AIS test 1 questions
1. A Financial Transaction is...

an economic event that affects the assets and equities of the firm, is reflected in its accounts,
and is measured in monetary terms.

similar types of transactions are grouped together into three transaction cycles:

the expenditure cycle

the conversion cycle

the revenue cycle
Each Cycle has Two Primary Subsystems



Expenditure Cycle: time lag between the two due to credit relations with suppliers:

physical component (acquisition of goods)

financial component (cash disbursements to the supplier)
Conversion Cycle :

the production system (planning, scheduling, and control of the physical product
through the manufacturing process)

the cost accounting system (monitors the flow of cost information related to
production)
Revenue Cycle: time lag between the two due to credit relations with customers :

physical component (sales order processing)

financial component (cash receipts)
2. Manual System Accounting Records

Source Documents - used to capture and formalize transaction data needed for transaction
processing

Product Documents - the result of transaction processing

Turnaround Documents - a product document of one system that becomes a source document
for another system

Journals - a record of chronological entry


special journals - specific classes of transactions that occur in high frequency

general journal - nonrecurring, infrequent, and dissimilar transactions
Ledger - a book of financial accounts

general ledger - shows activity for each account listed on the chart of accounts

subsidiary ledger - shows activity by detail for each account type
3. Computer Files ( list 4 of them and explain 3)

Master File - generally contains account data (e.g., general ledger and subsidiary file)

Transaction File - a temporary file containing transactions since the last update

Reference File - contains relatively constant information used in processing (e.g., tax tables,
customer addresses)

Archive File - contains past transactions for reference purposes
4. Differentiate between batch and real time processing
5. Group Codes

Represent complex items or events involving two or more pieces of data using fields with
specific meaning
6. Business Ethics
Business ethics involves finding the answers to two questions:

How do managers decide on what is right in conducting their business?

Once managers have recognized what is right, how do they achieve it?
7. Legal Definition of Fraud

False representation - false statement or disclosure

Material fact - a fact must be substantial in inducing someone to act

Intent to deceive must exist

The misrepresentation must have resulted in justifiable reliance upon information, which
caused someone to act

The misrepresentation must have caused injury or loss
8. Sarbanes-Oxley Act of 2002 ( Study any 2)…Explain any 2 and give you opinion
Its principal reforms pertain to:

Creation of the Public Company Accounting Oversight Board (PCAOB)

Auditor independence—more separation between a firm’s attestation and non-auditing
activities

Corporate governance and responsibility—audit committee members must be
independent and the audit committee must oversee the external auditors

Disclosure requirements—increase issuer and management disclosure

New federal crimes for the destruction of or tampering with documents, securities
fraud, and actions against whistleblowers
9. Asset Misappropriation (give 2 examples for asset misappropriation)
Examples:
a. making charges to expense accounts to cover theft of asset (especially cash)
b. lapping: using customer’s check from one account to cover theft from a different
account
c. transaction fraud: deleting, altering, or adding false transactions to steal assets
10. Two Types of IT Controls

General controls—pertain to the entitywide computer environment


Examples: controls over the data center, organization databases, systems development,
and program maintenance
Application controls—ensure the integrity of specific systems

Examples: controls over sales order processing, accounts payable, and payroll
applications