57.

While entering data into a cash receipts transaction file, an

employee transposed two numbers in a customer code. Which of the
following controls could prevent input of this type of error?

a. Sequence check. b. Record check. c. Self-checking digit. d. Field-

size check.

ANSWER: C

58. What is the computer process called when data processing is

performed concurrently with a particular activity and the results are
available soon enough to influence the particular course of action
being taken or the decision being made?

a. Batch processing. b. Real time processing. c. Integrated data

processing. d. Random access processing.

ANSWER: B

59. Reconciling processing control totals is an example of

a. An input control. b. An output control. c. A processing control. d.

A file management control.

ANSWER: B

60. A disadvantage of auditing around the computer is that it

a. Permits no assessment of actual processing. b. Requires highly

skilled auditors. c. Demands intensive use of machine resources. d.
Interacts actively with auditee applications.

ANSWER: A

61. The completeness of computer-generated sales figures can be

tested by comparing the number of items listed on the daily sales
report with the number of items billed on the actual invoices. This
process uses

a. Check digits. b. Control totals. c. Validity tests. d. Process tracing

data.
ANSWER: B

62. Which of the following controls would be most efficient in

reducing common data input errors?

a. Keystroke verification. b. A set of well-designed edit checks. c.

Balancing and reconciliation. d. Batch totals.

ANSWER: B

63. On-line real-time systems and electronic data interchange

systems have the advantages of providing more timely
information and reducing the quantity of documents associated
with less automated systems. The advantages, however, may
create some problems for the auditor. Which of the following
characteristics of these systems does not create an audit
problem?

a. The lack of traditional documentation of transactions creates

a need for greater attention to programmed controls at
the point of transaction input.

b. Hard copy may not be retained by the client for long periods
of time, thereby necessitating more frequent visits by the
auditor.

c. Control testing may be more difficult given the increased

vulnerability of the client's files to destruction during the
testing process.

d. Consistent on-line processing of recurring data increases the

incidence of errors.

ANSWER: D

64. Creating simulated transactions that are processed through a

system to generate results that are compared with predetermined
results, is an auditing procedure referred to as

a. Desk checking. b. Use of test data. c. Completing

outstanding jobs. d. Parallel simulation.
ANSWER: B

65. To obtain evidential matter about control risk, an auditor

ordinarily selects tests from a variety of techniques, including

a. Analysis. b. Confirmations. c. Reprocessing. d. Comparison.

ANSWER: C

66. A major exposure associated with the rapidly expanding use of

microcomputers is the absence of:

a. Adequate size of main memory and disk storage. b. Compatible

operating systems. c. Formalized procedures for purchase
justification. d. Physical, data file, and program security.

ANSWER: D

67. To ensure that goods received are the same as those shown on
the purchase invoice, a computerized system should:

a. Match selected fields of the purchase invoice to goods received.

b. Maintain control totals of inventory value. c. Calculate batch
totals for each input. d. Use check digits in account numbers.

ANSWER: A

68. Errors in data processed in a batch computer system may not

be detected immediately because

a. Transaction trails in a batch system are available

only for a limited period of time. b. There are time delays

in processing transactions in a batch system.

c. Errors in some transactions cause rejection of other transactions

in the batch.

d. Random errors are more likely in a batch system than in an on-

line system.
ANSWER: B

69. Which of the following is a computer test made to ascertain

whether a given characteristic belongs to the group?

a. Parity check. b. Validity check. c. Echo check. d. Limit check.

ANSWER: B

COMPLETION:

70. Although computerized data processing does not affect audit

objectives, the auditor may need to modify the audit

, given complex CBIS applications.

ANSWER: APPROACH

71. In a batch processing system transactions are processed in

groups, whereas in a real-time system transactions are
entered as they and are processed as they are

ANSWER: OCCUR, ENTERED

72. Although powerful in terms of , real- time systems are

more than batch processing systems.

ANSWER: INFORMATION CAPABILITY, COMPLEX

73. A distinguishing feature of integrated data base systems is that

many files are updated as transactions are processed.

ANSWER: SIMULTANEOUSLY

74. systems, by eliminating the need to reenter data into the

accounting system, reduce the incidence of processing errors;
but, by reducing transaction documentation, these systems
also require greater attention to proper controls over the of
transactions.
ANSWER: ELECTRONIC DATA INTERCHANGE, INPUT

75. Input controls, processing controls, and output controls are

categories of controls.

ANSWER: APPLICATION

76. Some entities require completing a prior to transaction input, in

order to ensure consistency and completeness of recurring
inputs.

ANSWER: TRANSACTION LOG

77. are manual control procedures applied by organizational units

whose data are processed by data processing.

ANSWER: USER CONTROLS

78. In on-line real-time systems the most effective means for

assuring limited access to data bases is by the use of properly
controlled .

ANSWER: PASSWORDS

79. Programmed controls for testing the validity of customer

numbers, product numbers, employee numbers, and vendor
numbers, as well as tests for reasonableness, are collectively
referred to as controls.

ANSWER: INPUT EDITING

80. In a ____________ __________ system, users own their own

data, whereas in _________ ______ systems, users share a

single operating system housed in a central location.

ANSWER: FLAT FILE, MULTI-USER

MATCHING:
81. Indicate by letter whether each of the listed auditing procedures
is a general control test, an application control test, or a substantive
audit test.

G = General control test

A = Application control test

S = Substantive audit test

____1. The auditor utilizes the services of the firm’s computer

audit specialist assist in testing controls over the electronic

processing of customer remittances.

____2. In testing the sales processing set of controls, the

auditor has designed a set of transactions that include

unauthorized sales prices, invalid customer numbers, and

lack of credit authorization.

____3. The auditor interviews the client’s information systems

manager to clear exceptions detected when the auditor

reviewed data processing job descriptions for

incompatible functions.

____4. The auditor confirmed a sample of customer accounts

receivable to evaluate the correctness of year-end balances in

customer accounts.

____5. Using generalized audit software, the auditor reprocessed

a sample of the client’s weekly payroll and compared

the resulting output with the client’s payroll summary for the same
period.
____6. The auditor attempted to access the client’s computerized

data files using the passwords of terminated employees.

____7. By examining vendors’ invoices supporting debits to the

account “Machinery and Equipment,” the auditor was able

to gain satisfaction as to the account balance at year end.

____8. The auditor examined authorizations and studied

documentation relating to CBIS modifications made

by the client during the year under audit.

____9. The auditor examined and tested the client’s anti virus

software for effectiveness.

____10. The auditor examined printouts from network monitoring

software and observed data input for proper functioning

of protocol controls and data encryption.

SOLUTION:

1. A

2. A

3. G

4. S

5. A

6. G

7. S
8. G

9. G

10. G

PROBLEM/ESSAY:

82. For each of the following independent situations, identify the

control weakness that permitted the error or fraud, and

indicate how the weakness should be corrected.

A. In a computerized sales processing system, numerous

pricing errors appeared on customer invoices.

B. Joshua Ness, a computer programmer for a bank, set up

a demand deposit account in his name. He then wrote a

program subroutine that automatically transferred funds from

accounts that had shown no activity for at least three months to the
newly-established account.

C. In a computerized payroll system, foremen, in collusion

with employees, were able to inflate pay rates. In

addition, terminated employees were retained on the

payroll and the fraudulent checks were endorsed by

a foreman or employee and deposited in his or her

personal account.

D. After implementing a newly-designed EDI system with

its vendors, Hilo Enterprises discovered numerous

errors in type, pricing, and quantity of goods received versus goods
ordered.

SOLUTION:

A. Computer did not verify selling prices. A master list

of current sales prices should be housed in the computer and

updated as prices change. The computer

should then be programmed to price the invoices.

B. Ness was able to access data files for the purpose of establishing
an unauthorized account. Programmers should not have access to
data files except for testing

and debugging programs. Moreover, formal authorization

of new accounts should be a part of the internal

control system.

C. The foremen were able to alter pay rates and retain

terminated employees on the payroll. To correct this weakness, all

new hires and terminations, as well as pay rate changes, should
require authorization of the human resources department. A current
master list of employee numbers and pay rates should then be
housed in the computer, and the computer programmed to perform

validity tests of rates and numbers as payrolls are

processed.

D. Controls were not designed to prevent vendor errors.

Protocol controls should be installed to detect and log

errors; and the EDI hardware should include an echo

check that returns messages from the vendor’s computer to Hilo’s
computer to verify correctness of orders received by the vendor.