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ACC 200 Accounting Information Systems

Sem 3, September 2016


Tutorial Questions
Topic 1
MCQ
1) The primary objective of accounting is to
A) implement strong internal controls.
B) provide useful information to decision makers.
C) prepare financial statements.
D) ensure the profitability of an organization.
Answer: B
2) An accounting information system (AIS) processes ________ to provide users with
________.
A) data; information
B) data; transactions
C) information; data
D) data; benefits
Answer A
3) An accounting information system must be able to perform which of the following tasks?
A) collect transaction data
B) process transaction data
C) provide adequate controls
D) all of the above
Answer: D
4) A good example of how an AIS is used to share knowledge within an organization is
A) the use of a corporate database to help staff identify the relevant experts who can help with
a particular client.
B) the use of laptop computers to access a network for messaging worldwide.
C) the monitoring of production equipment to watch for defects.
D) the use of point-of-sale data to determine hot-selling items.
Answer: A
5) A well-designed AIS can improve the decision-making function within the organization.
Which statement below would describe a limitation, rather than a benefit, of an efficient AIS?
A) An AIS reduces uncertainty, and therefore accounting information can provide a basis for
choosing among alternative courses of action.
B) An AIS identifies situations requiring management action.
C) An AIS provides to its users an abundance of information without any filtering or
condensing of such information.
D) An AIS provides information about the results of previous decisions which provides
decision makers with feedback that can be used in future decision making.
Answer: C

6) Inventory information is provided in real time by a firm's accounting information system.


The accuracy of this information is questionable, however, since the production manager often
reports stock outs of components that the system indicates are in stock. Which of the following
characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Timely
D) Understandable
Answer: B
7) What does ERP stand for?
A. Enterprise Resource Planning
B. Enterprise Resource Package
C. Electronic Resource Planning
D. Resource Package
Answer: A
8) Which of the following statements is NOT a major reason of why accountants of the twentyfirst century must be comfortable with information systems concepts?
A. Computer systems are playing an increasing part in the management and functioning of the
organisation
B. Accountants are increasingly exposed to and working with technology and information
systems
C. Accountants need to know how computers manage knowledge and its data resources.
D. Accountants need to lead and oversee the design of an accounting information system.
Answer; D
9) An accounting information system can best be defined as:
A. The application of technology to the capturing, storing, sorting and reporting of data.
B. The application of technology to the capturing, storing, sorting and reporting of
information.
C. The application of technology to the capturing, verifying, storing, sorting and reporting of
information relating to an organisations activities.
D. The application of technology to the capturing, verifying, storing, sorting and reporting of
data relating to an organisations activities..
Answer D
10)An accounting information system is unlikely to help a firm to:
A. determine whether to approve a credit sale
B. decide how much to purchase from suppliers
C. determine the provision for bad debts
D. eliminate financial fraud
Answer D

Discussion Questions & Problems


DQ1.1 Describe some inputs, processes and outputs of an accounting information system.
(LO1, LO2, LO3)
Inputs: Sales order (record purchase requests from customers), purchase data (data about
purchases initiated with our vendors), Receiving data (data about arriving goods), shipping data
(data about goods sent to customers), invoices (received from vendors)
Processes: Check data is valid, sort data, manipulate data, posting
Outputs: Invoice (sent to customer), cheque (sent to vendor), profit and loss report, accounts
receivable report
DQ1.2 What is the difference between data and information? (LO2)
Data are the raw facts relating to or describing an event. For example, data relating to a sale
could include the customers name, address, salesperson ID, the sale number, sale date, items
purchased, quantity purchased and so on. On its own this data is not all that useful. However,
through the application of rules and knowledge the data can be made meaningful, thus
converting it to information. For example, the collection of data relating to sales may be
summarised into sales by customer or sales by product, to provide information about high
spending customers or slow moving products.
DQ1.5 Compare the role of the accountant today to his or her role before the introduction
of computer technology. How have the responsibilities and duties changed over
time? (LO4)
The discussion of this question can be tied into the discussion in question 1.4. What becomes
evident from the historical discussion of the evolution of the accounting and information
systems function is that the accountant has gone from being responsible for both the accounting
function and the information management function associated with accounting to just being
responsible for the accounting function. The technically qualified personnel, who do not
necessarily have accounting skills, have become responsible for the information storage
function associated with accounting. In a sense, the responsibilities of the accountant have
been reduced, since they have lost direct control of the information storage function associated
with the accounting discipline. Some may also argue that this shift has created a greater need
for accountants to be trained not just in the technical skills of accounting but also in skills of
information management, for example information systems

P1.3

The chapter discussed the idea of a system and its components. Construct a table
listing the objective, inputs, processes, outputs and the external environment that
affects the operation of each of the following systems:
(a) University enrolment system
(b) Public transport ticketing system

(c) Citilink road tolling system


(d) Myercard charge card system

SYSTEM
(a)

(b)
http://www.metlinkmelbourne.com
.au/metcard/
(c)
http://corporate.transurban.com.au/
Transurban/tunav.nsf/Home+Page/
Transurban~splash?open

(d)
http://www.myer.com.au/services/c
mcard.asp

OBJECTIVE

INPUT

PROCESS

OUTPUT

EXTERNAL

To enrol students
into the university
and
manage
enrolment
information during
the duration of
study
To
administer
tickets to public
transport users and
record usage of
public transport
To track usage of
tolled roads and
manage
revenue
associated
with
road usage (around
650,000
transactions
per
day)
To
provide
customers with an
instore
credit
purchase option

Student
Details
Subject Details

Confirm
eligibility to
enroll
Confirm
payment
options
Store data
Confirm valid
ticket options
Generate ticket
Validate ticket

Enrolment
receipt
Timetable

Government
regulations
regarding
enrolment details
HECS
requirements
Privacy Act
Government
regulations fee
schedules
Privacy Act

Confirm valid
car
Calculate toll,
based on start
and end points
Update
customer
accounts
Check credit
limit
Update
amount owing
balance
Capture
purchase

Customer
usage
statement
Fines for unauthorised
use

Government
regulations
Privacy Act

Invoice
/
statement to
customer
Accounts
Receivable
reports

Credit
regulations
Privacy Act

Ticket options
Validated
ticket
(for
retravel on an
existing ticket)
Car
user
details
Location
details (start
point,
end
point)

Customer
details
Purchase
details

Approved
ticket
Validation
confirmation

Topic 2
1) An example of a strategic level decision would be:
A) Determining the quantity of raw materials to purchase
B) Appointing a new line manager responsible for running the delivery department
C) Reconfiguring the production line design to eliminate wasted time due to bottlenecks
D) Deciding whether or not to acquire the remaining shares of a partially owned subsidiary
Answer: D
2) There are two perspectives of organisational design:
A) Logical and physical
B) Internal and external
C) Functional and business process
D) Scientific and practical
Answer: C
3) An emphasis on business processes is different to a functional perspective of the
organisation because a business process emphasis:
A) Offers highly defined tasks and responsibilities.
B) Gives employees the freedom to do what they want in order to please the customer.
C) Acknowledges cross-functional communication and action is essential to the customers
needs.
D) Views the customer needs as secondary to those of the functional divisions.
Answer C
4) A sales person is processing a credit sale. As per company policy, the sales person should
conduct the credit check and forward the result to a supervisor, who would then make a
decision on the creditworthiness of the applicant and send this back to the sales person.
This scenario is more likely to happen in:
A) Functionally based organisation
B) Business process based organisation
C) Both functionally based organisation and business process based organisation
D) Neither functionally based organisation nor business process based organisation
Answer A
5) Many modern accounting software packages offer separate transaction cycle modules.
What is the reason for this?
A) Every organization does not need to implement all of the available transaction cycle
modules.
B) Most businesses do not need the revenue cycle module as part of their AIS.
C) The nature of a given transaction cycle is the same irrespective of the type of organization.
D) A properly designed AIS does not use the concept of separate business transaction cycles to
process transactions.
Answer: A
6) Which of the following is not a transaction cycle?
A) revenue
B) expenditure
C) human resources
D) general ledger and reporting
Answer: D

7) Which of the following statements is false?


A) Retail stores do not have a production cycle.
B) Financial institutions have installment-loan cycles.
C) A service company does not have an inventory system.
D) Every organization should implement every transaction cycle module.
Answer: D
8) Transaction cycles can be summarized on a high level as "give-get" transactions. An
example of "give-get" in the revenue cycle would be
A) give cash, get goods.
B) give goods, get cash.
C) give cash, get labor.
D) give cash, get cash.
Answer: B
9) Which of the following is a primary activity in the value chain?
A) infrastructure
B) technology
C) purchasing
D) marketing and sales
Answer: D
10) The transaction cycle that includes the events of hiring employees and paying them is
known as the
A) revenue cycle.
B) expenditure cycle.
C) human resources cycle.
D) financing cycle.
Answer: C
11) Which of the following is not an example of how an AIS adds value to an organization?
A) All employees at a hospital can access and update patient records from any computer
terminal in the hospital.
B) A customer service representative can find a customer's account data, purchase history,
payment history, and salesperson's name while on the phone with the customer, to resolve
issues quickly.
C) Suppliers are able to access sales data directly from the point-of-sale system of a retailer
and deliver inventory automatically when needed.
D) Client tax files are encrypted and made available on the CPA firm's network to any
employee with an access code.
Answer: A
12) A typical source document could be
A) in some paper form.
B) a computer data entry screen.
C) a notepad entry.
D) both A and B
Answer: D
13) Which step below is not considered to be part of the data processing cycle?
A) data input
B) feedback from external sources
C) data storage

D) data processing
Answer: B
14) The issuing of a purchase order is part of which transaction cycle?
A) the revenue cycle
B) the production cycle
C) the human resources cycle
D) the expenditure cycle
Answer: D
15) Documents that are sent to customers or suppliers and then sent back to the company in the
course of a business transaction are known as
A) turnaround documents.
B) source documents.
C) source data automation.
D) transaction documents.
Answer: A
16) Which of the following is an example of source data automation?
A) a utility bill
B) POS (point-of-sale) scanners in retail stores
C) a bill of lading
D) a subsidiary ledger
Answer: B
17) Pre-numbering of source documents helps to verify that
A) all transactions have been recorded since the numerical sequence serves as a control.
B) source data automation was used to capture data.
C) documents have been used in order.
D) company policies were followed.
Answer: A
18) Business processes can provide an organisation with a competitive advantage. This
competitive advantage is more likely to come from:
A) The design of business processes that are more efficient and effective
B) The design of business processes that are unique or offer something different
C) The design of business processes that are more competitive and flexible
D) The design of business processes that have lower costs of execution
Answer: B
19) The first stage in adopting a business process perspective is that:
A) it should focus on removing middle management
B) it must be represented in the design of the organisation.
C) it should emphasise the flattening of the organisational structure.
D) it must be reflected in the organisations latest statements.
Answer: B
20) A process that has been reengineered will have less of a role for specialists because:
A) Specialists are made redundant through the cost-cutting emphasis of BPR.
B) Decisions that require specialists are removed from a process.
C) Generalists are trained and act as specialists through the assistance of decision aids.
D) Jobs are combined and key workers are given decision making responsibility.

Answer: D

Discussion Questions
2.7

Describe the differences between the functionally and process-based organisation.


How do these differences affect how the organisation operates? (LO2)

The functionally based organisation is designed around the concepts of a clear division of tasks,
specialisation of labour and tight vertical control and coordination. The functional based
organisation tends to focus more on what gets done for example each functional division
doing their specific task and specialising on that task. Such an organisational structure is
hierarchically based. The process based organisation focuses more on how things are done. As
a result it looks at how value is delivered to the end customer, emphasising the interaction
between the different business functions, or a horizontal view of the organisation.
2.9

What is the relationship between business processes and ERP systems? (LO5)

Business processes are defined in the text as a series of interlocking activities that work
together, across the organisation, to achieve an organisational goal. The design of the business
process will be influenced strongly by the use of an ERP system. ERP systems represent a
business process perspective that has been captured in organisational software, with the design
philosophy of the ERP system being the support of business processes rather than a functional
perspective. At best, ERP systems can drive the design of a businesss processes by virtue of
the fact that the processes incorporated into the ERP system represent best practice. For
organisations adopting ERP systems, it is usually recommended that they change the existing
processes to match those encapsulated in the ERP system. Thus ERP systems can have a
strong influence on the design of business processes.
2.14

List and describe, through the use of examples, the principles of BPR. (LO7)

Principle
Description
Combine jobs and let workers make The role of the employee is now across the
decisions
process, rather than just one particular task.
Potentially they can be involved from start to
finish within the process.
Create a single reference point for This helps customer satisfaction, giving the
customers
customer a single reference point regardless of
the nature of their enquiry. Some Australian
banks are tending towards this approach, with
client managers allocated customers, in
preference to the traditional functional
approach, for example loans manager,
accounts manager and so on.
Perform steps in a natural order and If activities can be performed simultaneously
at their logical location
then allow that to happen, and avoid the
passing of work around to different locations
if possible.
Allow processes to vary
Not all cases are homogenous. As a result
allow variation in the execution of processes
to cater for different circumstances.
Reduce the impediment of controls Controls, while an important part of an

and reconciliations

organisation, can slow down processes. BPR


questions the value of controls for example
hierarchies and reconciliations and calls for
non-value adding controls to be removed.

Problems
2.2
James McFarlane is the manager of a medium-sized manufacturing company. His
company is looking at improving the design of its sales and manufacturing
processes and one employee has suggested that it considers adopting an ERP
system. The employee said something about the benefit of best practice in ERP
systems. James is not sure which way to go. He believes that the organisations
current practices are basically sound, unique in the industry and that, with a little
modification, they could be even more of a distinguishing factor for the business.
He has reservations about ERP systems and was contemplating TQM and BPR as
other alternatives for the existing process.
Advise James on the risks and benefits an organisation faces in adopting the
processes in an ERP system. Should his company go ahead with the ERP system?
Do you think, based on the few facts available, that James should be considering
BPR and TQM? If so, which do you think is appropriate for his business?
Explain your reasoning.
When considering an ERP systems suitability for an organisation several factors should be
considered. The predominant theme in ERP adoption is that the organisation should adjust its
business processes to meet the best practice that is programmed into the ERP system. From an
organisations perspective this can have both advantages and disadvantages. The risk in this
vanilla adoption is that the organisation, in changing its business processes to correspond with
the ERP system, loses its uniqueness and competitive advantage. Therefore, James needs to be
clear on what it is that makes his company unique. If they do have truly unique processes that
offer them a source of competitive advantage in the marketplace then he is probably not wise to
throw these out for the generic best practice that is captured in the ERP system. If he wants to
keep the existing practices and still go ahead with the ERP system then the alternative is to
customise the ERP system. While this is possible, it does increase greatly the cost and risk of
ERP adoption something his medium sized firm may not be willing to take on.
BPR and TQM are approaches to organisational change that may be considered by James.
Which one is appropriate will depend on the magnitude of change that is being considered by
James. Given that the question material mentions basically sound current practices that are
unique in the industry, it is unlikely that BPR would be considered as an appropriate change
method, since it would appear too extreme for the needs of James company. TQM methods,
which focus more on small incremental change, would appear more appropriate, allowing the
uniqueness of the existing processes to be further enhanced. Adopting BPR would appear to
introduce the risk of throwing the baby out with the bathwater, thus making it an inappropriate
approach.
In answering this question students should pick up on the main traits mentioned in the question
as a trigger to lean them towards TQM. An argument based on the traits of BPR and TQM
would be seen as a logical precursor to the actual decision of which method to adopt.

Topic 3
MCQ
1) Which of the following is not true about program flowcharts?
A) Program flowcharts are a high-level overview of all business processes.
B) Program flowcharts document the processing logic of computer programs.
C) A program flowchart will exist for every computer process symbol on a system flowchart.
D) Program flowcharts increase computer programmer productivity.
Answer: A
2)
A)
B)
C)
D)

Data flow diagrams depict


processes, but not who is performing the processes.
processes, but not the data that flows between processes.
who is performing processes, but not how they perform the process.
who is performing processes, but not the data that flows between processes.
Answer: A

3) Graphical representations of information are often supplemented by


A) product specifications.
B) narrative descriptions.
C) logic charts.
D) oral descriptions from management.
Answer: B
4) When preparing a document flowchart, the names of organizational departments or job
functions should appear in the
A) column headings.
B) right-hand margin.
C) written narrative accompanying the flowchart.
D) title of the flowchart.
Answer: A
5) A data flow diagram
A) is a graphical description of the source and destination of data that shows how data flow
within an organization.
B) is a graphical description of the flow of documents and information between departments or
areas of responsibility.
C) is a graphical description of the relationship among the input, processing, and output in an
information system.
D) is a graphical description of the sequence of logical operations that a computer performs as
it executes a program.
Answer: A
6) In preparing a DFD, when data are transformed through a process, the symbol used should
be
A) a circle.
B) an arrow.
C) a square.
D) two horizontal lines.
Answer: A

7)
A)
B)
C)
D)

In general, a data destination will be shown by


an arrow pointing away.
an arrow pointing in.
arrows pointing both ways.
no arrows, only two horizontal lines.
Answer: B

8) In a data flow diagram of the customer payment process, "update receivables" will appear
above or in
A) a square.
B) a circle.
C) two horizontal lines.
D) none of the above
Answer: B
9) In a data flow diagram of the customer payment process, "Customer" will appear above or
in
A) a square.
B) a circle.
C) two horizontal lines.
D) none of the above
Answer: A
10) In a data flow diagram of the customer payment process, "Customer payment" will appear
above or in
A) a square.
B) a circle.
C) two horizontal lines.
D) an arrow.
Answer: D
11) A DFD created at the highest-level or summary view is referred to as a
A) process diagram.
B) overview diagram.
C) content diagram.
D) context diagram.
Answer: D
12) Chan has been hired as an assistant to the internal auditor. He has been asked to thoroughly
document the existing accounting information system in preparation for making
recommendations for improvements. He decides to begin by meeting with the information
technology staff in order to develop an understanding of the overall operation of the AIS,
including data entry, storage, and output. The documentation tool that he should employ for
this purpose is a
A) data flow diagram.
B) document flowchart.
C) system flowchart.
D) program flowchart.
Answer: C

13) An employee receives a paycheck prepared in the payroll process. Which one of the
following diagrams represents this activity?
A)

B)

C)

D)

Answer: B
14) A flowchart that depicts the relationships among the input, processing, and output of an
AIS is
A) an internal control flowchart.
B) a document flowchart.
C) a system flowchart.
D) a program flowchart.
Answer: C
Use the chart below to answer questions 15 to 20 regarding flow chart symbols.

15) Which symbol would be used in a flowchart to represent a manual process?


A) #5
B) #6
C) #10
D) #11
Answer: B
16) Which symbol would be used in a flowchart to represent a file of paper documents?

A)
B)
C)
D)

#7
#8
#9
#15
Answer: C

17) Which symbol would be used in a flowchart to represent a general ledger master file kept
on magnetic disk?
A) #2
B) #5
C) #7
D) #8
Answer: C
18) Which symbol would be used in a flowchart to represent a flow of data or documents?
A) #12
B) #13
C) #14
D) #15
Answer: A
19) Which symbol would be used in a flowchart to represent a communication link?
A) #12
B) #13
C) #14
D) #15
Answer: B
20) In a document flowchart of a manual payroll processing system, "update employee file"
will be shown by a(n) ________ symbol, and "prepare payroll check" will be shown by a(n)
________ symbol.
A) input; output
B) input; manual operation
C) manual operation; output
D) manual operation; manual operation
Answer: D

Discussion Question
6.3

Describe the information that can be obtained from each of these forms of systems
documentation:
(a)
Process map
(b)
Context diagram
(c)
Physical data flow diagram
(d)
Logical data flow diagram
(e)
Systems flowchart
(LO2, LO3, LO4)

The PROCESS MAP is a simple graphical representation of a system, detailing the activities
that occur, the entities that perform the activities, the relationship between different activities
and entities, and any decisions that occur as part of the process.

The CONTEXT DIAGRAM provides a representation of the system of interest and the external
entities that interact with it, by either providing inputs or receiving outputs. It is an overview of
the system of interests interaction with the external entities.
The LOGICAL DATA FLOW DIAGRAM takes the context diagram and expands it, to tell us
what sequence of activities or processes occur within the system of interest and the data flows
between these activities / processes. It is concerned with the logical perspective the tasks that
get performed and not the people, places and things that are required in order to perform
them.
The PHYSICAL DATA FLOW DIAGRAM takes the context diagram and expands it, to tell us
the people, places and things that are involved in the system of interest, as well as the data
flows that occur between these physical entities.
The SYSTEMS FLOWCHART provides us with both a logical and physical perspective of the
system, depicting the entities involved and the processes they perform. In addition, we get
details about how the processes are performed (for example a computer process versus a
manual process). To this extent it represents a combination of the physical and logical data
flow diagrams, but with more detail added.

Problem
6.4

Semantics Limited is a manufacturer of revolutionary glass windows that are fog and
dirt resistant and always provide a clear view wherever they are installed. The accounts
receivable process for Semantics is described below.
At the end of month the chief billing manager 1) enters an authorisation code into the
computer, allowing the invoice generation program to be run. 3&4)A confirmation and
billing job number is displayed on the screen, with this 5)written down on a billing run
record form by the manager. Once the code is entered the manager 6) places the billing
run record form in his locked desk drawer and leaves the computer to create customer
invoices over night.
In preparing the invoices the 7) computer scans the open invoices file for details of any
invoices that were issued to a customer over the previous month. It also 8) searches the
cash receipts data for all cash receipts received from customers, as well as the 9)
refunds and credits granted file for any other items that may impact on the customers
owing balance. The customer master data is also accessed for the opening account
balance and any discount terms that the customer may be entitled to. This data is then
used to prepare an invoice for each customer who had a transaction of any sort during
the preceding month. The new balance owing is transferred to the customer master data.
The invoices are then printed out and the computer displays a summary of the invoices
generated the total number of invoices and the total value of the invoices (based on
amount owing) at the end of the month. The next morning, when the manager arrives in
their office, they retrieve the billing run record form and record the details of the batch
on the form. The invoices and the record form are then forwarded to the billing
assistant, who reconciles the number of invoices to the total on the record form before
sending the invoices to the customer. 19) The billing run record form, with the
completed batch details for the months invoices, is sent to the accounts manager.
Required

For the process described above:


(a) Prepare the structured narrative
(b) Prepare a process map
(c) Prepare a context diagram
(d) Prepare a physical DFD
(e) Prepare a logical DFD
(f) Prepare a systems flowchart
(a)Structured Narrative Table
No. Entity
Input
1
Chief Billing
Manager
2
Computer
Authorisation Code
3

5
6
7
8
9
10
11
12

13
14
15

16
17

18

Process
Code entered into
computer
Checks last billing
job number**
Computer
Last billing number
Generates
confirmation and job
number
Computer
Confirmation and job Displays
number
confirmation and job
number
Chief Billing Confirmation and job Prepare billing run
Manager
number
record
Chief Billing Billing run record
Billing Run locked
Manager
in desk drawer
Computer
Retrieve
Open
Invoice data
Computer
Retrieve
cash
receipts data
Computer
Retrieve refunds and
credits granted data
Computer
Retrieve customer
master data
Computer
Accessed data
Update
customer
balances
Computer
Print invoices

Output
Authorisation Code
Last billing number
Confirmation
job number

and

Confirmation
and
job
number
on
screen
Billing run record

Invoice Data
Cash Receipts Data
Credit Data
Customer Data

New balance to
customer master data
Printed invoices
Batch summary on
screen
Chief Billing
Retrieve Billing Run Billing Run Record
Manager
Record
Chief Billing Billing Run Record
Update Record with Updated billing run
Manager
batch details
record and invoices
Chief Billing
Sends Billing Run
Manager
Record and Invoices
to Billing Assistant
Invoices
Calculate batch total Invoices and batch
for invoices
total
Billing
Completed billing run Reconcile invoices Reconciled invoices
Assistant
record and batched and
billing
run and record
invoices
record
Billing
Send invoices
Invoices
to
assistant
Customer

19

Billing
assistant

Sends Billing
Record

run Billing Run Record


sent to Accounts
Manager

** Implied activity in order to generate a job number the previous job number
needs to be accessed
(b) Process Map

Billing
Assistant

Semantics Process Map

Details agree?

Computer

Customer

Reconcile billing
details

Invoices and
run record
Invoices

Invoices and batch summary


Generates bills

Billing run
record

Accounts
Manager

Chief Billing
Manager

Authorisation Code

Authorises billing
Confirmation and
run
Job number

Record billing run

Updated
Billing Run
Record

Update Record of
billing run

(c) Context Diagram

SEMANTICS LIMITED CONTEXT DIAGRAM

Customer
Billing
Process

8
[1
ay
]P

[19
]B

ab
le
de
ta
ils

illin
g
d
eta
ils
ACCOUNTS MANAGER

CUSTOMER

(d) Physical DFD

SEMANTICS LIMITED PHYSICAL DATA FLOW DIAGRAM

atio
n

,B
a tc

h
S
um
ma
ry

]
]

od
e

Billing
Runs Log

[1 2
]
I
nvo
ice
s

a
n
dJ
ob
#

[6
[1 3

ris
ati
on
C

[4]

Au
th o

Co
nfir
m

[1]

[2]

1.0
Chief
Billing
Manager

[7 ]

2.0
Computer

[9]

Refunds & Credits


Granted

Cash Receipts

]
[10

Customer
Master Data

Ru

nR
ec

3.0
Billing
Assistant
ord

, In

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ic

es
ng
illi
B
9] un d
[1 R cor
e
R

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illin
g

[11]

[15

[8]

Billing Run
Record

Open Invoices

ACCOUNTS
MANAGER

[1

8]

In

vo

ice

CUSTOMER

(e) Logical DFD


SEMANTICS LIMITED LOGICAL DATA FLOW DIAGRAM

Billing
Runs Log
[2]

]
tho
Au

[8]

ris

Cash
Receipts

o
ati
n

Billing
Run Record

2.0
Prepare
Invoices
[9]

Refunds and
Credits Granted
]

Customer
Master
Data

ice
vo
] In ails
[12 Det

[10

]
[11

[6]

Open
Invoices

[7

1.0
Authorise
Billing

3.0
Update
Billing
Records
[13

[1 5 ]
B
invo illing an
ice d
d
etail
s

4.0
Confirm
Invoices
le
ab
ay s
] P tail
[18 De

[1
9
De ] Bi
ta lling
ils

ACCOUNTS MANAGER

CUSTOMER

(f ) Flowchart
At the end of month the chief billing manager 1) enters an authorisation code into the computer,
allowing the invoice generation program to be run. 3&4) A confirmation and billing job number
is displayed on the screen, with this 5)written down on a billing run record form by the
manager. Once the code is entered the manager 6) places the billing run record form in his
locked desk drawer and leaves the computer to create customer invoices over night.
The next morning, when the manager arrives in their office, they retrieve the billing run record
form and record the details of the batch on the form. The invoices and the record form are then
forwarded to the billing assistant, who reconciles the number of invoices to the total on the
record form before sending the invoices to the customer. 19) The billing run record form, with
the completed batch details for the months invoices, is sent to the accounts manager.
SEMANTICS LIMITED - FLOWCHART
CHIEF BILLING MANAGER

COMPUTER

BILLING ASSISTANT

Generate
confirmation
Number

Authorisation
Code

Billing
jobs

START

Updated
Billing Run
Record

Invoice

Billing
Confirmation

Open
Invoice
File

Calculate
batch total

Prepare
Billing
Run
Record

BT

Cash
Recpts
Data

Invoice

Billing Run
Record
Prepare Invoices

Billing Run
Record

BT

Invoice Batch
Summary

Update
Billing Run
Record

Updated
Billing Run
Record

Invoice
Invoice

Reconcile
totals

Refunds
&
Credits
Granted
Customer
Master
Data

Billing
Run
Record

Updated
Billing Run
Record

Invoice

ACCOUNTS
MANAGER

CUSTOMER

Topic 4
MCQ
1) To accomplish the objectives set forth in the expenditure cycle, a number of key management
decisions must be addressed. Which of the decisions below is not ordinarily found as part of
the expenditure cycle?
A) How can cash payments to vendors be managed to maximize cash flow?
B) What is the optimal level of inventory and supplies to carry on hand?
C) Where should inventories and supplies be held?
D) What are the optimal prices for each product or service? - Revenue Cycle
Answer: D
2) Comparing quantities on a vendor invoice 8 to quantities on the receiving report 8 would not
prevent or detect which of the following situations?
A) Receiving and accepting inventory not ordered
B) Theft of inventory by receiving department employees
C) Update of wrong inventory items due to data entry error
D) Order for an excessive quantity of inventory
Answer: A
3) Which of the following would be the least effective control to prevent paying the same
vendor invoice twice?
A) Allow only the accounts payable department to authorize payment for vendor invoices and
allow only the cash disbursements department to cut and mail checks to vendors.
B) Only pay from original invoices.
C) Cancel each document in the voucher package once the check is prepared and mailed.
D) Only pay vendor invoices that have been matched and reconciled to a purchase order and a
receiving report.
Answer: A
4) When goods are being ordered from a vendor, which electronic files are either read or
updated?
A) inventory, vendors, and accounts payable
B) vendors and accounts payable
C) open purchase orders and accounts payable
D) inventory, vendors, and open purchase orders
Answer: D
5)
A)
B)
C)
D)

One of the major responsibilities of the receiving department is


deciding if the delivery should be accepted.
verifying any purchase discounts for the delivery.
deciding on the location where the delivery will be stored until used.
updating inventory subsidiary ledgers.
Answer: A

6) Which of the following is generally not shown on a receiving report?

A)
B)
C)
D)

price of the items


quantity of the items
purchase order number
counted and inspected by
Answer: A

7) The management at Amazon, an Internet-based wholesaler, is considering a new inventory


control system. The current system is inadequate because it results in stockouts that interrupt
production and excess stocks of some materials that result in markdowns and high carrying
costs. The new system, which will focus on forecasting demand for Sad Clown's products,
will employ
A) a just-in-time inventory system.
B) the economic order quantity.
C) a reorder point.
D) materials requirements planning.
Answer: D
8) Economic Order Quantity (EOQ) includes several variables that must be taken into
consideration when calculating the optimal order size. One variable, the costs associated with
holding inventory, is referred to as
A) ordering costs.
B) carrying costs.
C) the reorder point.
D) stockout costs.
Answer: B

9)
A)
B)
C)
D)

What aspect below best characterizes a Just-In-Time (JIT) inventory system?


frequent deliveries of smaller quantities of items to the work centers
frequent deliveries of large quantities to be held at the work centers
less frequent deliveries of large quantities of goods to central receiving
infrequent bulk deliveries of items directly to work centers
Answer: A

10) What is a key feature of materials requirements planning (MRP)?


A) minimize or entirely eliminate carrying and stockout costs
B) reduce required inventory levels by scheduling production rather than estimating needs
C) determine the optimal reorder point
D) determine the optimal order size
Answer: B

11) When goods are being ordered from a vendor, which electronic files are either read or
updated?
A) inventory, vendors, and accounts payable
B) vendors and accounts payable
C) open purchase orders and accounts payable
D) inventory, vendors, and open purchase orders
Answer: D
12) The inventory management approach that attempts to minimize, if not eliminate, carrying and
stockout costs is
A) materials requirements planning.
B) economic order quantity.
C) just-in-time inventory.
D) evaluated receipt settlement.
Answer: C
13) A(n) ________ system posts an approved invoice to the vendor account and stores it in an
open invoice file until payment is made by check.
A) Non-voucher
B) voucher
C) cycle
D) evaluated receipt settlement
Answer: A
14) A disbursement voucher contains
A) a list of outstanding invoices.
B) the net payment amount after deducting applicable discounts and allowances.
C) the general ledger accounts to be debited.
D) All of the above are correct.
Answer: D
15) A voucher package should include
A) a purchase requisition, vendor invoice, and receiving report.
B) a purchase order, vendor invoice, and receiving report., PV
C) a purchase requisition, purchase order, and receiving report.
D) a bill of lading and vendor invoice.
Answer: B
16) What is the best control to mitigate the threat of paying prices that are too high for goods
ordered?
A) require the receiving department to verify the existence of a valid purchase order
B) use only approved suppliers and solicit competitive bids
C) only pay invoices that are supported by the original voucher package
D) use bar-code technology to eliminate data entry errors
Answer: B
17) One of the threats associated with the process and activity of receiving and storing goods is
A) errors in counting.
B) kickbacks.

C) requests for unnecessary items.


D) errors in vendor invoices.
Answer: A
18) What is the best way to prevent the acceptance of unordered goods?
A) Order only from approved vendors.
B) Match the packing slip/delivery note to a purchase order before accepting delivery.
C) Enforce an appropriate conflict of interest policy in place.
D) Require specific authorization from the purchasing manager before accepting any goods.
Answer: B
19) Double-checking the accuracy of an invoice is a control that can help to neutralize a threat in
the expenditure cycle. What activity would specifically be associated with this control?
A) ordering goods
B) receiving and storing goods
C) paying for goods and services
D) requesting goods be ordered
Answer: C
20) Which control would best prevent payments made to fictitious vendors?
A) Allow payments only to approved vendors.
B) Restrict access to any payment or approval documents.
C) Have an independent bank reconciliation.
D) Make sure all documents are in order before approving payments.
Answer: A

Discussion Question
10.3 Nguyen Ltd has just realised that it has a problem with its expenditure data as its
goods received records do not easily identify whether a supplier has delivered the
ordered goods on the due date.
(a) What decisions made during the expenditure cycle would be affected by this data
problem? (LO3, LO4)
Decisions relating to choosing a supplier & approving supplier payment would be affected.
(b) How would those decisions be affected? How would this data problem affect the
performance of the expenditure cycle? (LO3, LO4, LO6)
The choice of supplier would be affected as there is no history related to supplier performance in
terms of their on-time delivery results. This may result in a supplier continuing to be approved
and selected even though their delivery performance is substandard. A payment may be approved
for a supplier in full when a partial payment may in fact be more appropriate, depending on
whether any performance penalty clauses are contained in the supplier contract.

(c) How would this data problem affect other processes at Nguyen Ltd? (LO1, LO3,
LO4, LO6)
In a situation where the goods purchased are raw materials for use in the production process then
the production cycle will be impacted by the data failure, as purchasing staff may continue to
select unreliable suppliers and any late or non-delivery will affect ability to meet proposed
production scheduling.
Problems
Problems 10.26 -10.29

Problems 10.26 -10.29 diagram solutions are included below. In addition to the diagrams a
table is included that identifies and explains the flows depicted in the various diagrams.
1
Suppliers post their invoices directly to the accounts payable officer.
2
When an invoice is received the accounts payable officer looks up the supplier number
on a printed list that is kept in their drawer,
34
writes that supplier number on the invoice and then enters the invoice data (including
the supplier number) into the computer.
5
The computer sends a payment approval request to the product manager.
67
The product manager indicates whether invoices are approved for payment by entering
either y (for an approved invoice) or n (for an invoice not approved) into a
checkbox beside the payment request.
8
9
10
11
12
13
14
15
16
17
18

Once payment has been authorised the computer automatically records the invoice in
accounts payable,
and updates the general ledger.
Every Friday morning the accounts payable officer reviews the open invoices (i.e.,
accounts payable) and decides which ones should be paid.
The accounts payable officer clicks on a check box to select the invoices that are to be
paid,
and the computer prints a cheque,
then updates the accounts payable
and general ledger.
The accounts payable clerk signs the cheque and mails it to the supplier

10.26 Prepare a context diagram for the paying for goods process at Yayy Online.
Payment request (1)

Paying for
goods

Supplier

Payment details (18)

10.27 Prepare a level 0 logical DFD for thepaying for goods process at Yayy Online.
Supplier list

(2)

1.0
Approve
payment

Invoice (1)

(9)

(8)
General
Ledger

Supplier
Accounts
Payable

(11)

(17)

(16)
2.0
Make payment
Cheque (18)

10.28 Prepare a physical DFD for the paying for goods process at Yayy Online.
General
Ledger
Accounts
Payable

Supplier list
Supplier

(17)

Invoice (1)

(9)

(2)
Supplier & invoice (3)

Cheque (18)

1.0
A/P Officer

Entered Supplier & invoice (4)


Open invoice request (10)
Open invoices (12)
Pay invoice (13)
Invoices selected (14)
Cheques (15)

(16)
(8)
(11)

2.0
Computer

Payment approval
request (5)
Payment
approval (6)
Approved
payment (7)

3.0
Product
Manager

10.29 Prepare a systems flowchart for the paying for goods process at Yayy Online.

Accounts Payable
Officer
Supplier

Computer

Product Manager

(1)

Invoice

Suppliers
(2)

Supplier list

Annotates
invoice

Invoice with
supplier #

Entered
invoice

(5)

(3)

Invoice & supp

Create approval
request

(4)

Approval
Entered
invoice

(8)

Accounts
Payable

(6)
Record approval

(7)

Every Friday morning


(11)

(9)

Open invoices
(10)

Open invoices

Retrieve invoices

(12)
Capture invoice
selections

(13)
Select invoices

Invoices
selected

Cheque

Signs
cheque

Signed Cheque

(18)
Supplier

General
Ledger

(14)

Accounts
Payable

(15)

(16)

Generate cheque
& record payment

(17)

Approved
invoice

Topic 5-Revenue Cycle


MCQ
1) The revenue cycle commences when:
A) a payment is received
B) a sale is recorded
C) a customer indicates they wish to purchase a good or service
D) a customer is billed
Answer: C
2)
A)
B)
C)

The objective of the sales phase in the revenue cycle is to:


Effectively conduct sales and arrange the prompt supply of goods and services.
Effectively conduct sales.
Effectively conduct, record, and monitor sales and arrange the prompt supply of goods and
services.
D) Effectively conduct, record, and monitor sales.
Answer: C
3)
A)
B)
C)

The objective of the accounts receivable phase in the revenue cycle is to:
Ensure payments for goods and services are received on time and in correct amount.
Ensure payments for goods and services are correctly received, recorded and banked.
Ensure the accounts payable record is updated accordingly when payments for goods and
services are received.
D) Ensure that payments for goods and services are made to the correct suppliers.
Answer: B
4) Which of the following documents is not generated in the revenue cycle?
A) Sales order
B) Shipping notice
C) Bill of lading
D) Purchase requisition
Answer: D
5) Which of the following is not a basic activity of the revenue cycle?
A) Sales order entry
B) Shipping
C) Receiving purchasing cycle
D) Billing
Answer: C
6) What is the primary objective of the revenue cycle?
A) To maximize revenue and minimize expense
B) To reduce outstanding accounts receivable balances through increased cash sales
C) To provide the right product in the right place at the right time at the right price
D) To sell as much product as possible and/or to maximize service billings
Answer: C
7) In the revenue cycle, before a shipping notice is prepared, the shipping department personnel

should match the inventory received from the warehouse to details from
A) Picking tickets.
B) Sales order and bill of lading.
C) Sales order.
D) Picking ticket and sales order.
Answer: D
8) Which of the following documents would normally trigger the process to record a customer
payment?
A) Remittance advice
B) Customer monthly statement
C) Deposit slip
D) Sales invoice
Answer: A
9) A monthly statement sent to customers serves a control purpose by
A) Providing an opportunity for customers to verify the balance owed and activity on the
account.
B) Triggering the process to record a customer payment.
C) Summarizing invoices and amounts due for customers.
D) Reminding customers of the balance due and due date.
Answer A:
10) To ensure proper segregation of duties, only the ________ has authority to issue credit
memos.
A) Accounts receivable supervisor
B) Controller
C) Credit manager
D) Cashier
Answer: C
11) Which is the best control to prevent invoicing customers for the quantity ordered, which was
more than the quantity shipped due to items on backorder?
A) Use the information from the packing slip to prepare the sales invoice.
B) Use the information from the picking ticket to prepare the sales invoice.
C) Use the information from the bill of lading to prepare the sales invoice.
D) Use the information from the sales order to prepare the sales invoice.
Answer: A
12) Which of the following technologies is not directly relevant to the revenue cycle?
A) CRM
B) ERP
C) SCM
D) EDI
Answer: C
13) EDI stands for:
A) Electronic data interchange
B) Electronic departmental integration

C) Extensible digital information


D) Ecommerce data interchange
Answer: A
14) To reduce the risk of allowing an order to proceed when goods are not available or rejecting
an order when goods are available, it is important to:
A) maintain accurate and timely perpetual inventory records and periodically conduct physical
inventory checks.
B) maintain accurate and timely perpetual inventory records and constantly conduct physical
inventory checks.
C) maintain accurate and timely periodic inventory records and periodically conduct physical
inventory checks.
D) maintain accurate and timely periodic inventory records and constantly conduct physical
inventory checks.
Answer: A
15) A credit check requires the information of :
A) Whether a credit limit has been established for the customer.
B) Whether there is sufficient credit available.
C) The detail of any recent sales that may not yet have been updated into the customers
accounts receivable account
D) All of the options are correct.
Answer: D
16) Which of the following can be identified as a risk in receiving payment?
A) Late or slow payment
B) Non-payment
C) Theft of cash and/or cheques
D) All of the options are correct.
Answer: D
17) An invoice is created for each valid sale by basing on:
A) Price information and inventory information
B) Customer data and sales order
C) Sales request and price information
D) Customer data and inventory information
Answer: B
18) Which of the following statements relating to the creation of an invoice is correct?
A) If invoices are not posted regularly, the amounts shown as owing in accounts receivable will
be understated.
B) If invoices are not posted regularly, the amounts shown as owing in accounts receivable will
be overstated.
C) Updating accounts receivable must happen in real-time; otherwise the accounts receivable
accounts will be understated.
D) Invoices must be dispatched with the goods to ensure timely payment.
Answer: A

19) KW Ltd separates the billing and shipping functions and imposes independent checks to
ensure that goods have been shipped prior to billing the customer. This is an example of:
A) Reducing the risk of over-billing
B) Reducing the risk of under-billing
C) Reducing the risk of failing to bill a customer for a valid sale
D) Eliminating the risk of failing to ship goods that have been invoiced.
Answer: C

Problems

9.7

Table 9.4 (page 421) identifies eight risks typically encountered when despatching a
sales order.

Required
(a) Analyse the degree of exposure to each of these risks for the goods dispatch
process at AB Hi-Fi.
Risk
1 Picking the wrong goods
2 Theft of inventory
3 Goods packed incorrectly
4 Goods labelled incorrectly

Exposure
Low picked goods are double checked by shipping clerk
High loose picking error process when goods are not
available could lead to opportunistic theft
Low packed goods are double checked by shipping clerk
Low picked goods are double checked by shipping clerk

5 Slow/non-shipment of goods
6 Theft of goods
7 Goods delivered incorrectly
8 Theft of goods

High no way of identifying slow orders in current process,


back orders not recorded. Partial orders not dispatched
High shipping clerk could easily steal goods
Low delivery slips used to identify destination
High goods placed on dock for courier pick up, no evidence
of goods being monitored

(b)Determine how many of the common controls described in table 9.4 are present in the
goods dispatch process at AB Hi-Fi.
Control
Present?
Checking goods to picking ticket by an independent staff No
member
Restricting warehouse access
No
Conduct random periodic physical stocktakes
Unable to assess revenue narrative
does not disclose
Independent check of packed goods to picking ticket
No
Using of barcode scanners to check goods
No
Firmly attaching shipping label to goods after packing
Yes
Independent check of goods to picking ticket and shipping Yes
label
Exception report of goods picked but not shipped within a No
reasonable timeframe
Independent shipping authorisation check
Yes
Restricted access to packed goods waiting to be delivered
No
Separately and clearly packaging and labelling each order
Yes
Requiring delivery driver to provide valid customer signature No
for each delivery made

(c) Prepare a short report suitable for senior management to explain how risky you think
the goods dispatch process is, and how comprehensive the current internal controls are.
Report should identify that current risk is low due to checking of goods etc, controls are good but
could be made more comprehensive.
(d)
Prepare a recommendation describing any changes you would like to make to the
goods dispatch process at AB Hi-Fi in order to reduce their level of risk.
Monitor goods until collected by courier
Require receipt of delivery signature

9.8

Table 9.5 (page 426) identifies three risks typically encountered when billing a sale.

Required
(a) Analyse the degree of exposure to each of these risks for the billing process at AB
Hi-Fi.
Risk
1 Failure to bill customers
2 Billing customers when no goods
have been shipped

Exposure
Low requires credit card input before sale can be processed
High customers must input credit card before goods are
shipped also issue with back order handlings and no
inventory check increases risk
3 Invoice
errors

both Low - outcome monitored by customer via order confirmation


overbilling and under-billing
while online

(b) Determine how many of the common controls described in table 9.5 are present
in the billing process at AB Hi-Fi.
Control
Separation of billing and shipping
functions
Pre-numbering shipping documents and
reviewing any shipping documents not
invoiced
Use of a pre-billing system (vs. a postbilling system

Present?
Yes
No

No although a pre billing type system exists the credit


status is not checked until very late then it is a manual
check and the data used is not timely
Reconciliation of sales order to shipping No billed before shipping
documents
Using independent pricing data and/or Yes
fixed price lists
Populating price data with data from those Yes

price lists
Confirming customer accounts regularly

No

(c) Prepare a short report suitable for senior management to explain how risky you think
the billing process is, and how comprehensive the current internal controls are.
Report should identify billing is risky and controls not comprehensive
(d) Prepare a recommendation describing any changes you would like to make to the
billing process at AB Hi-Fi in order to reduce their level of risk.
Automated credit card check to be conducted before sales order can be accepted.
9.9

Table 9.6 (page 428) identifies three risks typically encountered when receiving and
recording payments.

Required
(a) Analyse the degree of exposure to each of these risks for the receiving payments process
at AB Hi-Fi.
Risk
1 Late/slow/non-payment
of
accounts
2 Theft of cash and/or cheques
3 Incorrect recording of customer
accounts

Exposure
High credit status checked too late in process
Low direct credit to bank account from cardholders account
High manual highlighting of credit status report will lead to
errors

(b) Determine how many of the common controls described in table 9.6 are present
in the receiving payments process at AB Hi-Fi.
Control
Prompt invoicing, and setting suitable
payment terms
Regularly and consistently following up of
overdue accounts
Removing credit facilities for any nonpayers
Minimising the cash handling points and
the numbers of people handling cash
Entering cash receipts close to where
received
Using lockboxes or safes and bank
regularly
Immediate/prompt cheque endorsement
and immediate separation of remittance
advice and cheques
One-for-one checking of deposit slip and
cheques
Regular bank reconciliations by an
independent person
Limiting access to online banking
Creating batch or hash totals of cash
receipts and reconciling inputs to accounts
receivable
Issuing regular customer statements,
incorporating use of turnaround documents

Present?
No not applicable
No
No
No not applicable
Yes
No not applicable
No not applicable
No not applicable
No- no evidence of this
No- no evidence of this
No but the total transferred is checked to the credit status
report
No not applicable

(c) Prepare a short report suitable for senior management to explain how risky you think
the receiving payments process is, and how comprehensive the current internal
controls are.
Process risk is fairly low due to electronic payment processing, but risky in terms of
identification of non payers; internal controls are not comprehensive in these areas.
(d) Prepare a recommendation describing any changes you would like to make to the
receiving payments process at AB Hi-Fi in order to reduce their level of risk.

Record orders as unpaid until payment is actually received, then check and reconcile to
individual customer accounts
9.11
(a) Identify and describe the technologies that AB Hi-Fi uses in their revenue cycle
activities.
(b) For each of those technologies you identified in part (a), how well does AB Hi-Fi
use the technology? Could you suggest a way to improve the business benefit
obtained by use of any of these existing technologies?
Technology
Internet based sales website

Use
Improvement
Seems to function well based Broaden sales channel by
on limited evidence available adding more interaction with
customer re specials etc
Integrated
Integration good for internal Integrate payments into cycle
sales/warehouse/despatch/payment
connections but payments earlier,
introduce
and
systems
and despatch limited
integrate data re successful
despatch of goods to
customer.
Use of scanner (shipping clerk)
Adequate
Extend use of scanners to
other warehouse areas
Online banking (payments received) Not good use
Automate identification of
and payment verification
invalid
cards,
automate
manual
cash
receipt
recording process

(c) Are there other suitable technologies available that AB Hi-Fi could be using for the
revenue cycle activities? What additional technologies could AB Hi-Fi implement? What
business benefit would these additional technologies provide?
CRM would help with customer focus and potentially improve level of sales; picking could be
automated to cut warehouse labour costs.
9.19 During the recording payments process at AB Hi-Fi the accounts receivable clerk has
to decide which open invoices to allocate the cash receipts amount against.
Take a moment to review this section of the narrative before you complete the
following questions.
Required
(a) What data does the accounts receivable clerk draw on when making the decision?
Cashiers report identifying total paid by each customer.

(b) Where does the data you identified in part (a) come from?
Cash receipts data input by the cashier.

(c) Is this data reliable, that is, is there any possibility that there could be errors in
the data?
As only totals are included, and no reconciliation is evident to amounts banked or customer
remittance advices received, the data could be erroneous.

(d) Is this data sufficient to make the decision, or can you identify additional data
that the clerk should consider when making the decision?
Insufficient data is presented, a detailed list of exactly how much was remitted against each
invoice should be considered.

(e) What would be the consequences of an incorrect decision?


Invoice status may be incorrectly updated to paid and paid invoices may be left as unpaid,
resulting in potential for confusion when next statement is issued to the customer.

Topic 6
1) The general ledger and financial reporting cycle ________.
A) Summarises, adjusts, and reports on data from all previous operational cycles.
B) Summarises, adjusts, and reports on data from all current operational cycles.
C) Creates, adjusts, and summarises on data from all previous operational cycles.
D) Creates, adjusts, and summarises on data from all current operational cycles.
Answer: A
2) During the general ledger and financial reporting cycle:
A) Budgets are created and agreed upon.
B) Transactional level data is accumulated, summarised, adjusted and reported to internal users.
C) Transactional level data is accumulated, summarised, adjusted and reported to external users.
D) All of the options are correct.
Answer: D
3) Financial reports generated in the general ledger and financial reporting cycle is used by:
A) Managers within the organisation
B) Investors
C) External regulators
D) All of the options are correct.
Answer: D
4) Which is the most likely cause of a large variance between budget estimates and actual
results if the company is well managed with efficient internal controls?
A) Production is working inefficiently and using too much raw material
B) The budget is unrealistic and cannot be met
C) Inaccurate data has been recorded
D) Raw materials are being stolen
Answer: A
5) The purpose of budgeting is to:
A) Get a forecast of resource usage of the next financial year only.
B) Facilitate organisational planning and control.
C) Request more funding.
D) All of the options are correct.
Answer: B
6) The general ledger system of an organization should be designed to serve the information
requirements of both internal and external users. This means that the system should support
A. Producing expansive regular periodic reports to cover all information needs.
B. The real-time inquiry needs of all users.
C. Producing regular periodic reports and respond to real-time inquiry needs.
D. Access by investors and creditors of the organization to general ledger balances.
Answer: C
7) Entries to update the general ledger are often documented by which of the following?
A) General journal
B) Subsidiary journal

C) Subsidiary ledgers
D) Journal vouchers
Answer: D
8) Financial statements are prepared in a certain sequence. Which statement is prepared last in
the sequence?
A) The adjusted trial balance
B) The income statement
C) The balance sheet
D) The statement of cash flows
Answer: D
9) If you believe not all adjusting entries were posted in the general ledger, you should prepare
a general ledger control report listing journal vouchers in
A) Numerical sequence.
B) Chronological order.
C) General ledger account number order.
D) Any order, since you have to review them all anyway.
Answer: A
10) Which of the following tasks are facilitated by maintaining a strong and secure audit trail?
A) Tracing a transaction from original source document to the general ledger to a report
B) Tracing an item in a report back through the general ledger to the original source document
C) Tracing changes in general ledger accounts from beginning to ending balances
D) All of the above are facilitated by the audit trail.
Answer: D
11) En Hamid is an accountant at 1st Technologies. While making an adjusting entry to the
general ledger, he received the following error message, "The account number referenced in
your journal entry does not exist. Do you want to create a new account?" This message was
the result of a
A) Validity check.
B) Closed loop verification.
C) Zero-balance check.
D) Completeness test.
Answer: A
12) Cheryl Liao is an accountant at Folding Squid Technologies. While making an adjusting
entry to the general ledger, she received the following error message, "Your journal entry
must be a numeric value. Please reenter." This message was the result of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.
Answer: B
13) The main risk attached to producing financial reports is:
A) unauthorised distribution of financial reports
B) unauthorised access of financial reports

C) reporting incorrect data


D) reporting too many data
Answer: C
14) To reduce the risks of incomplete and inaccurate data during data extraction and validation in
the process of updating general ledger, which of the following controls can be used?
A) Batch totals
B) Hash totals
C) Use ledger control accounts
D) All of the options are correct.
Answer: D
15) Which of the following is not helpful in reducing the risk of journal entries errors during the
preparation of adjusting journals?
A) Independent approval of journal entries by senior accounting staff
B) Attach full working papers to support journal entry calculations
C) Document assumptions and algorithms relied on when calculating journal amounts
D) Performing a reasonableness check.
Answer: D
16) Transactional data is summarised by account code in the general ledger. The codes are then
used in the reporting structure. What is the name given to the list of available codes?
A) List of account codes
B) Chart of accounts
C) Table of accounts
D) Reporting account codes
Answer: B
17) A well-designed chart of accounts will:
A) support key reporting requirements while minimising or even eliminating data entry error
B) support diverse reporting requirements while maintaining an acceptably low data entry error
rate
C) contain more digits in general ledger account number
D) not include an indicator for every possible dimension that the transaction may conceivably
need to be reported on
Answer: B
18) Which of the following must be taken into consideration before a general journal adjustment
is authorised?
A) The need to incorporate data from external sources such as bank statements
B) Accounting policies and procedures
C) Accounting standards
D) All of the options are correct
Answer: D
19) Which of the following reports is not produced by the general ledger and financial reporting
cycle to support decision makers within the organisation?
A) Profitability analysis for the organisation
B) Cost management analysis

C) Variance analysis for a division


D) Aged accounts analysis
Answer: D
20) Which of the following technologies can be used in the general ledger and financial reporting
cycle?
A) ERP and XBRL
B) ERP and CAD
C) RFID and XBRL
D) CAD and RFID
Answer: A

Topic 7
1) Verifying the identity of the person or device attempting to access the system is
A) authentication.
B) authorization.
C) identification.
D) threat monitoring.
Answer: A
2) Based on the COSO definition of internal controls, which of the following is NOT an aim of
internal controls?
A) Effective and efficient operations
B) Reliable financial reporting
C) Compliance with laws and regulations
D) Safe workplace
Answer: D
3)

Risk assessment is:


A) the process of scanning the organisation for risks that could inhibit the attainment of the
organisation's goals.
B) the process of scanning the organisation and its environment for risks that could inhibit
the attainment of the organisation's goals.
C) the process of scanning the organisation for risks that could inhibit the attainment of the
organisation's goals and devising appropriate corrections.
D) the process of scanning the organisation and its environment for risks that could inhibit
the attainment of the organisation's goals and devising appropriate corrections.
Answer: B

4) Who is responsible for setting the tone in which control policies within an organisation will
function?
A) Internal auditors
B) External auditors
C) Top management
D) Shareholder committees
Answer: C
5) COBIT offers control objectives and guidance that relate to the stages of: (i) planning for IT
acquisition (ii) acquiring IT resources (iii) operating IT resources (iv) monitoring and
assessing IT resources
A)
(i) (ii) (iii)
B)
(ii) (iii) (iv)
C)
(iii) (iv)
D)
(i) (ii) (iii) (iv)
Answer: D

6) After identifying risks, management will decide on appropriate policies and procedures to
address the risks. These policies and procedures are called:

A)
B)
C)
D)

control policies
control activities
control procedures
control processes
Answer: B

7) Restricting access of users to specific portions of the system as well as specific tasks, is
A) authentication.
B) authorization.
C) identification.
D) threat monitoring.
Answer: B
8) Which of the following is not a requirement of effective passwords?
A)Passwords should be changed at regular intervals.
B) Passwords should be no more than 8 characters in length.
C) Passwords should contain a mixture of upper and lowercase letters, numbers and
characters.
D)Passwords should not be words found in dictionaries.
Answer: B
9) An access control matrix
A) does not have to be updated.
B) is a table specifying which portions of the system users are permitted to access.
C) is used to implement authentication controls.
D) matches the user's authentication credentials to his authorization.
Answer: B
10)
A)
B)
C)
D)

The best example of a hash total for a payroll transaction file could be
total of employees' social security numbers.
sum of net pay.
total number of employees.
sum of hours worked.
Answer: A

11) An antivirus program scans and monitors files in a computer continuously for viruses. This is
an example of:
A) Preventive control
B) Detective control
C) Corrective control
D) Application control
Answer: B
12) A customer failed to include her account number on her check, and the accounts receivable
clerk credited her payment to a different customer with the same last name. Which control could
have been used to most effectively to prevent this error?
A) Closed-loop verification
B) Duplicate values check
C) Validity check

D) Reconciliation of a batch control total


Answer: A
13) How does a computer system know that a sales manager has authorised a credit transaction
over $1000?
A) The input terminal has bio-security check eg retina scanning.
B) A combination of checks on the size of the credit required and the access rights of the
manager when she logged in with her username and password
C) The system must insist on the sales manager entering the transaction
D) The control comes from the work practices outside the computer
Answer: B
14) A data entry input control in which the application software sums the first four digits of a
customer number to calculate the value of the fifth digit and then compares the calculated
number to the number typed in during data entry is an example of a
A) check digit verification.
B) validity check.
C) closed-loop verification.
D) duplicate data check.
Answer: A
15)
A computer virus is found in a file in the computer system. Because a solution for
recovering the file is not yet available, the infected file is quarantine by the antivirus software.
Quarantining the infected file is an example of:
A) Preventive control
B) Detective control
C) Corrective control
D) None of the options are correct.
Answer: A
16) Sequentially prenumbered forms is an example of a(n)
A) data entry control.
B) data transmission control.
C) processing control.
D) input control.
Answer: D
17) When I enter a correct customer number, the data entry screen displays the customer name
and address. This is an example of
A) prompting.
B) preformatting.
C) closed-loop verification.
D) error checking.
Answer: C
18) Checking for accuracy is performed by ____________ checks.
A) edit
B) range
C) reasonableness

D) all of the above


Answer: D
19) Authorisation in a computerised information system can be established through: (i) user
privileges (ii) user access rights (iii) restrictions on what different users are able to do within
the system.
A) (i) (iii)
B) (ii) (iii)
C) (i) (ii)
D) (i) (ii) (iii)
Answer:D
20) Which of the following is an example of poor segregation of duties?
A) Inventory control department is allowed to receive incoming goods.
B) Warehouse personnel are allowed to ship goods to customers.
C) The purchasing department is allowed to generate purchase requisitions.
D) All of the options are correct.
Answer:D

Discussion Questions
7.8
Summarise each component of the COSO internal control system. (LO5, LO6)
Control Environment The control environment sets the tone for the rest of the organisation and
can be seen as the way that the importance of ethical conduct and control focussed behaviour is
communicated to the organisation. As such, it is based largely on the top management of the
organisation and relies on both policy and action. Having policies and procedures and putting
mechanisms in place to see that they are effectively implemented and followed.
Risk Assessment This stage is where the organisation will evaluate the various sources of risk
that it faces and considers the likelihood of their occurrence, the magnitude of their impact and
possible strategies that could be implemented to deal with the risks.
Control Activities The control activities are the policies and procedures that are put into place
to deal with the risks faced by the organisation. These can be either general controls or
application controls.
Information and Communication - Information and communication includes the design of the
information system, which includes infrastructure, software, people, procedures, and data. The
information system needs to identify and record transactions, summarise transactions, allocate
transactions to the correct period and produce reports for decision making. This component also
includes the techniques used to communicate the different responsibilities of people within the
organisation, for example, job descriptions, and policy and procedure manuals.
Monitoring The monitoring component of the internal control system refers to the need to keep
informed about how the current control system is performing, as well as being alert to any newly
emerging threats or changes in the environment that could require a change in the operation of
the internal control system.

7.9

Explain why it is necessary for organisations to monitor and review their internal
control system. (LO5, LO6)

The reality for organisations is that the risks and threats that they address when they first
implement a control system will not be the same risks and threats that present themselves in
twelve months time. As a result of the changing environment in which the business operates, the
issues that need to be addressed by the control system will also change. An example to illustrate
this point is the use of a virus scan software package. We may install the software today and
never update the virus definitions. In a very short space of time the virus scan software will be
ineffective in dealing with the threat of viruses because it has not been updated to handle the new
viruses that have emerged. Only through regular updates will the virus scan software remain
effective. It is the same for organisations as the business environment changes, as technology
changes, as business processes change, so too do the threats and risks that need to be addressed
by the control system. It is only through the monitoring of the existing control system that such
deficiencies in its operation are able to be identified and remedied.

Problems
8.1

Classify the following control activities as general or application and explain your
reasoning,
(a) Employees have a password to gain access to the system.
(b) When sales are entered the system retrieves customer details based on the
customer number.
(c) A check is performed to identify if all cheques can be accounted for.
(d) Systems development is subject to signoff by the CIO before it can take place.
(e) Virus definitions are updated daily.
(f) The Sales Manager must approve all discounts for items sold below their sticker
price.

Option
(a)

Classification
General

(b)

Application

(c)

Application

(d)

General

(e)

General

Explanation
This is an example of an access control that helps
keep the system running properly by restricting
access to the system to authorised users. It is
information system wide and not specific to a process
or application.
This is an example of a control operating as part of
data input within the sales process.
This control operates to check the complete and
accurate recording of cheques issued as part of
making payments.
Systems development procedures relate to the
information system generally and its ability to
continue to operate properly and meet the
organisation's needs. Such procedures apply across
the entire organisation and are not specific to a
particular process or application.
Virus update procedures relate to the information

(f)

Application

system generally and its ability to continue to operate


properly and meet the organisation's needs. Such
procedures apply across the entire organisation and
are not specific to a particular process or application.
This control relates to the sales process and, in
particular, the authorisation of discounts given to
customers. It is process specific and relates to one of
the specific goals of application controls, that being
authorisation.

8.5

Turn Em Out is a fashion company that sells clothes to retail stores and individual
customers, provided that they are registered as a customer. This eliminates the need
for off-the-street sales. The organisation recently received a purchase order. The
steps that are subsequently followed are:
(1)
Customer service representative prepares a sales order (three copies).
(2)
Send the sales order to the accounts department, sales department and
accounts department.
(3)
The accounts department and sales departments will enter the order into the
system.
(4)
The computer will capture the data and store it in a temporary file, updating
the inventory, sales and accounts receivable files at the end of the day.
(5)
Print a picking slip and invoice and send it to the warehouse.
(6)
Pick the goods.
(7)
Attach picking slip and invoice to the goods.
(8)
Send goods to the customer.

Analyse the process by breaking it up into the stages of authorisation, input, processing,
output, and external data stages, as was discussed in reference to COBIT in the chapter.
For each stage state the aims, control issues and controls that could be used by Turn Em
Out.

Authorisation

The table below summarises some of the issues and controls that are (could) be used by Turn
Em Out.
Aim
Issue
Control
Documents are prepared,
Accuracy
Pre-designed forms
authorised collected and stored
Completeness
Pre-number forms
prior to entry.
Sequence checks
Batch totals
Audit trail
Storage of documents
Data is entered by people
Authorisation to enter
Job descriptions
authorised to perform data entry
data
and data entry is complete and
User privileges
accurate
Completeness
Check batch totals
before and after sending
documents
Manual and computer
batch total checks for
entered data

Input

Accuracy

Edit checks on data (e.g.


reasonableness
of
quantities, check digits
for customer ID)

Manual and computer


batch total checks for
entered data

Processing

Populate inputs using


master
data
(e.g.
customer and inventory
master data)
Data is processed correctly by the Integrity of data
system. This includes updating
master files and recording
transaction data.

Run to Run totals


calculated as part of
update of inventory,
sales
and
accounts
receivable data
Log of processing and
master data updates

Outputs are accurate.


Any Accuracy
generated outputs are stored for
the necessary time and accessible
to authorised personnel.

Reconcile sales order,


picking slip and invoice
to packed contents
Reconcile sales order,
invoice and picking slip
to sales
Reconcile sales order,
invoice and picking slip
to purchase order
File completed invoice,
sales order, purchase
order and picking slip
together
Confirm
customer
details with master data
Use
turnaround
documents

External

Output

Storage

Ensuring that data received from Validity


external parties is accurate, valid
and complete.
Validity / Accuracy

8.6

The payments department at Slick Sales has issued a cheque for an invoice it has
received from Office Supplies Ltd. The payables clerk has three documents, (1) a
receipted purchase order (figure 8.9), (2) a receiving report (figure 8.10), and (3) an
invoice (figure 8.11). The clerk has prepared the accompanying cheque and had it
signed, ready for sending (figure 8.12).

(a)

Explain how the purchase order, receiving report and invoice play an important
role in the authorisation of payments to accounts payable.
Analyse the documents and determine if the clerk should have prepared the cheque
and if it should be sent off to the supplier. Justify your conclusion.
What controls should be in place during and subsequent to cheque preparation?
Discuss the use and function of the remittance advice that is contained as a part of
the tax invoice.

(b)
(c)
(d)

Answer
(a) The purchase order, receiving report and invoice play an essential role in the authorisation of
payments. Each of these documents provides evidence of the stages in the payment process
preceding final issuance of payment. This allows for the triangulation of the three documents to
ensure that the data contained within is consistent. The purchase order is our record of what we
requested from the supplier. The receiving report is our record of what the supplier delivered.
The invoice is the amount the supplier has billed us for. If the three documents agree (i.e. we
received what we ordered and we were billed for what we received) then a payment can be
authorised to occur.
(b) There is evidence in these documents to indicate that the cheque should not have been
prepared and certainly not signed. A comparison of the three documents (see table below) shows
that while the purchase order and receiving report match (i.e. we received what we ordered), the
amount on the invoice does not agree. The discrepancy comes from item 054-B2, for which we
ordered and received 2 units but have been billed for three units.

Item
101-A1
202-C4
054-B2
391-J8
452-P3

Purchase
Order
Quantity
10
5
2
4
2

Receiving
Report
Quantity
10
5
2
4
2

Invoice
Quantity
10
5
3
4
2

(c) Some controls that could be used during the cheque preparation could include:
Risk
Control
Present
Unauthorised
signing
of Dual signatures on all cheques
Yes
cheque
Paying an invoice twice
Cancel invoice after cheque is issued
No
Pay for items not received
Match invoice, receiving report and No
purchase order prior to cheque issuance
Theft / loss of cheques
Cheques stored in a secure location
Not
Sequence checks on cheques issued
determined
Unpresentedcheques
Regular bank reconciliation
Not
determined
Incorrect cheque amount
Matching cheque amount to reconciled No
purchase order, receiving report and
invoice prior to signing
Batch total of cheques compared to batch Not
total of related invoices
Determined
Cheque being deposited in Marking cheque Not Negotiable
Not
wrong account / going to
determined
wrong person

(d) The remittance advice is an example of a turnaround document a document that is an


output of one process and becomes an input of another process. The remittance advice was
generated as part of the billing and will be an input as part of the cash receipts. This provides the
details of the cash receipt for the entry into the system and ensures that all relevant details are
provided (e.g. customer, invoice number, amount, due date). Thus it allows the matching of
receipts to invoices. The remittance advice also allows for the separation of payments received
in the mailroom from the remittance advice, an important control in cash receipts, allowing
payments from customers to be banked and payment details to be recorded based on the
remittance advice details.

8.8

For each of the following risks suggest a control that could be used to reduce it.
(a)
Entering negative values for order quantity in a sales order
(b)
Selling to a customer with an overdue account
(c)
Ordering from a nonexistent supplier
(d)
Paying for goods that have not been received
(e)
Entering an alphanumeric customer ID when the business policy is for
numeric customer IDs
(f)
Misappropriation of goods by receiving staff, who also maintain inventory
records
(g)
Ordering too much of a product.

Part Risk
a
Entering negative values for order
quantity in a sales order
b
Selling to a customer with an overdue
account
c

Control
Edit test: Range restrictions for quantities
entered
Credit check before authorising customer
Place a credit hold on all customers with
overdue accounts
Ordering from a nonexistent supplier Orders prepared from suppliers on
supplier master list
Independent maintenance of master list
Paying for goods that have not been Payment cannot be authorised until a
received
purchase order, receiving report and
invoice have been matched up
Entering an alphanumeric customer Edit check: Specify field content as
ID when the business policy is for numeric
numeric customer IDs
Misappropriation of goods by Separation of duties separation custody
receiving staff, who also maintain and record keeping
inventory records
Ordering too much of a product
Edit check: Reasonableness test on
quantity ordered
Approval of quantities to be ordered
Ordering policies e.g. EOQ for
determining amount

Topic 8
MCQ
1) Intentional or reckless conduct that results in materially misleading financial statements is
called
A) financial fraud.
B) misstatement fraud.
C) fraudulent financial reporting.
D) audit failure fraud.
Answer: C
2) Ethics can be defined as:
A) A synonymous term for a countrys legal system
B) Rules that guide us in our everyday behaviour, thoughts and actions
C) Both a. & b. are correct
D) None of the options are correct
Answer: B
3) Which of the following controls can ensure that all software is properly licensed in an
organisation?
A) Users are restricted from installing programs or running unauthorised programs on their
work computer.
B) Administrator rights and power user rights are not assigned to any common user.
C) Centralised deployment of software.
D) All of the options are correct.
Answer: D

4) One fraudulent scheme covers up a theft by creating cash through the transfer of money
between banks. This is known as
A) lapping.
B) misappropriation of assets.
C) kiting.
D) concealment.
Answer: C
5) The most efficient way to conceal asset misappropriation is to
A) write-off a customer receivable as bad debt.
B) alter monthly bank statements before reconciliation.
C) alter monthly physical inventory counts to reconcile to perpetual inventory records.
D) record phony payments to vendors.
Answer: A
6) The reporting, by an employee or member of an organisation, of the unethical behaviour of a
colleague is called:
A) Informing
B) Insider report
C) Whistle-blowing

D) Ethical action
Answer: C
7) Why is computer fraud often more difficult to detect than other types of fraud?
A) Rarely is cash stolen in computer fraud.
B) The fraud may leave little or no evidence it ever happened.
C) Computers provide more opportunities for fraud.
D) Computer fraud perpetrators are just more clever than other types of criminals.
Answer: B
8) The fraud that requires the least computer knowledge or skill involves
A) altering or falsifying source data.
B) unauthorized use of computers.
C) tampering with or copying software.
D) forging documents like paychecks.
Answer: A
9) Gaining unauthorised access to a system is called:
A) Hacking
B) Identity theft
C) Phishing
D) None of the options are correct.
Answer:A
10) Tapping into a communications line and then entering the system by accompanying a
legitimate user without their knowledge is called
A) superzapping.
B) data leakage.
C) hacking.
D) piggybacking.
Answer: D
11) Which of the following fraud can occur if an employee is responsible for both approving and
paying invoices?
A) Paying non-existent suppliers
B) Inventory theft
C) Credit fraud
D) All of the options are correct.
Answer: A
12) A bank teller is experiencing pressure at home, with mortgage payments rapidly approaching
and credit cards nearing their limit. The teller has the opportunity to borrow some of the
banks cash to place a bet on a sure thing at the Saturday races with the intention of
returning the cash to the bank on Monday morning. This is an example of: (i) Pressure for
fraud (ii) Opportunity for fraud.
A) Only (i)
B) Only (ii)
C) Both (i) and (ii)
D) Neither (i) nor (ii)

Answer: C
13) Which of the following would be least effective to reduce exposure to a computer virus?
A) Only transfer files between employees with USB flash drives.
B) Install and frequently update antivirus software.
C) Install all new software on a stand-alone computer for until it is tested.
D) Do not open email attachments from unknown senders.
Answer: A
14) In terms of cybercrime, which of the following is true?
A) Employees are only the main risk inside the organisation.
B) Employees are only the main risk outside the organisation.
C) There must be clear and swift sanctions against security misconduct.
D) External audit is more effective in detecting fraud than internal audit.
Answer: C
15) There are three risk factors known as the fraud triangle that are generally present when a
fraud is committed. Which of the following is not one of them?
A) An incentive or pressure to commit fraud.
B) A perceived opportunity to commit fraud.
C) An ability to rationalise the fraudulent action.
D) An ability to avoid being discovered.
Answer: D

Discussion Question
16.5 Explain the key types of computer crime. (LO4)
Cybercrime or computer crime can range from range from fraud, hacking, money laundering and
theft, through to cyberstalking, cyberbullying, identity theft, child sexual exploitation and child
grooming.

16.6 Give examples of the types of fraud that can be perpetrated using technology (LO4).
Cyber or online fraud refers to any type of fraud scheme that uses email, websites, chatrooms or
message boards to present fraudulent solicitations to prospective victims, to conduct fraudulent
transactions or to transmit the proceeds of fraud to financial institutions or to others connected
with the scheme.

16.7 What are the implications of cybercrime for business? (LO5)


The impact to businesses worldwide has been estimated to be more than $1 trillion. In Australia
and New Zealand, KPMGs Fraud and Misconduct Survey 2010 found that the total cost of fraud
is increasing: $345.4 million was lost to fraud compared to $301.1 million two years earlier.
Respondents believed that only one-third of total losses were being detected.
This is a significant loss to shareholder value and can cause significant reputational damage for

organisations if frauds become public.

16.8 What are the two areas that organisations need to focus on to ensure good security?
(LO6)
Internal control and risk management are important components of good corporate and IT
governance. Employees are the main risk both inside and outside the organisation. The digital
security ecosystem around the organisation security technology, organisational policies and
procedures, government regulations all rely on the effort of humans, particularly employees
that work inside these organisations. Other strategies can include codes of conduct and
registration with professional bodies. These can be ways of encouraging ethical behaviour and a
shared set of attitudes and beliefs throughout the organisation.

Topic 9

MCQ
1) The combination of the database, the DBMS, and the application programs that access the
database through the DBMS is referred to as the
A) data warehouse.
B) database administrator.
C) database system.
D) database manager.
Answer: C
2) The particular values for a customer are stored in the ____ of a ____ within the customer
________.
A) fields, record, table
B) record, fields, table.
C) fields, record, entity.
D) fields, table, database.
Answer: A
3) An employee in one department such as sales wanting to check on inventory levels would
have to contact the inventory department and enquire about inventory balances. This
indicates an absence of:

A) A centralised database system


B) Information sharing
C) A DBMS
D) A distributed database system
Answer: A
4) In relational database, the columns and rows in a table represent, respectively:
A) attributes and objects
B) entities and relationships
C) objects and attributes
D) relationships and entities
Answer: A

5) All of the following are benefits of the database approach except:


A) Data integration and sharing
B) Decentralized management of data
C) Minimal data redundancy
D) Cross-functional analysis and reporting
Answer: B
6) The physical view of a database system refers to
A) how a user or programmer conceptually organizes and understands the data.
B) how the DBMS accesses data for a certain application program.
C) how and where the data are physically arranged and stored.
D) how master files store data values used by more than one application program.
Answer: C
7) The schema that provides an organization-wide view of the entire database is known as the
A) external-level schema.
B) internal-level schema.
C) conceptual-level schema.
D) logical view of the database.
Answer: C
8) A ________ key allows the user to search on an attribute other than the attribute(s) that form
the primary key:
A) Secondary
B) Composite
C) Foreign
D) Subordinate
Answer: A
9) The problem of changes (or updates) to data values in a database being incorrectly recorded
is known as
A) an update anomaly.
B) an insert anomaly.
C) a delete anomaly.
D) a memory anomaly.

Answer: A
10) Which of the following is listed in the order from smallest to largest?
A) field, data, record, file
B) file, field, data, record
C) record, file, data, field
D) data, field, record, file
Answer: D
11) What normal form is the Lecturer Table at?
Lecturer Table
Lecturer_Code Surname
Given_Name
JON01
Jons
Adam
JON02
Jons
Maria
MIL01
Milton
Adam
SCH01
Schneider
Mils
THO01
Tomlinson
Patty
ZAR01
Zara
Sally

Subject Table
Subject#
125
126
127
128

Name
Accounting 1
Microeconomics
Accounting 2
Management Finance

Department Table
Department_Code
ACC
ECO
FIN

Department_Code
ACC
ECO
ACC
FIN

Level
1
3
2
3
3
2

Salary
45,000
65,000
55,000
65,000
65,000
55,000

Lecturer_Code
JON01
MIL01
ZAR01
SCH01

Depart_Name
Accounting
Economics
Finance

A) First normal form


B) Second normal form
C) Third normal form
D) The table is not at any normal form.
Answer: B

12) Refer to the tables in Q11. What best describes the relationship between the entities Subject
and Lecturer?
A) A lecturer can teach no subjects but may also teach many subjects
B) A lecturer always teaches at least one subject
C) A lecturer always teaches only one subject
D) A lecturer can, but does not have to, teach only one subject

Answer: D

Discussion Questions
3.2

Define the operation of a relational database. Why has it taken over as the optimal
structure to implement in organisations? (LO2, LO4)

The relational database operates through a sophisticated relational database management system
(RDBMS) that is more flexible and easier to understand, implement and manipulate.
Information is derived from connecting matching data stored in a number of tables. The strength
of the relational approach is that the designer does not need to know which questions may be
asked of the data. If the data are specified and defined carefully, the database can answer
virtually any question efficiently by matching data. It has taken over as the optimal structure to
implement in organisation because of its conceptual simplicity, structural independence and can
be done so using flexible client-server systems. However, it is expensive to purchase hardware,
operating systems of computing power for the database.
3.4

Describe the elements of a database system, including the DBMS. (LO4)

A database is a collection of elements that allow the capture, storage, management and use of
data within a database environment. These elements include hardware, software, people,
procedures and data. Hardware refers to the systems physical devices which include the
computer and computer peripherals. The software is the collection of programs used by the
computer to function and includes the operating system, DBMS software, application programs
and utilities. The DBMS software allows the database within the database system to be
managed. There are likely to be several people involved in the database system: systems
administrators, database designers, systems analysts and programmers. Procedures are the rules
that govern the design and use of the database system for the organisation. The determination of
which data are entered into the database and how they are organised is the role of the people
within the database system. Data are stored in a central location.
4.4

What is the purpose of normalisation in a database? (LO1)

The purpose of normalisation is to form tables and keys so that the repeating groups and data
redundancies are eliminated. By eliminating these issues you eliminating data anomalies and producing a
set of controlled redundancies to link tables that provide the most flexible system
for the organisation

Problem
a) ABC Sdn Bhd is a manufacturing company. The table below shows information on the
companys orders from its customers and manufacturing standard cost.
Customer No Quantity Order No Job No
Ordered

Product
No

1234
2345
3456

216
218
217

10
30
5

O200
O203
O202

101
102
103

Raw
Due Date
Material
Type
A
R
X

Standard Standard
Quantity Cost per
used per unit - RM
unit
12/07/2014
1
5.00
31/07/2014
2
4.00
15/07/2014
1
10.00

Create 2 sets of relational tables that would reduce the amount of data redundancy and provide
the following information.
i) The job relation for each job with customer particulars
ii) The product standard cost relation for the companys product line.
Answer
i) Job Relation table
Job No
101
102
103

Customer
No
1234
2345
3456

Product
No
216
218
217

Quantity
Ordered
10
30
5

Order
No
O200
O203
O202

Due Date
12/07/2014
31/07/2014
15/07/2014

ii)
Product Standard Cost Relation

Product
No

Raw
Material
Type

216
217
218

A
X
R

Standard Standard
Quantity Cost Per
Used Unit -RM
1
1
3

5.00
10.00
4.00

REA Data Model


1. What is an REA data model?
The REA data model is a conceptual modeling tool specifically designed to provide structure
for designing an AIS database. The REA data model identifies what entities should be
included in the AIS database and prescribes how to structure relationships among the entities

in the AIS database.


2. Name and describe the three parts of the REA data model.
REA stands for resources, events, and agents. Resources are defined as those things that
have economic value to the organization. Events are the various business activities about
which management wants to collect information for planning and control purposes. Agents
are the people and organizations that participate in events and about which information is
desired for planning, control, and evaluation purposes.
3. Define cardinality.
The cardinality of the relationship indicates how many occurrences of the entity on the other
side of the relationship can be linked to a single occurrence of the entity on this side of the
relationship. In relational database terms, cardinality provides information about how many
rows in the other table can be linked to each row in this table.
4. Which type of transaction is represented by the diagram below?
Take Customer
Sale
Order
a) Each sale is associated with a single order and there is a time lag between the time an
order is taken and delivery of the product.
b) Each sale can be comprised of multiple orders and each order can be associated with
multiple sales or no sales.
c) Each sale can be comprised of multiple orders and each order can be associated with one
or more sales.
d) Each sale is associated with a single order and there is no time lag between the time an
order is taken and delivery of the product.
5. Which type of transaction is represented by the diagram below?
Receive
Cash
Inventory
Disbursements
a) Vendors send a bill for each inventory item purchased which is payable on receipt.
b) A single purchase of inventory is paid for with multiple payments.
c) Inventory vendors send a monthly bill for merchandise delivered. The seller does not
accept or allow installment payments.
d) Some inventory purchases are paid for with multiple payments and some payments may
apply to multiple purchases.
6. Which type of transaction is represented by the diagram below?
Receive
Sale
Cash
a)
b)
c)
d)

Cash and carry consumer retail sales


Consumer retail sales paid in installments to the seller
Business to business sales of nondurable goods
Business that allows customers to carry a balance and make installment payments

7. Which type of transaction is represented by the diagram below?


Sale

Inventory

a) An automobile salvage business holds weekly auctions at which it sells its entire
inventory.
b) A grocery store sells products to consumers.
c) A hobbyist restores antique cars. When a car is finished, she sells it on Ebay.
d) A firm sells movies to consumers through an online downloading service.
8. Using [Min, Max] notation, cardinality is represented by the following diagram. Which of the
diagrams below correspond to the diagram?

Entity A

(1, 1)

(0, N)

Entity B

a)
Entity A

Entity B

Entity A

Entity B

Entity A

Entity B

Entity A

Entity B

b)

c)

d)

9. How can REA diagrams help an auditor understand a clients business processes?
An auditor can use an REA diagram to understand which events affect the organizations
resources and which agents participate in them. The information about cardinalities in an
REA diagram provides useful information about an organizations business practices,
such as whether it permits customers to make installment payments. Auditors can also
use REA diagrams to plan the audit. For example, examination of an REA diagram would
reveal whether the organization extends credit to its customers, which would then require
audits of accounts receivable, or only makes cash sales.

Topic 10
MCQ
1) What is the advantage of adopting the system development lifecycle (SDLC) approach?
A) Development is very rapid.
B) It is the cheapest approach.
C) The final system is well documented.
D) It is flexible if the user changes the requirements.
Answer C
2) Feasibility analysis does not involve determining whether:
A) the new system costs too much
B) the users within the organisation will accept the new system
C) the new system can be built within a specific period
D) the legal environment is suitable for the new system
Answer: B
3) Normally, systems design can take two perspectives:
A) the software perspective and the hardware perspective
B) the logical perspective and the physical perspective
C) the internal perspective and the external perspective
D) the technical perspective and the social perspective
Answer: B
4) What is the correct sequence of the phases in the systems development life cycle?
A) conceptual design, physical design, system analysis, implementation and conversion, and
operations and maintenance
B) conceptual design, system analysis, physical design, implementation and conversion
C) system analysis, conceptual design, physical design, implementation and conversion, and
operations and maintenance
D) system analysis, physical design, conceptual design, and operations and maintenance
Answer: C
5) The purpose of systems analysis is to
A) identify the problem to be solved by the new (or redesigned) system and the causes of the
problem in the current system.
B) determine design specifications for the new (or redesigned) system.
C) communicate information needs to consider during business process reengineering.
D) discover any violations of policies established by the information systems steering
committee.
Answer: A
6)

Who of the following is responsible for ensuring that the new system will meet the needs of

users?
A) accountants
B) the information system steering committee
C) the project development team
D) the system analysts and programmers
Answer: D
7) Which planning technique does not show the relationships among various activities?
A) Gantt chart
B) PERT
C) the critical path method
D) VAN
Answer: A
8) During which phase of systems analysis does modeling of the existing system occur?
A) information needs and system requirements
B) the feasibility study
C) the initial investigation
D) the systems survey
Answer: D
9)

Refer to the diagram below, where the numbers next to the arrows refer to the number of
days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F- 6 days
B) A-C-E-F 7 days
C) A-C-B-D-F 11 days
D) A-C-B-D-E-F 15 days
Answer: D

10) Refer to the table below, which shows the results of payback, net present value, and internal
rate of return analysis of four projects. Which is preferred by the net present value criterion?

A) Project A

B) Project B
C) Project C
D) Project D
Answer: A
11) Which of the following regarding the system design phase is correct?
A) The determination of outputs precedes that of inputs.
B) The determination of inputs precedes that of outputs.
C) The determination of inputs and outputs should be conducted simultaneously.
D) Order is not relevant when determining inputs and outputs.
Answer: A
12) Which of the following statements regarding a Gantt chart is not true?
A) A Gantt chart is a graphical way of planning and controlling the progress of a systems
development project.
B) The Gantt chart depicts the timeframe for the project along the y-axis and the activities that
are part of the project along the x-axis.
C) Gantt chart identifies the major activities that occur within the project.
D) Gantt chart identifies the timeframe for each activity that occurs within the project.
Answer: B

Discussion Questions
14.2

Describe the key activities that occur in the investigation stage of the systems
development lifecycle. (LO2)

The key activities that occur in the investigation stage of the systems development lifecycle are
concerned with the identification of problems with existing systems or identifying opportunities
for the development of new systems. This can be driven by both organisational need and
technological developments. As the investigation occurs organisational fit between the system
and the organisation will be kept in mind. Key activities as part of this stage include problem
identification, scope definition, feasibility analysis and the formation of the steering committee.
Problem identification involves gaining feedback on the current system from a representative
user group, as well as from stakeholders who are impacted by the system (e.g. customers), as
well as carrying out periodic reviews of the systems performance and adequacy.
Scope definition involves the constraining of the problems that are to be addressed in the
development. Having too many problems being addressed at once, or being uncertain about the
precise nature of the systems development can be disastrous.
Feasibility analysis assesses the options available and evaluates their legitimacy on the
dimensions of financial, legal, schedule, technical and strategic feasibility.
A steering committee will also be formed, with this group providing leadership throughout the
systems development effort.

14.3

Describe the key activities that occur in the analysis stage of the systems
development lifecycle. (LO2)

The key activities that occur in the analysis stage of the systems development lifecycle are
requirements analysis and specification. This stage centres on understanding the operations of
the current system and beginning to formulate ideas about what is required in a new system.
This will involve viewing the current system in operation, as well as assessing systems
documentation and other records. Users will generally be consulted at this stage, eliciting
feedback and suggestions that can be used in the systems development.

14.4

Describe the key activities that occur in the design stage of the systems development
lifecycle. (LO2)

The key activities that occur in the design stage of the systems development lifecycle are
determining the outputs and inputs, preparing a logical design, preparing a technical design and
selecting vendors.
Determining outputs and inputs This activity is focused on understanding the information and
reports that users require from the system and working backwards from these outputs to
determine the inputs required to generate them.
The logical design for the system will map out the operations of the system but will be hardware
independent.
The technical design elaborates on the logical design by providing specifications in the area of
hardware and resources required for the system. At this stage the design of screens within the
system will also be considered.
Selecting vendors Once the design of the system is specified the focus moves towards finding
vendors who can meet these requirements. This will involve preparation of a Request for
Proposal, receiving completed proposals from vendors and evaluating them to determine the best
vendor.

14.5

Describe the key activities that occur in the implementation stage of the systems
development lifecycle. (LO2)

The key activities that occur in the implementation stage of the systems development lifecycle
are deciding about networks, databases and programs, testing, determining an implementation
approach and system conversion.
When deciding about networks, databases and programs one of the major decisions will be
whether to develop the system in-house or acquire the system from a third party vendor.
Depending on the method selected the necessary tasks will vary.
Testing of in-house developed programs will be performed at the stub, unit and system levels.
Testing will also focus on comparing the outputs of the old and new system to ensure
comparable results.

Implementation will see the system put into operation within the business. This can be done
using one of three approaches direct, parallel or phased in conversion. During this stage users
will also need to be prepared for the new system and documentation updated as necessary.

14.6

Describe the key activities that occur in the maintenance stage of the systems
development lifecycle. (LO2)

The key activities that occur in the maintenance stage of the systems development lifecycle are
concerned with ensuring the ongoing operation of the system. This will include systems
improvement, system modification and bug correction.
At this stage a review of the new systems performance may also be performed, with the review
potentially incorporating the development process and how well it operated within the
organisation.

14.7

Discuss the advantages and disadvantages of a phased-in and direct switch-over


implementation strategy. (LO2)

The phased in approach to implementation sees an organisation gradually introduce a system into
different parts of the organisation. Typically, they may start with an implementation in a smaller
/ less busy area where any problems that are encountered will cause minimal disruption relative
to if the implementation had been carried out on a large scale.
The advantage of this approach is that any problems can be addressed and noted early on in lesscritical organisational areas, with these able to be addressed when implementing in other areas of
the organisation. Essentially, this provides a learning curve philosophy to implementation. The
disadvantage of such an approach is that it obviously takes longer for the full implementation to
be completed. Organisational politics may also present themselves when determining where to
commence the implementation.
The direct switch over implementation strategy sees an organisation switch directly over to the
new system. This approach essentially operates like an on-off switch. At the end of the day the
switch on the old system is turned off and the new system is turned on. This is done throughout
the entire organisation at the same time.
The advantage of this approach is that the switch over is instantaneous. This avoid the costs
involved in running both the old and new systems at the same time and, as it is organisation
wide, politics associated with the phased-in approach are less likely to exist. The major
disadvantage of this approach is the risk if the new system fails or strikes problems early in the
implementation there can be severe consequences for the organisation since the old system is not
there as a fallback option.
14.18 Describe how a PERT chart and a Gantt chart can be used to manage and control
systems development projects. (LO6)

A PERT chart is a diagram that depicts the activities that are to occur within a project, as well as
the relationship between the activities. It is useful as a planning tool for a project and forces
consideration of interdependencies between activities and the scheduling of activities in order to
minimise total project time.
A Gantt chart is a diagram that can be used for planning a project and monitoring the progress of
the project. It depicts the time frame along the horizontal axis and the activities to be performed
along the vertical axis.
Both of these techniques can be used as part of the management and control of systems
development projects. Both approaches encourage the identification of the activities that need to
be performed. This encourages familiarity and understanding of the development task and also
brings out the role for planning. The Gantt chart can be particularly useful for monitoring
project progress, observing any differences between budgeted and actual times. Monitoring such
variances can be a way of keeping the project on track. The PERT chart can be useful from a
project scheduling perspective. Illustrating the dependencies between activities can be of use
when scheduling the sequence for activities.

Topic 11 & 12

1) Which of the following is a benefit to running an ERP system?


A) Global integration
B) Elimination of updating and repairing multiple systems
C) Capability to manage operations, not just monitor them
D) All of the above are benefits
Answer: D
2) When considering new opportunities for technology within the organisation, it is critical to
consider:
A) whether the technology is the latest available
B) whether the technology aligns with the overall organisational strategy
C) whether the technology is user friendly
D) All of the options are correct.
Answer:B
3) Although ERP systems are built around the idea of best practice, some organisations will
choose not to adopt the ERP best practice, seeking instead to modify the design of the
system. The mostly likely reason for doing so is:
A) Modifying the ERP system will lower the cost of implementation because redundant features
are removed.
B) The fit between the system and the business processes needs to exist. Ii is easier to change
the system than to change the organisational design.
C) The ERP system is unable to drive some of the organisations unique business processes that
provide distinct competitive advantage to the organisation.
D) Adopting an ERP system off the shelf erodes competitive advantage because everyone else
has the same software at their disposal.
Answer: C
4) Goals of ERP include all of the following except
A) improved customer service
B) improvements of legacy systems
C) increased production
D) reduced production time
Ans B
5)
A)
B)
C)
D)

Core applications of an ERP are


financial accounting
procurement and logistics
sales and distribution
all of the above

ANS: D
6) Most ERPs are based on which network model?
A) peer to peer
B) client-server
C) ring topology
D) bus topology
ANSWER: b
7) What is a company that delivers software applications over the Internet?
A) ISP - Internet Service Provider
B) ASP - Application Service Provider
C) SSL - Secure Socket Layer
D) None of the above
Ans: B
8) A process that has been reengineered will have less of a role for specialists because:
A) Specialists are made redundant through the cost-cutting emphasis of BPR.
B) Decisions that require specialists are removed from a process.
C) Generalists are trained and act as specialists through the assistance of decision aids.
D) Jobs are combined and key workers are given decision making responsibility.
Answer: D
9) What is the electronic computer-to-computer transfer of standard business documents?
A) ESM - Electronic Submission
B) EDI - Electronic Data Interchange
C) ASP - Asymmetric Systematic Protocol
D) None of the above
Ans :B
10) Communications technology and the Internet can be used to reduce the time and costs
involved in disseminating financial statement information. Users of such financial
information still struggle in that many recipients have different information delivery
requirements and may have to manually reenter the information into their own decision
analysis tools. The ideal solution to solve these problems and efficiently transmit financial
information via the Internet is to use
A) HTML code.
B) XML.
C) pdf file.
D) XBRL.
Answer: D
11) Retail stores could send their orders directly to the manufacturer's sales order system in a
format that would eliminate the need for data entry, using
A) Vendor Managed Inventory.
B) Electronic Data Interchange.
C) Point Of Sale.
D) Electronic Funds Transfer.
Answer: B

12) Customers that send their payments electronically directly to the company's bank are using
A) Electronic data interchange (EDI).
B) Electronic funds transfer (EFT).
C) Procurement cards.
D) An electronic lockbox.
Answer: B
13) An organisation is looking for a way to improve their accounts payable process. Someone
suggested that they continue to send out paper invoices but allow customers to pay through
their bank website and phone banking. This is an example of:
A) Electronic bill presentment
B) Electronic bill presentment and payment
C) Electronic bill payment
D) Neither electronic bill presentment nor payment
answer: C
14) Which one of the following technology is more likely to be used in the billing and cash
receipts process by the seller of goods?
A) RFID
B) Electronic bill presentation and payment
C) Electronic bill payment
D) Evaluated receipts settlement
answer: D
15) Which of the following indicates that a company is using the internet effectively for its
business processes?
A) A company has a home page, information only website.
B) Sales orders captured through the website feed automatically into the revenue cycle.
C) Customers can contact the company for more information through the website.
D) The company uses internet banking to pay invoices.
answer: B

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