent request is made.
d.
The display of a document with blanks for data items to be entered by the
terminal operator.
11. If, in reviewing an applications system, it is noted that batch controls are not used, which of
the following statements by the user of the system is acceptable as a compensating control?
a.
AThe supervisor must approve all inputs.@
b.
AWe do a 100% key verification of all data input.@
c.
AWe do a 100% physical review of the input document to the output
document.@
d.
AThe volume of transactions prohibits batching.@
12. An online bank teller system permitted withdrawals from inactive accounts. The best control
for denying such withdrawals is a
a.
Proof calculation
b.
Check digit verification
c.
Master file lookup
d.
Duplicate record check
13. A company=s labor distribution report requires extensive corrections each month because of
labor hours charged to inactive jobs. Which of the following data processing input controls
appears to be missing?
a.
Completeness test
b.
Valid code check
c.
Limit test
d.
Control total
14. Omen Company is a manufacturer of men=s shirts and distributes weekly sales reports to
each sales manager. The quantity 2R5 appeared in the quantity sold column for one of the items
on the weekly sales report for one of the sales managers. The most likely explanation for what
has occurred is that
a.
The output quantity has been stated in hexadecimal numbers
b.
The computer has malfunctioned during execution
c.
The printer has malfunctioned and the AR@ should have been a decimal point
d.
The program did not contain a data checking routine for input data
15. A customer inadvertently orders part number 1234-8 instead of 1243-8. Which of the
following controls would detect this error during processing?
a.
Hash total
b.
Check digit
c.
Limit check
d.
Financial batch total
16. Which of the following controls would prevent the following situation? A worker=s paycheck
was incorrectly processed as he had transposed letters in his department identification code,
having entered AABC@ an invalid code, instead of ACAB.@
a.
Control total
b.
Limit test
c.
Internal label check
d.
Table look up procedure
17. A review of an EDP system reveals the following items. Which of these is a potential internal
control weakness?
a.
Backup master files are stored in a remote location
b.
Users must verbally approve all changes to be made to application programs
c.
Computer operators have restricted access to system programs and data files
d.
Computer operators are required to take vacations
18. In obtaining an understanding of an entity=s internal control structure, an auditor is required
to obtain knowledge about the
a.
b.
c.
d.
Operating effectiveness
of policies and procedures
Yes
No
Yes
No
Design
of policies and procedures
Yes
Yes
No
No
19. An auditor=s primary consideration regarding an entity=s internal control structure policies
and procedures is whether the policies and procedures
a.
Affect the financial statement assertions
b.
Prevent management override
c.
Relate to the control environment
d.
Reflect management=s philosophy and operating style
20. When obtaining an understanding of an entity=s control environment, an auditor should
concentrate on the substance of management=s policies and procedures rather than their form
because
a.
The auditor may believe that the policies and procedures are inappropriate for
that particular entity.
b.
c.
d.
The board of directors may not be aware of management=s attitude toward the
control environment.
Management may establish appropriate procedures and policies but not act on
them.
The policies and procedures may be so weak that no reliance is contemplated
by the auditor.
Short answer:
21.
File Controls
10 points
Discuss at least 5 ways in which a company can secure its master and transaction files.
22. Which of the following is a general control that would most likely assist an entity whose
system analyst left the entity in the middle of a major project?
a.
Son-father-grandfather record retention
b.
Input and output validation routines
c.
Systems documentation
d.
Check digit verification
23. An on-line sales order processing system most likely would have an advantage over a batch
sales order processing system by
a.
Detecting errors in the data entry process more easily by the use of data entry
programs.
b.
Enabling shipment of customer orders to be initiated as soon as the orders are
received.
c.
Recording more secure backup copies of the database on magnetic tape files.
d.
Maintaining more accurate records of customer accounts and finished goods
inventories.
24. The basic form of backup used in magnetic tape operations is called
a.
An odd parity check
b.
Dual head processing
c.
File protection rings
d.
The son-father-grandfather concept
25. To provide for the greatest degree of independence in performing internal auditing functions,
an internal auditor most likely should report to the
a.
Financial vice president
b.
Corporate controller
c.
Board of directors
d.
Corporate stockholders
26. Which of the following sets of duties would ordinarily be considered basically incompatible in
terms of good internal control?
a.
Preparation of monthly statements to customers and maintenance of the
accounts receivable subsidiary ledger.
b.
Posting to the general ledger and approval of additions and terminations relating
c.
d.
to the payroll.
Custody of unmailed signed checks and maintenance of expense subsidiary
ledgers.
Collection of receipts on account and maintaining accounts receivable records.
27. Which of the following controls would be correctly classified as an application control?
a.
Honesty testing to hire only honest individuals.
b.
Organizationally separating the data processing functions from the accounting
functions.
c.
A manually prepared control total to verify that all transactions are correctly
processed through the system.
d.
Storing supplies in a locked room with only the supply clerk having a key to the
room.
28. Classifying controls by transaction stage classifies them according to:
a. Preventive, detective, corrective
b. Administrative and accounting
c. Environment, general, and application
d. Input, processing and output
True/False
(Please enter response on the scantron).
29. Redundancy is a fundamental concept in equipment controls.
30. The auditor should normally use test data to test for hardware controls since test data
requires the running of computer programs.
31. Check digits are most useful in checking the completeness of output directed to one printer.
32. A thorough study, evaluation, and testing of hardware controls is contemplated as part of
generally accepted auditing standards whenever EDP is a significant portion of the accounting
system.
33. Parity is a useful concept for magnetic tape, but is generally not used on magnetic disk
because of the higher cost and reliability of disk storage.
Solutions:
1. D
2. D
3. A
4. B
5. C
6. C
7. A
8. A
9.
10.
11.
12.
13.
14.
15.
16.
C
D
C
C
B
D
B
D
17.
18.
19.
20.
22.
23.
24.
25.
B
B
A
C
C
B
D
C
26. D
27. C
28. D
29. TRUE
30. FALSE
31. FALSE
32. FALSE
33. FALSE