Chapter 08 - Consideration of Internal Control in an Information Technology Environment Chapter 08 Consideration of Internal Control in an Information Technology Environment True / False Questions Magnetic tape drives have the advantage of direct access to stored data True False The operating system is an example of system software True False For good internal control, programmers should not be given access to complete program documentation for the programs they work on True False Data encryption is an example of data transmission control True False Internal file labels are designed to prevent errors by programmers True False For auxiliary storage when the computer is operating, personal computers use hard disk drives True False Distributive data processing eliminates the need for data security True False 8-1 Chapter 08 - Consideration of Internal Control in an Information Technology Environment Most advanced computer systems not have audit trails True False Auditors usually begin their consideration of IT systems with tests of application controls True False 10 Generalized audit software may be used for substantive tests or for tests of controls True False Multiple Choice Questions 11 Which of the following procedures would an entity most likely include in its disaster recovery plan? A Convert all data from external formats to an internal company format B Maintain a program to prevent illegal activity C Develop an auxiliary power supply to provide uninterrupted electricity D Store duplicate copies of files in a location away from the computer center 12 A service auditor's report on a service center should include a(n) A Detailed description of the service center's internal control B Statement that the user of the report may assess control risk at the minimum level C Indication that no assurance is provided D Opinion on the operating effectiveness of the service center's internal control 8-2 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 13 The report of a service auditor may provide assurance on whether: A Option A B Option B C Option C D Option D 14 Which of the following is a password security problem? A Users are assigned passwords when accounts are created, but not change them B Users have accounts on several systems with different passwords C Users copy their passwords on note paper, which is kept in their wallets D Users select passwords that are not listed in any online dictionary 15 Which of the following is a software component of a computer system? A The operating system B The storage unit C The display monitor D The optical scanner 16 Which of the following is least likely to be a general control over computer activities? A Procedures for developing new programs and systems B Requirements for system documentation C A change request log D A control total 17 Which of the following computer related employees should not be allowed access to program listings of application programs? A The systems analyst B The programmer C The operator D The librarian 8-3 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 18 The advent of personal computers has resulted in a(n): A Decentralization of data processing activities B Increased concern over the accuracy of computerized processing C Decrease in the number of local area networks D Increase for general computer control activities 19 Which of the following is most likely to include user group development and execution of certain computer applications? A Telecommunication transmission systems B Database administration C End user computing D Electronic data interchange systems 20 Which of the following is not a data transmission control? A Echo checks B Data encryption C File labels D Parity checks 21 Which of the following is an example of general computer control? A Input validation checks B Control total C Operations manual D Generalized audit software 22 Which of the following would the auditors consider to be a weakness in an IT system? A Operators have access to terminals B Programmers are allowed access to the file library C Reprocessing of exceptions detected by the computer is handled by a data control group D More than one employee is present when the computer facility is in use 8-4 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 23 Which of the following is least likely to be tested with generalized audit software? A An aging of accounts receivable B A schedule of inventory C A depreciation schedule D A computer operations manual 24 Which of the following would be least likely to be considered a desirable attribute of a database management system? A Data redundancy B Quick response to users' request for information C Control of users' identification numbers and passwords D Logging of terminal activity 25 A problem for a CPA associated with advanced IT systems is that: A The audit trail normally does not exist B The audit trail is sometimes generated only in machine readable form C The client's internal auditors may have been involved at the design stage D Tests of controls are not possible 26 Which of the following testing techniques is more commonly used by internal auditors than by independent auditors? A Integrated test facilities B Test data C Controlled programs D Tagging and tracing transactions 27 General controls over IT systems are typically tested using: A Generalized audit software B Observation, inspection, and inquiry C Program analysis techniques D Test data 8-5 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 28 When conducting field work for a physical inventory, an auditor cannot perform which of the following steps using a generalized audit software package? A Observing inventory B Selecting sample items of inventory C Analyzing data resulting from inventory D Recalculating balances in inventory reports 29 Which of the following personnel is responsible for determining the computer processing needs of the various users? A The application programmer B The computer operator C The systems analyst D The systems programmer 30 Which of the following testing techniques minimizes the possibility that the auditors will contaminate a client's financial records? A Test data B Integrated test facilities C Controlled programs D Tagging and tracing transactions 31 Which of the following is not a distinctive characteristic of advanced IT systems? A Data communication B Integrated database C Batch processing of transactions D Distributive data processing 32 The best method of achieving internal control over advanced IT systems is through the use of: A Batch controls B Controls written into the computer system C Equipment controls D Documentation controls 8-6 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 33 Which of the following personnel is responsible for the proper functioning of the security features built into the operating system? A The systems programmer B The application programmer C The computer operator D The telecommunications specialist 34 Which of the following is not a data transmission control? A Data encryption B Parity check C Message acknowledgment techniques D Distributed data processing 35 Which of the following is not a programmed control? A Private lines B Validity tests C Self-checking numbers D Limit tests 36 A system in which the end user is responsible for the development and execution of the computer application that he or she uses is referred to as: A Laptop computing B End-user computing C Distributed computing D Decentralized computing 37 In a client/server environment, the "client" is most likely to be the: A Supplier of the computer system B Computers of various users C Computer that contains the networks software and provides services to a server D Database administrator 8-7 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 38 When designing the physical layout of a data processing center, which of the following would be least likely to be a necessary control that is considered? A Design of controls to restrict access B Adequate physical layout space for the operating system C Inclusions of an adequate power supply system with surge protection D Consideration of risks related to other uses of electricity in the area 39 A data warehouse is an example of: A On-line analytical processing B On-line transaction processing C Essential information batch processing D Decentralized processing 40 An example of an access control is a: A Check digit B Password C Test facility D Read only memory 41 End-user computing is most likely to occur on which of the following types of computers? A Mainframe B Macrocomputers C Personal computers D Personal reference assistants 42 Auditing through the computer is most likely to be used when: A Input transactions are batched and system logic is straightforward B Processing primarily consists of sorting the input data and updating the master file sequentially C Processing is primarily on line and updating is real-time D Outputs are in hard copy form 8-8 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 43 Which of the following computer system risks would be increased by the installation of a database system? A Programming errors B Data entry errors C Improper data access D Loss of power 44 Parallel simulation programs used by the auditors for testing programs: A Must simulate all functions of the production computer-application system B Cannot be developed with the aid of generalized audit software C Can use live data or test data D Is generally restricted to data base environments 45 Auditing by testing the input and output of a computer system instead of the computer program itself will: A Not detect program errors which not show up in the output sampled B Detect all program errors, regardless of the nature of the output C Provide the auditors with the same type of evidence D Not provide the auditors with the confidence in the results of the auditing procedures 46 If a control total were to be computed on each of the following data items, which would best be identified as a hash total for a payroll computer application? A Net pay B Department numbers C Hours worked D Total debits and total credits 8-9 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 47 Smith Corporation has numerous customers A customer file is kept on disk storage Each account in the customer file contains name, address, credit limit, and account balance The auditor wishes to test this file to determine whether credit limits are being exceeded The best procedure for the auditor to follow would be to: A Develop test data that would cause some account balance to exceed the credit limit and determine if the system properly detects such situations B Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit C Require a printout of all account balances so they can be manually checked against the credit limits D Request a printout of a sample of account balances so they can be individually checked against the credit limits 48 In their consideration of a client's IT controls, the auditors will encounter general controls and application controls Which of the following is an application control? A The operations manual B Hash total C Systems documentation D Control over program changes 49 When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an exception report The exception report should most probably be reviewed and followed up on by the: A Supervisor of computer operations B Systems analyst C Data control group D Computer programmer 50 The purpose of using generalized computer programs is to test and analyze a client's computer: A Systems B Equipment C Records D Processing logic 8-10 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 14 Which of the following is a password security problem? A Users are assigned passwords when accounts are created, but not change them B Users have accounts on several systems with different passwords C Users copy their passwords on note paper, which is kept in their wallets D Users select passwords that are not listed in any online dictionary Difficulty: Easy Source: AICPA 15 Which of the following is a software component of a computer system? A The operating system B The storage unit C The display monitor D The optical scanner Difficulty: Easy 16 Which of the following is least likely to be a general control over computer activities? A Procedures for developing new programs and systems B Requirements for system documentation C A change request log D A control total Difficulty: Medium 17 Which of the following computer related employees should not be allowed access to program listings of application programs? A The systems analyst B The programmer C The operator D The librarian Difficulty: Hard 8-18 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 18 The advent of personal computers has resulted in a(n): A Decentralization of data processing activities B Increased concern over the accuracy of computerized processing C Decrease in the number of local area networks D Increase for general computer control activities Difficulty: Medium 19 Which of the following is most likely to include user group development and execution of certain computer applications? A Telecommunication transmission systems B Database administration C End user computing D Electronic data interchange systems Difficulty: Medium 20 Which of the following is not a data transmission control? A Echo checks B Data encryption C File labels D Parity checks Difficulty: Medium 21 Which of the following is an example of general computer control? A Input validation checks B Control total C Operations manual D Generalized audit software Difficulty: Medium 8-19 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 22 Which of the following would the auditors consider to be a weakness in an IT system? A Operators have access to terminals B Programmers are allowed access to the file library C Reprocessing of exceptions detected by the computer is handled by a data control group D More than one employee is present when the computer facility is in use Difficulty: Medium 23 Which of the following is least likely to be tested with generalized audit software? A An aging of accounts receivable B A schedule of inventory C A depreciation schedule D A computer operations manual Difficulty: Easy 24 Which of the following would be least likely to be considered a desirable attribute of a database management system? A Data redundancy B Quick response to users' request for information C Control of users' identification numbers and passwords D Logging of terminal activity Difficulty: Medium 25 A problem for a CPA associated with advanced IT systems is that: A The audit trail normally does not exist B The audit trail is sometimes generated only in machine readable form C The client's internal auditors may have been involved at the design stage D Tests of controls are not possible Difficulty: Easy 8-20 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 26 Which of the following testing techniques is more commonly used by internal auditors than by independent auditors? A Integrated test facilities B Test data C Controlled programs D Tagging and tracing transactions Difficulty: Medium 27 General controls over IT systems are typically tested using: A Generalized audit software B Observation, inspection, and inquiry C Program analysis techniques D Test data Difficulty: Medium 28 When conducting field work for a physical inventory, an auditor cannot perform which of the following steps using a generalized audit software package? A Observing inventory B Selecting sample items of inventory C Analyzing data resulting from inventory D Recalculating balances in inventory reports Difficulty: Medium Source: AICPA 29 Which of the following personnel is responsible for determining the computer processing needs of the various users? A The application programmer B The computer operator C The systems analyst D The systems programmer Difficulty: Medium 8-21 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 30 Which of the following testing techniques minimizes the possibility that the auditors will contaminate a client's financial records? A Test data B Integrated test facilities C Controlled programs D Tagging and tracing transactions Difficulty: Hard 31 Which of the following is not a distinctive characteristic of advanced IT systems? A Data communication B Integrated database C Batch processing of transactions D Distributive data processing Difficulty: Medium 32 The best method of achieving internal control over advanced IT systems is through the use of: A Batch controls B Controls written into the computer system C Equipment controls D Documentation controls Difficulty: Hard 33 Which of the following personnel is responsible for the proper functioning of the security features built into the operating system? A The systems programmer B The application programmer C The computer operator D The telecommunications specialist Difficulty: Hard 8-22 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 34 Which of the following is not a data transmission control? A Data encryption B Parity check C Message acknowledgment techniques D Distributed data processing Difficulty: Medium 35 Which of the following is not a programmed control? A Private lines B Validity tests C Self-checking numbers D Limit tests Difficulty: Medium 36 A system in which the end user is responsible for the development and execution of the computer application that he or she uses is referred to as: A Laptop computing B End-user computing C Distributed computing D Decentralized computing Difficulty: Easy 37 In a client/server environment, the "client" is most likely to be the: A Supplier of the computer system B Computers of various users C Computer that contains the networks software and provides services to a server D Database administrator Difficulty: Medium 8-23 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 38 When designing the physical layout of a data processing center, which of the following would be least likely to be a necessary control that is considered? A Design of controls to restrict access B Adequate physical layout space for the operating system C Inclusions of an adequate power supply system with surge protection D Consideration of risks related to other uses of electricity in the area Difficulty: Medium 39 A data warehouse is an example of: A On-line analytical processing B On-line transaction processing C Essential information batch processing D Decentralized processing Difficulty: Hard 40 An example of an access control is a: A Check digit B Password C Test facility D Read only memory Difficulty: Medium 41 End-user computing is most likely to occur on which of the following types of computers? A Mainframe B Macrocomputers C Personal computers D Personal reference assistants Difficulty: Medium 8-24 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 42 Auditing through the computer is most likely to be used when: A Input transactions are batched and system logic is straightforward B Processing primarily consists of sorting the input data and updating the master file sequentially C Processing is primarily on line and updating is real-time D Outputs are in hard copy form Difficulty: Medium Source: IIA 43 Which of the following computer system risks would be increased by the installation of a database system? A Programming errors B Data entry errors C Improper data access D Loss of power Difficulty: Hard Source: IIA 44 Parallel simulation programs used by the auditors for testing programs: A Must simulate all functions of the production computer-application system B Cannot be developed with the aid of generalized audit software C Can use live data or test data D Is generally restricted to data base environments Difficulty: Medium Source: IIA 45 Auditing by testing the input and output of a computer system instead of the computer program itself will: A Not detect program errors which not show up in the output sampled B Detect all program errors, regardless of the nature of the output C Provide the auditors with the same type of evidence D Not provide the auditors with the confidence in the results of the auditing procedures Difficulty: Medium Source: AICPA 8-25 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 46 If a control total were to be computed on each of the following data items, which would best be identified as a hash total for a payroll computer application? A Net pay B Department numbers C Hours worked D Total debits and total credits Difficulty: Medium Source: AICPA 47 Smith Corporation has numerous customers A customer file is kept on disk storage Each account in the customer file contains name, address, credit limit, and account balance The auditor wishes to test this file to determine whether credit limits are being exceeded The best procedure for the auditor to follow would be to: A Develop test data that would cause some account balance to exceed the credit limit and determine if the system properly detects such situations B Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit C Require a printout of all account balances so they can be manually checked against the credit limits D Request a printout of a sample of account balances so they can be individually checked against the credit limits Difficulty: Medium Source: AICPA 48 In their consideration of a client's IT controls, the auditors will encounter general controls and application controls Which of the following is an application control? A The operations manual B Hash total C Systems documentation D Control over program changes Difficulty: Hard Source: AICPA 8-26 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 49 When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an exception report The exception report should most probably be reviewed and followed up on by the: A Supervisor of computer operations B Systems analyst C Data control group D Computer programmer Difficulty: Medium Source: AICPA 50 The purpose of using generalized computer programs is to test and analyze a client's computer: A Systems B Equipment C Records D Processing logic Difficulty: Hard Source: AICPA 51 An auditor may decide not to perform tests of controls related to the control activities within the computer portion of the client's internal control Which of the following would not be a valid reason for choosing to omit such test? A The controls duplicate operative controls existing elsewhere B There appear to be major weaknesses that would preclude reliance on the stated procedure C The time and dollar costs of testing exceed the time and dollar savings in substantive testing if the tests show the controls to be operative D The controls appear adequate Difficulty: Medium Source: AICPA 8-27 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 52 A control feature in a computer system requires the central processing unit (CPU) to send signals to the printer to activate the print mechanism for each character The print mechanism, just prior to printing, sends a signal back to the CPU verifying that the proper print position has been activated This type of data transmission is referred to as: A Echo control B Validity control C Signal control D Check digit control Difficulty: Easy Source: AICPA 53 Which of the following constitutes a weakness in the internal control of a computer system? A One generation of backup files is stored in an off-premises location B Machine operators distribute error messages to the control group C Machine operators not have access to the complete systems manual D Machine operators are supervised by the programmer Difficulty: Medium Source: AICPA 54 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 Self-checking numbers B Control totals C Validity tests D Process tracing data Difficulty: Medium Source: AICPA 8-28 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 55 Internal control is ineffective when computer department personnel: A Participate in computer software acquisition decisions B Design documentation for computerized systems C Originate changes in master files D Provide physical security for program files Difficulty: Medium Source: AICPA 56 Which of the following is likely to be of least importance to an auditor in considering the internal control in a company with computer processing? A The segregation of duties within the computer center B The control over source documents C The documentation maintained for accounting applications D The cost/benefit of data processing operations Difficulty: Easy Source: AICPA 57 In the weekly computer run to prepare payroll checks, a check was printed for an employee who had been terminated the previous week Which of the following controls, if properly utilized, would have been most effective in preventing the error or ensuing its prompt detection? A A control total for hours worked, prepared from time cards collected by the timekeeping department B Requiring the treasurer's office to account for the numbers of the prenumbered checks issued to the computer department for the processing of the payroll C Use of a check digit for employee numbers D Use of a header label for the payroll input sheet Difficulty: Medium Source: AICPA 8-29 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 58 A company's labor distribution report requires extensive corrections each month because of labor hours charged to inactive jobs Which of the following data processing input controls appears to be missing? A Completeness test B Validity test C Limit test D Control total Difficulty: Medium Source: IIA 59 Passwords for microcomputer software programs are designed to prevent: A Inaccurate processing of data B Unauthorized access to the computer C Incomplete updating of data files D Unauthorized use of the software Difficulty: Medium Source: IIA 60 The capability for computers to communicate with physically remote terminals is an important feature in the design of modern business information systems Which of the following risks associated with the use of telecommunications systems is minimized through the use of a password control system? A Unauthorized access to system program and data files B Unauthorized physical availability of remote terminals C Physical destruction of system program and data files D Physical destruction of remote terminals Difficulty: Medium Source: IIA 8-30 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 61 Consider the following computer applications: (1) At a catalog sales firm, as phone orders are entered into their computer, both inventory and credit are immediately checked (2) A manufacturer's computer sends the coming week's production schedule and parts orders to a supplier's computer Which statement below is true for these applications? A Both applications are examples of EDI B Both applications are examples of on-line real-time processing C The first application is an example of EDI and the second is an example of on-line realtime D The first application is an example of on-line real-time and the second is an example of EDI Difficulty: Medium Source: IIA Essay Questions 62 Many auditors use generalized audit software to assist them in the examination of clients' computer records a Describe what is meant by generalized audit software b List two advantages of the use of generalized audit software c List three functions that may be performed with this type of software a Generalized audit software packages are simple programming languages that assist in the audit of clients' computer records b Advantages of the use of generalized audit software include (only two required): • Auditors are able to directly test computerized records • Auditors are able to test items more efficiently than manually • Auditors not need extensive training to use the packages c Functions that may be performed by generalized audit software packages include (only three required): • Examine records for overall quality, completeness, and valid conditions • Rearrange data and perform analyses • Select audit samples • Compare data on separate files • Compare the results of audit procedures with the client's records Difficulty: Hard 8-31 Chapter 08 - Consideration of Internal Control in an Information Technology Environment 63 Auditors are now faced with examining clients that have database systems a Describe a database system, including its major advantage b Identify policies and procedures that may be established to provide control over that aspect over a database system a In a data-base system separate files are replaced with an integrated data-base that is shared by many application programs b Controls over data-base systems include: • A system of user identification numbers and passwords should be used to restrict specific data to authorized personnel • Terminal activity should be logged by the operating system for subsequent review for unauthorized access to data • The responsibility for updating specific data should be assigned to a specific department Difficulty: Medium 64 Various characteristics of IT systems can present special audit risks Explain each of the following characteristics of an IT system and the special audit risks that they present a Data base system b Distributive data processing c End user computing a A system that eliminates data redundancy by storing data for two or more applications in an integrated data-base Special risks include: • Improper access to data • Improper alteration of data b A system in which information and programs are shared by a number of users Special risks include: • Improper access to data • Improper alteration of data c A system in which user departments are responsible for developing and executing computer applications that generate information for the same users Special risks include: • Improper access to data • Unreliable user developed programs Difficulty: Medium 8-32 ... data processing c End user computing 8- 14 Chapter 08 - Consideration of Internal Control in an Information Technology Environment Chapter 08 Consideration of Internal Control in an Information... following data processing input controls appears to be missing? A Completeness test B Validity test C Limit test D Control total 8- 12 Chapter 08 - Consideration of Internal Control in an Information... data and updating the master file sequentially C Processing is primarily on line and updating is real-time D Outputs are in hard copy form 8- 8 Chapter 08 - Consideration of Internal Control in an