Management Science MCQs

What is one reason why AIS threats are increasing?

LANs and client/server systems are easier to control than centralized, mainframe systems.
Many companies do not realize that data security is crucial to their survival.
Computer control problems are often overestimated and overly emphasized by management.
Many companies believe that protecting information is a strategic requirement.

Which of the following is not one of the risk responses identified in the COSO Enterprise Risk Management Framework?

Monitoring
Avoidance
Acceptance
Sharing

A control procedure designed so that the employee that records cash received from customers does not also have access to the cash itself is an example...

preventive control.
detective control.
corrective control.
authorization control.

At a movie theater box office, all tickets are sequentially prenumbered. At the end of each day, the beginning ticket number is subtracted from the en...

Some customers presented tickets purchased on a previous day when there wasnâ€™t a ticket taker at the theater entrance (so the tickets didnâ€™t get torn.)
A group of kids snuck into the theater through a back door when customers left after a show.
The box office cashier accidentally gives too much change to a customer.
The ticket taker admits his friends without tickets.

At a movie theater box office, all tickets are sequentially prenumbered. At the end of each day, the beginning ticket number is subtracted from the en...

Some customers presented tickets purchased on a previous day when there wasn't a ticket taker at the theater entrance (so the tickets didn't get torn.)
A group of kids snuck into the theater through a back door when customers left after a show.
The box office cashier accidentally gives too much change to a customer.
The ticket taker admits his friends without tickets.

Which of the following is an example of a preventive control?

approving customer credit prior to approving a sales order
reconciling the bank statement to the cash control account
counting inventory on hand and comparing counts to the perpetual inventory records
maintaining frequent backup records to prevent loss of data

Independent checks on performance include all the following except

data input validation checks.
reconciling hash totals.
preparing a trial balance report.
supervisor review of journal entries and supporting documentation.

A computer operator is allowed to work as a programmer on a new payroll software project. Does this create a potential internal control problem?

Yes, the computer operator could alter the payroll program to increase her salary.
Yes, this is a potential problem unless the computer operator is supervised by the payroll manager.
No, ideal segregation of duties is not usually possible, and operators are often the best at programming changes and updates.
No, as long as the computer operator separately accounts for hours worked in programming and in operations.

One of the objectives of the segregation of duties is to

make sure that different people handle different parts of the same transaction.
ensure that no collusion will occur.
make sure that different people handle different transactions.
achieve an optimal division of labor for efficient operations.

Pam is a receptionist for Dunderhead Paper Co., which has strict corporate policies on appropriate use of corporate resources. The first week of Augus...

Integrity and ethical values
Risk management philosophy
Restrict access to assets
Methods of assigning authority and responsibility

Which of the following statements is true?

Internal auditors, rather than external auditors, can conduct evaluations of effectiveness of Enterprise Risk Management processes.
Re-adding the total of a batch of invoices and comparing the total with the first total you calculated is an example of an independent check.
Requiring two signatures on checks over $20,000 is an example of segregation of duties.
Although forensic specialists utilize computers, only people can accurately identify fraud.

Of the following examples of fraud, which will be the most difficult to prevent and detect? Assume the company enforces adequate segregation of duties...

Jim issues credit cards to him and Marie, and when the credit card balances are just under $1,000, Marie writes off the accounts as bad debt. Jim then issues new cards.
An employee puts inventory behind the dumpster while unloading a vendor's delivery truck, then picks up the inventory later in the day and puts it in her car.
A mail room employee steals a check received from a customer and destroys the documentation.
The accounts receivable clerk does not record sales invoices for friends or family, so they can receive free goods.

According to The Sarbanes-Oxley Act of 2002, the audit committee of the board of directors is directly responsible for

hiring and firing the external auditors.
performing tests of the company's internal control structure.
certifying the accuracy of the company's financial reporting process.
overseeing day-to-day operations of the internal audit department.

Go-Go Corporation, a publicly traded company, has three brothers who serve as President, Vice President of Finance and CEO. This situation

increases the risk associated with an audit.
must be changed before your audit firm could accept the audit engagement.
is a violation of the Sarbanes-Oxley Act.
violates the Securities and Exchange Act.

Which of the following is a control related to design and use of documents and records?

Sequentially prenumbering sales invoices
Comparing physical inventory counts with perpetual inventory records
Reconciling the bank statement to the general ledger
Locking blank checks in a drawer or safe

Which of the following duties could be performed by the same individual without violating segregation of duties controls?

Approving accounting software change requests and testing production scheduling software changes
Programming new code for accounting software and testing accounting software upgrades
Approving software changes and implementing the upgraded software
Managing accounts payable function and revising code for accounting software to more efficiently process discount due dates on vendor invoices

With a limited work force and a desire to maintain strong internal control, which combination of duties would result in the lowest risk exposure?

Updating the inventory subsidiary ledgers and recording purchases in the purchases journal
Approving a sales return on a customer's account and depositing customers' checks in the bank
Updating the general ledger and working in the inventory warehouse
Entering payments to vendors in the cash disbursements journal and entering cash received from customers in the cash receipts journal

Which of the following is not a factor of internal environment according to the COSO Enterprise Risk Management Framework?

Analyzing past financial performance and reporting
Providing sufficient resources to knowledgeable employees to carry out duties
Disciplining employees for violations of expected behavior
Setting realistic targets for long-term performance

Which of the following suggests a weakness in a company's internal environment?

The audit committee regularly meets with the external auditors.
The Board of Directors is primarily independent directors.
The company has an up-to-date organizational chart.
Formal employee performance evaluations are prepared every three years.

Which of the following statements about internal environment is false?

Managementâ€™s attitudes toward internal control and ethical behavior have only minimal impact on employee beliefs or actions.
Supervision is especially important in organizations that cannot afford elaborate responsibility reporting or are too small to have adequate segregation of duties.
An overly complex or unclear organizational structure may be indicative of more serious problems.
A written policy and procedures manual is an important tool for assigning authority and responsibility.

Which of the following is not a reason for the increase in security problems for AIS?

Confidentiality issues caused by interlinked inter-company networks
Difficult to control distributed computing networks
Increasing efficiency resulting from more automation
Increasing numbers of information systems and users

One reason why many organizations do not adequately protect their systems is because

control problems may be overestimated by many companies.
productivity and cost cutting cause management to forgo implementing and maintaining internal controls.
control technology has not yet been developed.
all of the above

Accountants must try to protect the AIS from threats. Which of the following would be a measure that should be taken?

Take a proactive approach to eliminate threats.
Detect threats that do occur.
Correct and recover from threats that do occur.
All of the above are proper measures for the accountant to take.

The process that a business uses to safeguard assets, provide accurate and reliable information, and promote and improve operational efficiency is kno...

a phenomenon.
internal control.
an AIS threat.
a preventive control.

Safeguarding assets is one of the control objectives of internal control. Which of the following is not one of the other control objectives?

providing accurate and reliable information
promoting operational efficiency
ensuring that no fraud has occurred
encouraging adherence to management policies

Internal control is often referred to as a(n) ________, because it permeates an organization's operating activities and is an integral part of ma...

event
activity
process
system

Which of the following is accomplished by corrective controls?

Identify the cause of the problem.
Correct the resulting errors.
Modify the system to prevent future occurrences of the problem.
All of the above are accomplished by corrective controls.

Duplicate checking of calculations is an example of a control, and procedures to resubmit rejected transactions is an example of a c...

corrective; detective
detective; corrective
preventive; corrective
detective; preventive

What is not a corrective control procedure?

Identify the cause of a problem.
Deter problems before they arise.
Correct resulting errors or difficulties.
Modify the system so that future problems are minimized or eliminated.

________ controls are designed to make sure an organization's control environment is stable and well managed.

Application
Detective
General
Preventive

________ controls prevent, detect and correct transaction errors and fraud.

Application
Detective
General
Preventive

The primary purpose of the Foreign Corrupt Practices Act of 1977 was

to require corporations to maintain a good system of internal control.
to prevent the bribery of foreign officials by American companies.
to require the reporting of any material fraud by a business.
All of the above are required by the act.

Congress passed this federal law for the purpose of preventing financial statement fraud, to make financial reports more transparent and to strengthen...

Foreign Corrupt Practices Act of 1977
The Securities Exchange Act of 1934
The Sarbanes-Oxley Act of 2002
The Control Provision of 1998

Which of the following is not one of the important aspects of the Sarbanes-Oxley Act?

The creation of the Public Company Accounting Oversight Board
New rules for auditors and management
New roles for audit committees
New rules for information systems development

A(n) ________ helps employees act ethically by setting limits beyond which an employee must not pass.

boundary system
diagnostic control system
interactive control system
internal control system

A(n) ________ measures company progress by comparing actual performance to planned performance.

boundary system
diagnostic control system
interactive control system
internal control system

A(n) ________ helps top-level managers with high-level activities that demand frequent and regular attention.

boundary system
diagnostic control system
interactive control system
internal control system

This control framework addresses the issue of control from three vantage points: business objectives, information technology resources, and informatio...

ISACAâ€™s control objectives for information and related technology
COSO's internal control framework
COSO's enterprise risk management framework
none of the above

This control framework's intent includes helping the organization to provide reasonable assurance that objectives are achieved and problems are m...

ISACA's control objectives for information and related technology
COSO's internal control framework
COSOâ€™s enterprise risk management framework
none of the above

The COSO Enterprise Risk Management Framework includes eight components. Which of the following is not one of them?

control environment
risk assessment
compliance with federal, state, or local laws
monitoring

Which of the following is not one of the eight interrelated risk and control components of COSO Enterprise Risk Management Framework?

Internal environment
Monitoring
Risk response
Event assessment

The COSO Enterprise Risk Management Integrated Framework stresses that

risk management activities are an inherent part of all business operations and should be considered during strategy setting.
effective risk management is comprised of just three interrelated components; internal environment, risk assessment, and control activities.
risk management is the sole responsibility of top management.
risk management policies, if enforced, guarantee achievement of corporate objectives.

Which of the following would be considered a "red flag" for problems with management operating style if the question were answered "yes"?

Does management take undue business risks to achieve its objectives?
Does management attempt to manipulate performance measures such as net income?
Does management pressure employees to achieve results regardless of the methods?
All of the above statements would raise "red flags" if answered "yes."

Which component of the COSO Enterprise Risk Management Integrated Framework is concerned with understanding how transactions are initiated, data are c...

Information and communication
Internal environment
Event identification
Objective setting

The COSO Enterprise Risk Management Integrated Framework identifies four objectives necessary to achieve corporate goals. Objectives specifically iden...

implementation of newest technologies.
compliance with laws and regulations.
effective and efficient operations.
reliable reporting.

The audit committee of the board of directors

is usually chaired by the CFO.
conducts testing of controls on behalf of the external auditors.
provides a check and balance on management.
does all of the above.

The audit committee is responsible for

overseeing the internal control structure.
overseeing the financial reporting process.
working with the internal and external auditors.
All of the above are responsibilities.

The definition of the lines of authority and responsibility and the overall framework for planning, directing, and controlling is laid out by the

control activities
organizational structure
budget framework
internal environment

Reducing management layers, creating self-directed work teams, and emphasizing continuous improvement are all related to which aspect of internal envi...

Organizational structure
Methods of assigning authority and responsibility
Management philosophy and operating style
Commitment to competence

Personnel policies such as background checks, mandatory vacations, and rotation of duties tend to deter

unintentional errors.
employee fraud or embezzlement.
fraud by outsiders.
disgruntled employees.

The SEC and FASB are best described as external influences that directly affect an organization's

hiring practices.
philosophy and operating style.
internal environment.
methods of assigning authority.

Which attribute below is not an aspect of the COSO ERM Framework internal environment?

Enforcing a written code of conduct
Holding employees accountable for achieving objectives
Restricting access to assets
Avoiding unrealistic expectations

The amount of risk a company is willing to accept in order to achieve its goals and objectives is

Inherent risk
Residual risk
Risk appetite
Risk assessment

The risk that remains after management implements internal controls is

Inherent risk
Residual risk
Risk appetite
Risk assessment

The risk that exists before management takes any steps to control the likelihood or impact of a risk is

Inherent risk
Residual risk
Risk appetite
Risk assessment

When undertaking risk assessment, the expected loss is calculated like this.

Impact times expected loss
Impact times likelihood
Inherent risk times likelihood
Residual risk times likelihood

Generally in a risk assessment process, the first step is to

identify the threats that the company currently faces.
estimate the risk probability of negative events occurring.
estimate the exposure from negative events.
identify controls to reduce all risk to zero.

Store policy that allows retail clerks to process sales returns for $300 or less, with a receipt dated within the past 60 days, is an example of

general authorization.
specific authorization.
special authorization.
generic authorization.

Corporate policy that requires a purchasing agent and purchasing department manager to sign off on asset purchases over $1,500 is an example of

general authorization.
specific authorization.
special authorization.
generic authorization.

A document that shows all projects that must be completed and the related IT needs in order to achieve long-range company goals is known as a

performance evaluation.
project development plan.
data processing schedule.
strategic master plan.

A ________ is created to guide and oversee systems development and acquisition.

performance evaluation
project development plan
steering committee
strategic master plan

A ________ shows how a project will be completed, including tasks and who will perform them as well as a timeline and cost estimates.

performance evaluation
project development plan
steering committee
strategic master plan

Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Folding Squid Technologies

asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process.
hired the manager from the external audit team as company CFO twelve months after the manager had worked on the audit.
selected the company's Chief Financial Officer to chair the audit committee.
did not mention to auditors that the company had experienced significant losses due to fraud during the past year.

The Sarbanes-Oxley Act (SOX) applies to

all companies with gross annual revenues exceeding $500 million.
publicly held companies with gross annual revenues exceeding $500 million.
all private and publicly held companies incorporated in the United States.
all publicly held companies.

Chuck Hewitt was relaxing after work with a colleague at a local watering hole. Well into his second martini, he began expressing his opinions about h...

boundary system.
belief system.
interactive control system.
diagnostic control system.

Chuck Hewitt was relaxing after work with a colleague at a local watering hole. Well into his second martini, he began expressing his opinions about h...

boundary system.
belief system.
interactive control system.
diagnostic control system.

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that ther...

$50,000
$650,000
$650
$50

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that ther...

$50,000
$650,000
$650
$50

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that ther...

$50,000
$650,000
$650
$50

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that ther...

$500
$650
$600
$50

Due to data errors occurring from time to time in processing the Albert Company's payroll, the company's management is considering the addit...

The data validation control procedure should be implemented because its net estimated benefit is $510.
The data validation control procedure should be implemented because its cost of $700 is less than the payroll reprocessing cost of $1,430.
The data validation control procedure should not be implemented because its cost of $700 exceeds the expected benefit by $480.
The data validation control procedure should not be implemented because its net estimated benefit is a negative $1,210.

The organization chart for Geerts Corporation includes a controller and an information processing manager, both of whom report to the vice president o...

Assigning the programming and operating of the computer system to an independent control group which reports to the controller
Providing for maintenance of input data controls by an independent control group which reports to the controller
Periodically rotating assignment of application processing among machine operators, who all report to the information processing manager
Providing for review and distribution of system-generated reports by an independent control group which reports to the controller

Global Economic Strategies, L.L.D., has been diligent in ensuring that their operations meet modern control standards. Recently, they have extended th...

COSO-Integrated Framework; COBIT
COBIT; COSO-Integrated Framework
COBIT; COSO-ERM
COSO-Integrated Framework; COSO-ERM

FranticHouse Partners, L.L.C., does home remodeling and repair. All employees are bonded, so the firm's risk exposure to employee fraud is

reduced
shared
avoided
accepted

FranticHouse Partners, L.L.C., does home remodeling and repair. The firm does not accept jobs that require the installation of slate or copper roofing...

reduced
shared
avoided
accepted.

According to the COSO Enterprise Risk Management Framework, the risk assessment process incorporates all of the following components except

reporting potential risks to auditors.
identifying events that could impact the enterprise.
evaluating the impact of potential events on achievement of objectives.
establishing objectives for the enterprise.

Ferdinand Waldo Demara was known as the great imposter. He had an astounding ability to convince people that he was who he truly was not. He worked as...

reduce
share
avoid
accept

Which of the following is an independent check on performance?

The Purchasing Agent physically reviews the contents of shipments and compares them with the purchase orders he has placed.
Production teams perform quality evaluations of the products that they produce.
The General Manager compares budgeted amounts with expenditure records from all departments.
Petty cash is disbursed by Fred Haynes. He also maintains records of disbursements, places requests to finance to replace expended funds, and periodically reconciles the petty cash balance.

Petty cash is disbursed by the Fred Haynes in the Cashier's Office. He also maintains records of disbursements, places requests to the Finance De...

effective
ideal
ineffective
limited

Hiring decisions at Frazier's Razors are made by Sheila Frazier, the Director of Human Resources. Pay rates are approved by the Vice President fo...

effective
partial
ineffective
limited

Change management refers to

disbursement controls on petty cash.
operational controls applied to companies after mergers or acquisitions.
replacement of upper management and their introduction to the organization.
controls designed to ensure that updates in information technology do not have negative consequences.

The Director of Information Technology for the city of Bumpkiss, Minnesota, formed a company to sell computer supplies and software. All purchases mad...

custody; authorization
custody; recording
recording; authorization
management; custody

According to the ERM, these help the company address all applicable laws and regulations.

Compliance objectives
Operations objectives
Reporting objectives
Strategic objectives

According to the ERM, high level goals that are aligned with and support the company's mission are

compliance objectives.
operations objectives.
reporting objectives.
strategic objectives.

According to the ERM, these deal with the effectiveness and efficiency of company operations, such as performance and profitability goals.

Compliance objectives
Operations objectives
Reporting objectives
Strategic objectives

According to the ERM, these objectives help ensure the accuracy, completeness and reliability of internal and external company reports.

Compliance objectives
Operations objectives
Reporting objectives
Strategic objectives

Which of the following is not a risk reduction element of a disaster recovery plan?

Identification of alternate work site
Off-site storage of backup files and programs
Documentation of procedures and responsibilities
Adequate casualty insurance

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Management Science MCQs