A20 FINALS

1. It is easier to achieve strong internal control in a large business than in a small one. – more budget equals more
control

2. Debt Memorandum – reduces balance other than payment

 when damaged or poor quality goods are received and the purchaser is granted a price reduction or the
products are taken back one copy sent to the supplier , and one copy is sent to the shipping department with
the return

3. Fidelity bonds - A fidelity bond is a form of business insurance that offers an employer protection against losses
that are caused by its employees' fraudulent or dishonest actions. Also known as an "honesty bond," this form of
insurance can protect against monetary or physical losses.
 Confidentiality Agreements and Fidelity Bond Insurance All employees, suppliers, and contractors
should sign and abide by a confidentiality agreement. Fidelity bond insurance coverage of key
employees protects companies against losses arising from deliberate acts of fraud.

4. Flowchart - An analytical technique that uses a standard set of symbols to describe pictorially some aspect of an
IS in a clear, concise, and logical manner; used to record how business processes are performed and how
documents flow through an organization; Most businesses use this type of AIS documentation.
 Program flowchart - Illustrates the sequence of logical operations performed by a computer in executing
a program
 Show the logic associated with a computer program; rarely used in AIS work.
 Document flowchart - Illustrates the flow of documents and data among areas of responsibility within
an organization, from its cradle to its grave; shows where each document originates, its distribution, its
purposes, and its ultimate disposition.
 Quizlet: Trace a document through an information system; more focused than a system flowchart,
which would normally include documents.
 System flow chart - Depicts the relationships among system input, processing, storage, and output.
 Quizlet: Provide a "big picture" overview of an information system.

5. Batch processing – good for high volume transactions, economy of scale can be gained
 Accumulating transaction records into groups or batches for processing at a regular interval such as daily
or weekly. The records are usually sorted into some sequence (such as numerically or alphabetically)
before processing
 online, real-time processing - The computer system processes data immediately after capture and
provides updated information to users on a timely basic

6. Turnaround document – effective for input control in manufacturing, reduce human error
a) Records of company data sent to an external party and then returned to the system as input
b) Documents such as remittance devices that are used to capture input and subsequent events
c) Turnaround documents are prepared in machine-readable form to facilitate their subsequent processing
as input records. An example is a utility bill that a special scanning device reads when the bill is returned
with a payment. Turnaround documents improve accuracy by eliminating the potential for input errors
when entering data manually
7. The traditional cycles - Cash receipts, cash disbursements, capital budgeting, and financial reporting.
 The revenue cycle encompasses all transactions involving sales to customers and the collection of cash
receipts for those sales.
 The expenditure cycle encompasses all transactions involving the purchase and payment of merchandise
sold by S&S, as well as other services it consumes, such as rent and utilities.
 The human resources/payroll cycle encompasses all the transactions involving the hiring, training, and
payment of employees.
 The financing cycle encompasses all transactions involving the investment of capital in the company,
borrowing money, payment of interest, and loan repayments.
*These four cycles interface with the general ledger and reporting system, which consists of all activities related to the
preparation of financial statements and other managerial reports.

8. Use of firewall
 Firewall - A special-purpose hardware device or software running a general-purpose computer that
controls both inbound and outbound communication between the system behind the firewall and other
networks.
 Border router and firewall act as filters to control which information is allowed to enter and leave the
organization’s information system.
 Those border routers and the organization’s main firewall use sets of IF-THEN rules, called Access
Control Lists (ACLs), to determine what to do with arriving packets.
 Routers and firewalls examine individual packets, network intrusion prevention systems (IPS) monitor
patterns in the traffic flow to identify and automatically block attacks.
9. Electronic fund transfer (ETF) – payment system

 An electronic funds transfer (EFT), or direct deposit, is a digital movement of money from one bank
account to another. The transfer of funds through use of online banking software.
 With electronic funds transfer (EFT), customers send their remittances electronically to the company’s
bank and thus eliminate the delay associated with the time the payment is in the mail system. EFT also
reduces the time lag before the bank makes the deposited funds available to the company.

10. We need to credit check first if you have sale to new customer.
 For existing customers with well-established payment histories, a formal credit check for each sale is
usually unnecessary.
 Management gives sales staff general authorization to approve orders from customers in good standing,
meaning those without past-due balances, provided that such sales do not increase the customer’s total
account balance beyond their credit limit
 A credit limit is the maximum allowable account balance that management wishes to allow for a
customer based on that customer’s past credit history and ability to pay.
*For existing customers, credit approval simply involves checking the customer master file to verify the account
exists, identifying the customer’s credit limit, and verifying that the amount of the order plus any current account
balance does not exceed this limit. This can be done automatically by the system.

11. Master operations file, production data file, bill of material file
 master file - A permanent file of records that stores cumulative data about an organization. As
transactions take place, individual records within a master file are updated to keep them current.
 master production schedule (MPS) - Specifies how much of each product is to be produced during the
planning period and when that production should occur.
 Bill of Material - lists which and how many items that go into a product

12. Flexible manufacturing system – reconfigurable

 Flexible Manufacturing Systems (FMS)
i. Type of flow line that are designed to produce a wide variety of products utilising flexible
manufacturing system configurations and equipment. Applications include Products mass
customised for production (e.g. Computers, Automotive, Sub-Assemblies, and Home appliances)
ii. Medium to high product variety
iii. Low to Medium volume per product model
 Reconfigurable Manufacturing Systems (RMS)
i. Type of flow lines that are designed to produce family of products and to rapidly change as demand
for or functionality of the product family changes. Its application include automotive final assembly,
Engine Block Machining, Furniture Manufacturing and Home Appliances.)
ii. Relatively low product variety (Family of products)
iii. Relatively high volumes per
product model
13. Receiving report limitation – it cannot verify if the good are in good condition

14. Cash receipts, cash disbursements, capital budgeting, and financial reporting. – comparing purchase invoice
and receiving report
 One of the most critical controls to prevent theft of inventory purchased


 evaluated receipt settlement (ERS) - An invoiceless approach to accounts payable that replaces the
three-way matching process (vendor invoice, receiving report, and purchase order) with a two-way
match of the purchase order and receiving report.
15. Four steps involved in the purchase of merchandise - Request, Order, Receive, Payment
i. Ordering
ii. Receiving
iii. approve suppliers invoice
iv. cash disbursement
*Expenditure Cycle mirrors revenue Cycle

16. Purchase invoice is approved for payment – purchaser record entry

17. Best set of documents for purchasing - Purchase requisition, purchase orders, receiving reports and vendor
invoices.
 purchase order - A document that formally requests a vendor to sell and deliver specified products at
designated prices. It is also a promise to pay and becomes a contract once the vendor accepts it.
 purchase requisition - A document or electronic form that identifies the requisitioner; specifies the delivery
location and date needed; identifies the item numbers, descriptions, quantity, and price of each item
requested; and may suggest a vendor
 receiving report - A document that records details about each delivery, including the date received, shipper,
vendor, quantity received
 sales invoice - A document notifying customers of the amount of a sale and where to send payment

18. Manufacturing, quality control and maintenance - best describes the activities of the production function?
 StuDocu: Which of the following best describes the activities of the production function?
a. maintenance, inventory control, and production planning
b. production planning, quality control, manufacturing, and cost accounting
c. quality control, production planning, manufacturing, and payroll
d. maintenance, production planning, storage, and quality control
e. manufacturing, quality control, and maintenance

19. Remember – Purchase requisition first before purchase order.

20. Vendor = Supplier
21. Purchase requisition -> Purchase order -->Invoice approval --->Invoice--receiving report
22. Installing and designing Accounting system
i. Prepare chart of accounts.
ii. Design the form to be used.
iii. Prepare workable and practical internal control procedures.
a) chart of accounts - A listing of all the numbers assigned to balance sheet and income statement
accounts. The account numbers allow transaction data to be coded, classified, and entered into the
proper accounts. They also facilitate financial statement and report preparation

23. Inaccurate time data will not affect calculation of overhead costs
 Which of the following is not a potential effect of inaccurate data on employee time cards?
A) increased labor expenses
B) erroneous labor expense reports
C) damaged employee morale
D) inaccurate calculation of overhead costs

24. Cross footing = appropriate for payroll processing - Cross foot means to verify a sum of totals in several
columns agrees to a grand total. A cross foot calculator aids in payroll efforts.
 cross-footing balance test - A processing control which verifies accuracy by comparing two alternative
ways of calculating the same total.
 zero-balance test - A processing control that verifies that the balance of a control account equals zero
after all entries to it have been made

25. Payroll clearing = accuracy and completeness

 The payroll clearing account should have a zero balance after both sets of entries have been made; a nonzero
balance indicates a processing error
26. Payroll check writing controls - BCD
 All of the following are controls that should be implemented in a payroll process, except
A) supervisors distribute paychecks since they should know all employees in their department.
B) someone independent of the payroll process should reconcile the payroll bank account.
C) sequential numbering of paychecks and accounting for the numbers.
D) restrict access to blank payroll checks and documents.

27. Backup and disaster recovery procedures – Reduce losing data

 Backup - A copy of a database, file, or software program
 Disaster recovery plan (DRP) A plan to restore an organization’s IT capability in the event that its data
center is destroyed.
 Loss of data - Controls: Regularly back up files; keep additional master files; use internal and external file
labels; restrict access; and keep logs of all activities

28. Hiring and recruiting threats

 Threats of general activities of HRM
i. hiring unqualified employees
ii. unauthorized disclosure of sensitive info
iii. violation of employment law

29. Payroll processing threats - quizlet

i. Inaccurate or invalid master data
ii. Unauthorized disclosure of sensitive information
iii. Loss or destruction of data
iv. Hiring unqualified or larcenous employees
v. Violations of employment laws

30. Automation of data collection – control for inaccurate data entry

 Quizlet: The best control procedure for accurate data entry is
A.the use of on-line terminals.
B.an access control matrix.
C.passwords and user IDs.
D.automation of data collection.

31. Paychecks should be physically distributed by someone who does not authorize or record payroll – control
for risk of ghost employees
 Quizlet: Which of the following is a control that can be implemented to help prevent paychecks being issued
to a "phantom" or "ghost" employee?
A) The cashier should sign all payroll checks.
B) Sequentially prenumber all payroll checks.
C) Use an imprest account to clear payroll checks.
D) Paychecks should be physically distributed by someone who does not authorize time data or record
payroll.
32. Drawback of traditional costing - Many overhead costs are incorrectly allocated to products since they do not
vary with production volume.
 I. Product diversity creates costing problems because diverse products tend to utilize manufacturing activities
in different ways.
 II. Overhead costs that are not incurred at the unit level create costing problems because such costs do not
vary with traditional application bases such as direct labor hours or machine hours.

33. Activity-based costing - links costs to the corporation's strategy

 Quizlet: __________ links costs to the corporation's strategy for production of goods and
services.
a) Activity-based costing
b) Job-order costing
c) Process costing
d) Manufacturing costing

33. Cost driver – cause and effect

 Quizlet: Activity-based costing (ABC) can refine and improve cost allocations using either job-order or process
cost systems. There are three significant differences between ABC and traditional cost accounting
approaches. An ABC system attempts to identify anything that has a cause-and-effect relationship on costs.
This cause-and effect relationship is known as a
a) cost stimulator.
b) overhead stimulator.
c) cost driver.
d) cost catalyst.

34. Throughput is a measure of production effectiveness.

 Quizlet: Throughput is a measure of
a) production yield.
b) production effectiveness.
c) production capacity.
d) production quality.
 Throughput Time - Is the time it takes from authorization for goods to be produced to when goods are
completed. Reduced by switching from push to pull manufacturing.

35. Prevention costs Inspection costs, Internal failure costs, external failure cost
i. Prevention costs are incurred to ensure that products are created without defects the first time.
ii. Inspection costs are associated with testing to ensure that products meet quality standards.
iii. Internal failure costs represent testing to identify defective units before they are ready for sale.
iv. external failure cost - There are various costs associated with quality control, or its absence in a
production operation. Such information can help a company determine the effects of actions taken to
improve production and identify areas of improvement. The cost of a
product liability claim can be classified as a(n) external failure cost
36. Prevent the acceptance of unordered goods - always require that a valid purchase order exists before goods
can be accepted at the time of delivery
 Quizlet: What is the easiest way to prevent the acceptance of unordered goods?
a) order only from approved vendors
b) always require that a valid purchase order exists before goods can be accepted at the time of delivery
c) have an appropriate conflict of interest policy in place
d) require receiving personnel to call the vendor before accepting any goods

38. Control for paying invoice twice - payment should never be authorized for a photocopy of an invoice
 Quizlet: There is a threat of paying an invoice twice. What is an applicable control that may help mitigate this
threat?
a) payment should never be authorized for a photocopy of an invoice
b) double-check invoice accuracy
c) approval of a purchase order
d) adequate perpetual inventory records

39. Control for to prevent payment to fictitious vendors - allow payments only to approved vendors
 Quizlet: Which control would be best to 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

40. cash and petty cash vouchers – should be equal to amount authorized for the fund.
 Quizlet: A surprise count of petty cash by the auditor should find the total of __________ equal to the
amount authorized for the fund.
a) cash and credit memos
b) cash and petty cash vouchers
c) cash
d) cash and checks

41. To reduce losses – maintain adequate insurance

 Quizlet: Describe four ways companies can reduce losses from fraud.
i. Maintain adequate insurance.
ii. Keep a current backup copy of all program and data files in a secure off-site location.
iii. Develop a contingency plan for fraud occurrences and other disasters that might occur.
iv. Use special software designed to monitor system activity and help companies recover from frauds and
malicious actions.

42. Diamond = decision

 A decision made during the process is represented by a diamond. An explanation of the decision is
placed inside the symbol.