Q&A Hero

Q: A join builds a new table by creating links.

Q: VSAM file structures are most effective where rapid access to individual records is a priority need.

Q: View modeling begins by identifying the primary entities of the business function in question.

Q: The hierarchical database model forces users to navigate between data elements using predefined structured paths.

Q: An advantage of using an indexed random file structure is that records are easily added and deleted.

Q: When a large portion of the file is to be processed in one operation such as payroll, sequential data structures are an inefficient method of organizing a file.

Q: The two fundamental components of data structures are organization and access method.

Q: Define each of the following input controls and give an example of how they may be used: a. Missing data check b. Numeric/alphabetic data check c. Limit check d. Range check e. Reasonableness check f. Validity check

Q: The presence of an audit trail is critical to the integrity of the accounting information system. Discuss three of the techniques used to preserve the audit trail.

Q: Explain the three methods used to correct errors in data entry.

Q: Discuss the three categories of input of input controls.

Q: Describe two types of transposition errors.

Q: Name three types of transcription errors.

Q: Explain input controls.

Q: If all of the inputs have been validated before processing, then what purpose do run-to-run controls serve?

Q: Classify each of the following as a field, record, or file interrogation: a. Limit check b. Validity check c. Version check d. Missing data check e. Sign checks f. Expiration date check g. Numeric-alphabetic data check h. Sequence check i. Zero-value check j. Header label check k. Range check l. Reasonableness check

Q: What is meant by auditing around the computer versus auditing through the computer? Why is this so important?

Q: Describe parallel simulation.

Q: Which of the following statements about a not-for-profit firm's sources of capital is most correct?a. Fund capital is obtained by retaining earnings if all earnings are paid out as dividends, no fund capital is created.b. Preferred stock is never used by not-for-profit firms.c. Not-for-profit firms are not allowed to raise capital by borrowing.d. Not-for-profit firms usually have high dividend payouts.e. Since not-for-profit firms are tax exempt, there is no tax advantage to debt capital.

Q: Auditors do not rely on detailed knowledge of the application's internal logic when they use the __________________________ approach to auditing computer applications.

Q: Which of the following statements about a not-for-profit firm's fund capital is most correct? a. The sole source of fund capital is the excess of revenues over expenses. b. Fund capital has a zero opportunity cost. c. Fund capital can only come from donations. d. Fund capital does not change over time. e. Fund capital is equivalent to equity capital in investor-owned firms.

Q: Give one example of an error that is detected by a check digit control.

Q: Which of the following statements about a not-for-profit firm's cost of capital estimate is most correct?a. The capital structure weights for a not-for-profit firm are set at 50/50, because such firms can raise $1 of debt financing for each dollar of retained earnings.b. The cost of tax-exempt debt issued by not-for-profit firms is increased ("grossed up") by 1 - T in the WACC estimate to reflect the fact that such firms do not pay taxes.c. Equity (fund) capital has a cost that is roughly equivalent to the cost of retained earnings to similar investor-owned companies.d. Not-for-profit firms have a zero cost of capital.e. Since a not-for-profit firm has no shareholders, its WACC estimate does not include a cost of equity (fund capital) estimate.

Q: A __________________________ fraud affects a large number of victims but the harm to each appears to be very small.

Q: Which of the following statements about a not-for-profit firm's ownership is most correct? a. The residual earnings (profits) of not-for-profit firms can be distributed to the firm's top managers. b. Not-for-profit firms are exempt from federal taxes, but they must pay state and local taxes, including property taxes. c. Upon liquidation of a not-for-profit firm, the proceeds from the sale of its assets are distributed, on a pro rata basis, to the firm's employees. d. None of the profits are used for private inurement. e. Not-for-profit firms are governed by a board of trustees whose members are elected by the community at large.

Q: Name four input controls and describe what they test?

Q: Which of the following statements about municipal bond financing is most correct? a. Whereas the vast majority of Treasury and corporate bonds are held by institutions, no municipal bonds are held by individual investors. b. The primary attraction of municipal bonds to individual investors is their high before-tax yields. c. Municipal bonds usually pay higher coupon rates than corporate bonds with similar ratings. d. Municipal bonds are risk-free. e. In contrast to corporate bonds, municipal bond issues are not required to be registered with the Securities and Exchange Commission.

Q: Output controls ensure that output is not lost, misdirected, or corrupted and that privacy is not violated. What are some output exposures or situations where output is at risk?

Q: Which of the following statements about project risk analysis in not-for-profit firms is incorrect?a. A project's corporate beta measures the contribution of the project to the overall corporate risk of the firm.b. A project's corporate beta is found (at least conceptually) by regressing returns on the project against returns on the market portfolio.c. A project's corporate beta is defined as (P/F)rPF, where P is the standard deviation of the project's returns, F is the standard deviation of the firm's returns, and rPF is the correlation among the two sets of returns.d. In practice, it is usually difficult, if not impossible, to directly measure a project's corporate risk, so project risk analysis typically focuses on stand-alone risk.e. The market risk of a project is not relevant to not-for-profit firms.

Q: What control issue is related to reentering corrected error records into a batch processing system? What are the two methods for doing this?

Q: The net present social value model formally recognizes that not-for-profit firms must consider the social value along with the financial value of proposed new projects. a. True b. False

Q: What are the three categories of processing control?

Q: Since not-for-profit firms do not pay taxes, they receive no tax benefits whatsoever from using debt financing. a. True b. False

Q: How does privacy relate to output control?

Q: Not-for-profit firms have fund capital in place of equity capital. Since fund capital does not have to provide a return to stockholders, the appropriate cost of fund capital in a cost of capital estimate is zero. a. True b. False

Q: What are the three broad categories of application controls?

Q: The primary goal of investor-owned firms is shareholder wealth maximization, while the primary goal of not-for-profit firms is typically stated in terms of some mission; for example, to provide health care services to the communities served. a. True b. False

Q: The order entry system will allow a 10 percent variation in list price. For example, an item with a list price of $1 could be sold for 90 cents or $1.10 without any system interference. The cost of the item is $3, but the cashier entered $2. Which control would detect this error?

Q: Arnold Rossiter is a 40-year-old employee of the Barrington Company who will retire at age 60 and expects to live to age 75. The firm has promised a retirement income of $20,000 at the end of each year following retirement until death. The firm's pension fund is expected to earn 7 percent annually on its assets and the firm uses 7% to discount pension benefits. What is Barrington's annual pension contribution to the nearest dollar for Mr. Rossiter? (Assume certainty and end-of-year cash flows.) a. $2,756 b. $3,642 c. $4,443 d. $4,967 e. $5,491

Q: The password was "CANARY"; the employee entered "CAANARY." Which control will detect this error?

Q: Ms. Lloyd, who is 25 and expects to retire at age 60, has just been hired by the Chambers Corporation. Ms. Lloyd's current salary is $30,000 per year, but her wages are expected to increase by 5 percent annually over the next 35 years. Chambers has a defined benefit pension plan in which workers receive 2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Ms. Lloyd's expected annual retirement benefit, rounded to the nearest thousands of dollars? a. $35,000 b. $57,000 c. $89,000 d. $116,000 e. $132,000

Q: The firm allows no more than 10 hours of overtime a week. An employee entered "15" in the field. Which control will detect this error?

Q: From a pure cost standpoint, a firm with a defined contribution plan would be more likely to hire older workers than a firm with a defined benefit plan. a. True b. False

Q: When auditors do not rely on a detailed knowledge of the application's internal logic, they are performing a. black box tests of program controls b. white box tests of program controls c. substantive testing d. intuitive testing

Q: If employees have a right to receive pension benefits even if they leave the company prior to retirement, their pension rights are said to be vested. a. True b. False

Q: Which of the following is not an input control? a. Range check b. Limit check c. Spooling check d. Validity check e. They are all input controls

Q: Under a defined contribution plan, employees agree to contribute some percentage of their salaries, up to 20 percent, to the firm's pension fund. a. True b. False

Q: Which of the following is an input control? a. Reasonableness check b. Run-to-run check c. Spooling check d. Batch check e. None are input controls

Q: All of the following statements are true about the integrated test facility (ITF) except a. production reports are affected by ITF transactions b. ITF databases contain "dummy" records integrated with legitimate records c. ITF permits ongoing application auditing d. ITF does not disrupt operations or require the intervention of computer services personnel

Q: Kumar Consulting operates several stock investment portfolios that are used by firms for investment of pension plan assets. Last year, one portfolio had a realized return of 12.6 percent and a beta coefficient of 1.15. The average T-bond rate was 7 percent and the realized rate of return on the S&P 500 was 12 percent. What was the portfolio's alpha?a. -0.75%b. -0.15%c. 0%d. 0.15%e. 0.75%

Q: Which of the following statements about defined contribution plans is incorrect? a. In general, employees can choose the investment vehicle under a defined contribution plan. Thus, highly risk-averse employees can choose low-risk investments, while more risk-tolerant employees can choose high-risk investments. b. In a defined contribution plan, the employer must make larger-than-average contributions to the pension plan when investment returns have been below expectations. c. Defined benefit plans are used more often by large corporations than by small companies. d. The PBGC insures a portion of pension benefits. e. A defined contribution plan places the risk of poor pension portfolio performance on the employee.

Q: Which of the following is an example of an input error correction technique? a. immediate correction b. rejection of batch c. creation of error file d. all are examples of input error correction techniques

Q: Input controls include all of the following except a. check digits b. limit check c. spooling check d. missing data check

Q: Which of the following statements about pension plans if any, is incorrect? a. Under a defined benefit plan, the employer agrees to give retirees a specifically defined benefit, such as $500 per month or 50 percent of the employee's final salary. b. A portable pension plan is one that an employee can carry from one employer to another. c. An employer's obligation is satisfied under a defined contribution plan when it makes the required contributions to the plan. The risk of inadequate investment returns is borne by the employee. d. If assets exceed the present value of benefits, the pension plan is fully funded. e. A defined contribution plan is, in effect, a savings plan that is funded by employers, although many plans also permit additional contributions by employees.

Q: Which of the following statements about pension plan portfolio performance is incorrect? a. Alpha analysis, which relies on the Capital Asset Pricing Model, considers the risk of the portfolio when measuring performance. b. Peer comparison examines the relative performance of portfolio managers with similar investment objectives. c. A portfolio annual return of 12 percent from one investment advisor is not necessarily better than a return of 10 percent from another advisor. d. In managing the retiree portfolio, fund managers often use immunization techniques such as alpha analysis to eliminate, or at least significantly reduce, the risk associated with changing interest rates. e. Pension fund sponsors must evaluate the performance of their portfolio managers periodically as a basis for future asset allocations.

Q: Which statement is not correct? a. Only successful transactions are recorded on a transaction log. b. Unsuccessful transactions are recorded in an error file. c. A transaction log is a temporary file. d. A hardcopy transaction listing is provided to users.

Q: The performance measurement of stock portfolio managers must recognize the risk inherent in the investment portfolio. One way to incorporate risk into performance measurement is to examine the portfolio's alpha, which measures the vertical distance of the portfolio's return above or below the Security Market Line. a. True b. False

Q: Risk exposures associated with creating an output file as an intermediate step in the printing process (spooling) include all of the following actions by a computer criminal except a. gaining access to the output file and changing critical data values b. using a remote printer and incurring operating inefficiencies c. making a copy of the output file and using the copy to produce illegal output reports d. printing an extra hardcopy of the output file

Q: Methods used to maintain an audit trail in a computerized environment include all of the following except a. transaction logs b. transaction listings c. data encryption d. log of automatic transactions

Q: During times of inflation, which of these inventory accounting methods is best for cash flow? a. LIFO, because the most expensive goods are recorded as being sold first, resulting in a higher cost of goods sold and a lower reported net income. b. Specific identification, because it correctly identifies the actual item sold and so the actual cost is recorded on the income statement. c. Weighted average, because it smoothes the reported cost of goods sold over time. d. It doesn't matter which you use since cash flow is unaffected by the choice of inventory identification method. e. FIFO, because the cheapest goods are recorded as being sold first, resulting in lower cost of goods sold and higher reported net income.

Q: Run-to-run control totals can be used for all of the following except a. to ensure that all data input is validated b. to ensure that only transactions of a similar type are being processed c. to ensure the records are in sequence and are not missing d. to ensure that no transaction is omitted

Q: Exhibit 28.3Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.Refer to Exhibit 28.3. Now, suppose the manufacturer offers a discount of 0.5 percent for orders of a least 40,000 gallons. Should Palmer increase its ordering quantity to take the discount?a. Yes; it will save $827 if it takes the discount.b. No; it will lose $827 if it takes the discount.c. Yes; it will save $14,400 if it takes the discount.d. Yes; it will save $13,573 if it takes the discount.e. No; it will lose $13,573 if it takes the discount.

Q: Exhibit 28.3Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.Refer to Exhibit 28.3. What is Palmer's minimum costs of ordering and holding inventory?a. $6,254b. $10,733c. $11,560d. $13,563e. $19,825

Q: A computer operator was in a hurry and accidentally used the wrong master file to process a transaction file. As a result, the accounts receivable master file was erased. Which control would prevent this from happening? a. header label check b. expiration date check c. version check d. validity check

Q: Which check is not an input control? a. reasonableness check b. validity check. c. spooling check d. missing data check

Q: Exhibit 28.3Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.Refer to Exhibit 28.3. What is the firm's EOQ?a. 26,833b. 30,040c. 43,987d. 13,563e. 21,456

Q: An inventory record indicates that 12 items of a specific product are on hand. A customer purchased two of the items, but when recording the order, the data entry clerk mistakenly entered 20 items sold. Which check could detect this error? a. numeric/alphabetic data checks b. limit check c. range check d. reasonableness check

Q: Exhibit 28.2Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)Refer to Exhibit 28.2. If Cartwright holds a safety stock equal to a 30-day supply of chips, what is Cartwright's minimum cost of ordering and carrying inventory?a. $28,500b. $15,950c. $68,440d. $34,220e. $47,693

Q: The employee entered "40" in the "hours worked per day" field. Which check would detect this unintentional error? a. numeric/alphabetic data check b. sign check c. limit check d. missing data check

Q: Exhibit 28.2Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)Refer to Exhibit 28.2. If the lead time for placing an order is 5 days, and Cartwright holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?a. 15,570b. 3,175c. 12,250d. 13,675e. 8,124

Q: Which input control check would detect a posting to the wrong customer account? a. missing data check b. check digit c. reasonableness check d. validity check

Q: Exhibit 28.2Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)Refer to Exhibit 28.2. How many orders should Cartwright place during the year?a. 12b. 25c. 30d. 40e. 60

Q: Exhibit 28.2Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)Refer to Exhibit 28.2. Assume that Cartwright holds a safety stock equal to a 30-day supply of chips. What is the maximum amount of inventory that will have on hand at any time, that is, what will be the inventory level right after a delivery is made?a. 9,216b. 3,175c. 6,243d. 13,675e. 8,124

Q: Which input control check would detect a payment made to a nonexistent vendor? a. missing data check b. numeric/alphabetic check c. range check d. validity check

Q: Which of the following is an example of input control test? a. sequence check b. zero value check c. spooling check d. range check

Q: Exhibit 28.2Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)Refer to Exhibit 28.2. If Cartwright holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?a. 12,088b. 3,175c. 15,750d. 13,675e. 8,124

Q: Which of the following is not an example of a processing control? a. hash total. b. record count. c. batch total. d. check digit

Q: Exhibit 28.2Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)Refer to Exhibit 28.2. What is the economic ordering quantity for chips?a. 12,088b. 3,175c. 6,243d. 13,675e. 8,124

Q: Which statement is not true? A batch control record a. contains a transaction code b. records the record count c. contains a hash total d. control figures in the record may be adjusted during processing e. All the above are true

Q: New England Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every 30 days. A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, how does the current policy compare with the optimal policy?Ordering cost = $10 per orderCarrying cost = 20% of purchase pricePurchase price = $10 per unitTotal sales for year = 1,000 unitsSafety stock = 0a. Total costs will be the same, since the current policy is optimal.b. Total costs under the current policy will be less than total costs under the EOQ by $10.c. Total costs under the current policy exceed those under the EOQ by $3.d. Total costs under the current policy exceed those under the EOQ by $10.e. Cannot be determined due to insufficient information.