Which of the following task are facilitated by maintaining a strong and secure audit trail?

Accounting Information Systems, 13e (Romney/Steinbart)

Chapter 16 General Ledger and Reporting System

16.1 Describe the information processing operations required to update the general ledger and

to produce reports for internal and external users.

1) The general ledger and reporting system consists of the ________ involved in ________ the

general ledger and ________ reports.

A) business transactions; updating; processing

B) data processing; business transactions for; printing

C) information processing; updating; creating

D) business transactions; data processing; preparing

Answer: C

Objective: Learning Objective 1

Difficulty: Moderate

AACSB: Analytic

2) Which item below is not considered a major input to the general ledger and reporting system?

A) summary entries from the major subsystems

B) reports from managers

C) adjusting entries

D) financing and investing activities

Answer: B

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

3) Who should provide the adjusting entries in a well-designed general ledger and reporting

system?

A) various user departments

B) the treasurer's area

C) the other major AIS subsystems

D) the controller's area

Answer: D

Objective: Learning Objective 1

Difficulty: Easy

AACSB: Analytic

1

Copyright © 2015 Pearson Education, Inc.

1) The general ledger and reporting system consists of the ________ involved in ________ the
general ledger and ________ reports.
A) business transactions; updating; processing
B) data processing; business transactions for; printing
C) information processing; updating; creating
D) business transactions; data processing; preparing

2) Which item below is not considered a major input to the general ledger and reporting system?
A) summary entries from the major subsystems
B) reports from managers
C) adjusting entries
D) financing and investing activities

3) Which of the following user groups generally receive information produced by the general
ledger and reporting system?
A) internal users
B) external users
C) inquiry processing by internal or external users
D) all of the above

4) 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.

5) Identify the most correct statement with regard to how the various accounting subsystems
update the general ledger.
A) Individual journal entries for each accounting subsystem transaction update the general ledger
every 24 hours.
B) Summary journal entries that represent the results of all transactions for a certain time period
are used to update the general ledger.
C) The controller or treasurer must approve accounting subsystem journal entries before any
updating may occur.
D) Nonroutine transactions are entered into the system by the treasurer's office.

6) When updating the general ledger, sales, purchases, and production are examples of ________
entries, and issuance or retirement of debt and the purchase or sale of investment securities are
examples of ________ entries.
A) adjusting; controller originated
B) accounting subsystem; treasurer originated
C) adjusting; special journal
D) controller generated; special journal

7) Which of the following are used to document entries made to update the general ledger?
A) general journal
B) subsidiary journal
C) subsidiary ledgers
D) journal vouchers

8) Which of the following controls can minimize the threat of inaccurate or invalid general
ledger data?
A) Training and experience in applying IFRS and XBRL.
B) Responsibility accounting.
C) Backup and disaster recovery procedures.
D) Restriction of access to general ledger.

9) Which of the following controls can minimize the threat of loss or destruction of data?
A) Training and experience in applying IFRS and XBRL.
B) Responsibility accounting.
C) Backup and disaster recovery procedures.
D) Restriction of access to general ledger.

10) Which of the following controls can minimize the threat of poorly designed reports and
graphs?
A) Training and experience in applying IFRS and XBRL.
B) Responsibility accounting.
C) Backup and disaster recovery procedures.
D) Restriction of access to general ledger.

11) Which of the following controls can minimize the threat of inaccurate financial statements?
A) Training and experience in applying IFRS and XBRL.
B) Responsibility accounting.
C) Backup and disaster recovery procedures.
D) Restriction of access to general ledger.

12) Describe three threats in the general ledger and reporting system and identify corresponding
controls for each threat.

Answer: THREAT 1: Errors in updating the general ledger because of inaccurate/incomplete
journal entries or posting of journal entries — Controls: (1) Input, edit, and processing controls
over summary entries from subsystems. (a) Validity check over existence of general ledger
accounts. (b) Field check over numeric data in amount field. (c) Zero-balance check ensures
equality of debits and credits (d) Completeness test — all pertinent data are entered (e)
Redundant data check — closed loop verification to see if on account numbers and descriptions,
to ensure that the correct general ledger account is being accessed (f) Standard adjusting entry
file for recurring entries — improves accuracy of the process (g) Sign check on debit and credit
entries (h) Calculation of run-to-run totals can verify the accuracy of journal voucher batch
processing (2) Reconciliation and control reports — can detect errors made during updating and
processing; trial balances, clearing, and suspense accounts are examples (a) Balancing of control
and subsidiary accounts (b) Control reports can help identify the source of errors in the general
ledger update process — listings of journal vouchers and general journal entries will show
entries posted to the general ledger and ensures equality of debits and credits (3) The audit trail
— the path of transactions through the system-should be able to perform the following tasks: (a)
Trace any transaction from its original source document to the general ledger; any other
document or report using that data (b) Trace any item from a report or an output document to the
general ledger and thence to the source document (c) Trace all changes in the general ledger
balances from their beginning balance to their ending balance.
THREAT 2: Loss or unauthorized disclosure or alteration of financial data — Controls: (1) User
IDs, passwords, and access controls should be used (2) Enforce segregation of duties (3)
Adjusting entries only from the controller's area (4) Valid authorization for journal voucher
submission.
THREAT 3: Loss or destruction of the general ledger — Controls: (1) Use of internal and
external file labels to protect from accidental data loss (2) Make regular backup copies of the
general ledger, one copy stored off-site (3) A good disaster recovery plan and (4) access and
processing integrity controls to ensure confidentiality and accuracy of data transmitted to branch
offices or externally.
THREAT 4: Poor performance — Controls: (1) XBRL, (2) redesign business processes, and (3)
redesign metrics used to report results of business activities.

13) Identify one way "rainbow tables" are often used.
A) To discover plaintext passwords associated with a hash.
B) To integrate different tables into one, master table.
C) To perform a zero-balance check.
D) To ensure referential integrity of all the associated tables.

14) What system privileges should an employee involved in the general ledger and reporting
system be given?
A) General privileges to create, delete, update, or modify data.
B) No privileges permitting the creation, deletion, updating, or modification of data.
C) Only the specific privileges necessary to perform an employee's assigned duties.
D) Read-only privileges.

15) What control procedure(s) should be used to reduce the risk of unauthorized disclosure of the
financial statements?
A) Multifactor authentication.
B) Physical security.
C) Encryption.
D) All of the above.

16) What control procedure(s) should be used to reduce the risk of the destruction of financial
statement master data?
A) Multifactor authentication.
B) Backup and disaster recovery.
C) Encryption.
D) All of the above.

1) A listing of journal vouchers by numerical sequence, account number, or date is an example of
A) a general ledger control report.
B) a budget report.
C) a batch to be processed.
D) responsibility accounting.

2) Who generally is responsible for providing the accounting department with information about
financing and investing activities to create the appropriate general ledger journal entries?
A) The budget department.
B) The CFO.
C) The treasurer.
D) The CEO.

3) Explain the purpose of a journal voucher file.

Answer: A journal voucher is a form on which journal entries to update the general ledger are
documented. The individual entries are stored in the journal voucher file. This file is equivalent
to the general journal in a manual AIS. The journal voucher file forms an important part of the
audit trail as well. Various internal controls must be implemented in order to maintain adequate
security and access control over the file, because it provides a way to alter and change the data
contained in the general ledger.

4) 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.

5) If you believe a general ledger account was not adjusted properly or at all, 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.

6) Which of the following are appropriate controls for the general ledger and reporting system?
A) Using well-designed documents and records.
B) Online data entry with the use of appropriate edit checks.
C) Prenumbering documents and accounting for the sequence numbers.
D) All of the above are appropriate.

7) 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.

8) How is an audit trail used in the general ledger and reporting system?

Answer: An audit trail shows the path of a transaction through the accounting system. It can
provide information needed to trace any changes made to the general ledger by tracing either to
or from an original source document to the general ledger. It helps in tracing all changes in
general ledger accounts from beginning balances to ending balances as well as any adjustments
made to the accounts.

1) Who should provide the adjusting entries in a well-designed general ledger and reporting
system?
A) Various user departments.
B) The treasurer department.
C) Anyone who has access to the other major AIS subsystems.
D) The controller office.

2) Not all journal entries affect cash flow. Adjusting entries that reflect events that have already
occurred, but have no effect on cash, are classified as
A) accruals.
B) deferrals.
C) revaluations.
D) corrections.

3) Recording interest earned on an investment is an example of which type of adjusting journal
entry?
A) Accrual entry.
B) Deferral entry.
C) Closing entry.
D) Correcting entry.

4) Identify the adjusting entry that is made at the end of an accounting period to reflect an
exchange of cash prior to the performance of a related event is classified as a(n)
A) Accrual entry.
B) deferral entry.
C) Closing entry.
D) Correcting entry.

5) Depreciation expense and bad debt expense are examples of which type of adjusting journal
entry?
A) Deferrals.
B) Accruals.
C) Closing.
D) Estimates.

6) Adjusting entries that are made to reflect differences between the actual and recorded value of
an asset or a change in accounting principle are called
A) reconciliations.
B) revaluations.
C) estimates.
D) accruals.

7) Adjusting entries that are made to counteract the effects of errors found in the general ledger
are called
A) accruals.
B) corrections.
C) deferrals.
D) estimates.

8) Corrections are entries made to correct errors found in
A) all journals.
B) special journals.
C) the general ledger.
D) the financial statements.

9) Immediately after the adjusting entries are posted, the next step in the general ledger and
reporting system is to prepare
A) an adjusted trial balance.
B) closing entries.
C) financial statements.
D) an unadjusted trial balance.

10) Adjusting entries that are made to recognize revenue that has been received but not yet
earned are classified as
A) estimates.
B) deferrals.
C) accruals.
D) revaluations.

11) Adjusting entries that reflect a change in accounting principle used to value inventories are
classified as
A) corrections.
B) estimates.
C) deferrals.
D) revaluations.

12) A type of data entry control that would ensure that adjusting entries are posted to existing
general ledger accounts is called a(n) ________ check.
A) validity
B) existence
C) closed loop verification
D) reasonableness

13) One way of ensuring that recurring adjusting journal entries are made each month would be
to
A) make all the entries a month in advance.
B) rotate the responsibility among the accounting staff.
C) program the entries to be made automatically.
D) create a standard adjusting journal entry file.

14) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following
error message while making an adjusting entry to the general ledger: "The account number
referenced in your journal entry does not exist. Create a new account?" This is an example of a
A) validity check.
B) closed loop verification.
C) zero-balance check.
D) completeness test.

15) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following
error message while making an adjusting entry to the general ledger: "Your journal entry must be
a numeric value. Please reenter." This is an example of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.

16) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following
error message while making an adjusting entry to the general ledger: "The amounts debited and
credited are not equal. Please correct and try again." This is an example of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.

17) Marina Filimena is an accountant at Jasmina Hair Products. Marina received the following
error message while making an adjusting entry to the general ledger: "The data you have entered
does not include a source reference code. Please enter this data before saving." This is an
example of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.

1) Financial statements are prepared in a certain sequence. Which statement is prepared first?
A) The adjusted trial balance.
B) The income statement.
C) The balance sheet.
D) The statement of cash flows.

2) Which of the following statements is not true regarding XBRL?
A) XBRL is a variant of XML.
B) XBRL is specifically designed for use in communicating the content of financial data.
C) XBRL creates unique tags for each data item.
D) XBRL's adoption will require accountants and systems professionals tag data for their clients.

3) The benefits of XBRL include
A) organizations can publish financial information only once, using standard XBRL tags.
B) tagged data is readable and interpretable by computers, so users don't need to re-enter data in
order to work with it.
C) Both are benefits of XBRL.
D) Neither is a benefit of XBRL.

4) 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.
B) XML.
C) ACH.
D) XBRL.

5) Which of the following statements is not true about an XBRL instance document?
A) An instance document includes instruction code as to how the document should be physically
arranged and displayed.
B) An instance document contains facts about specific financial statement line items.
C) An instance document uses separate tags for each specific element.
D) An instance document can be used to tag financial and nonfinancial elements.

6) IFRS stands for
A) International Financial Reporting Standards.
B) International Forensic Response System.
C) International and Financial Reporting Statements.
D) International Financial Recovery System.

7) Which of the following is true about IFRS?
A) There is a global trend towards using IFRS for reporting purposes, though U.S. companies are
not currently required to do so.
B) The switch to IFRS is required by the Sarbanes-Oxley Act.
C) IFRS is only slightly different than U.S. GAAP.
D) The switch to IFRS is cosmetic only—there isn't any real impact on AIS.

8) Which of the following scenarios will not be allowed under IFRS?
A) A landscaping and garden retail store keeps piles of river rock, gravel, paving stones, and
small decorative rocks in a fenced area on the side of the store. The store uses the most recent
inventory costs when calculating cost of goods sold, since new inventory is piled on top of the
older inventory.
B) A grocery store strictly enforces a shelf rotation policy, so that older inventory is always at
the front and sold first. The store uses the oldest inventory costs to calculate cost of goods sold.
C) A farm chemical supplier maintains a large holding tank of chemicals, into which deliveries
are periodically combined with the older chemicals. The supplier averages the cost of all
inventory to calculate cost of goods sold.
D) All of the above are acceptable under IFRS.

9) Which of the following is true about accounting for fixed assets?
A) Depreciation expense under IFRS will likely be higher than under GAAP, because
acquisitions of assets with multiple components must be separately depreciated under IFRS,
whereas under GAAP assets could be bundled and depreciated over the longest of the useful life
for any of the components.
B) IFRS doesn't allow capitalization of any asset that separately accounts for less than 20% of
total assets.
C) Depreciation expense under IFRS will likely be less than under GAAP, because standards for
depreciable lives on asset classes are much longer than under GAAP.
D) IFRS and GAAP account for fixed assets in much the same way.

10) Explain the benefits of XBRL.

Answer: XBRL (Extensible Business Reporting Language) is a variation of XML, which is
designed to communicate the content of data. XML improves upon HTML by being able to
describe the content of the data presented. However, XML is limited when communicating
financial information. For financial purposes, XBRL identifies each piece of data, along with
how the data should be processed and how the data relate to other data items. XBRL may soon
become the universal standard computer language for communicating financial data. XBRL
enables organizations to publish financial information only once, using standard XBRL tags.
XBRL tagged information is interpretable and doesn't need to be re-entered by users.

11) Identify the year the SEC will require American companies to switch from U.S.-based
GAAP to IFRS as the basis for preparing financial statements.
A) 2016
B) 2018
C) 2020
D) At this point it is unclear when the SEC will require American companies to implement IFRS,
though the SEC remains committed to requiring U.S. companies use IFRS at some point.

12) A major way in which IFRS differs from GAAP that will affect the design of a company's
general ledger and reporting system is an IFRS principle known as
A) componentization.
B) monetization.
C) securitization.
D) centralization.

13) At a minimum, a switch to IFRS from GAAP will affect companies' accounting information
system by
A) requiring companies to increase the processing power of their existing accounting information
systems.
B) requiring IT departments to hire programmers that are fluent in languages besides English.
C) requiring the creation of additional fields in research and development (R&D) records to
capture information about the stage of research and development that costs are incurred in.
D) requiring firms to completely redesign their existing accounting information systems because
current systems are not compatible with IFRS accounting principles.

14) XBRL stands for
A) extensible business reporting language.
B) external business reporting ledgers.
C) external business reporting language.
D) extensive business report logic.

16) Each specific data item in an XBRL document is called a(n)
A) taxonomy.
B) element.
C) instance.
D) schema.

1) The ________ is the managerial report that shows planned cash inflows and outflows for
major investments or acquisitions.
A) journal voucher list
B) statement of cash flows
C) operating budget
D) capital expenditures budget

2) The operating budget
A) compares estimated cash flows from operations with planned expenditures.
B) shows cash inflows and outflows for each capital project.
C) depicts planned revenues and expenditures for each organizational unit.
D) is used to plan for the purchase and retirement of property, plant, and equipment.

3) Budgets used for internal planning purposes and performance evaluation should be developed
on the basis of
A) responsibility accounting.
B) generally accepted accounting principles.
C) financial accounting standards.
D) managerial accounting standards.

4) Performance reports for cost centers should compare actual versus budget ________ costs.
A) controllable
B) uncontrollable
C) fixed
D) variable

5) Performance reports for sales departments should compare actual revenue versus budgeted
A) revenue.
B) cost.
C) return on investment.
D) profit.

6) Departments that mostly provide services to other units and charge those units for services
rendered should be evaluated as ________ centers.
A) cost
B) profit
C) investment
D) revenue

7) As responsibility reports are rolled up into reports for higher level executives, they
A) become less detailed.
B) become more detailed.
C) become narrower in scope.
D) become wider in scope.

8) Variances for variable costs will be misleading when the planned output differs from budgeted
output. A solution to this problem would be
A) to use a stricter budgeting process.
B) to use flexible budgeting.
C) to better predict the final output.
D) to allow more judgement involve in the budgeting process.

9) Which of the following balanced scorecard dimensions provides measures on how efficiently
and effectively the organization is performing key business processes?
A) Financial.
B) Internal operations.
C) Innovation and learning.
D) Customer.

10) Which of the following balanced scorecard dimensions provides measures on how well the
organization is generating sales?
A) Financial.
B) Internal operations.
C) Innovation and learning.
D) Customer.

11) Which of the following balanced scorecard dimensions provides measures on how well the
organization is developing new products and training its workforce to continuously improve
service and results?
A) Financial.
B) Internal operations.
C) Innovation and learning.
D) Customer.

12) Which of the following balanced scorecard dimensions provides measures on how well the
organization is working to improve customer satisfaction and become the preferred supplier for
key customers?
A) Financial.
B) Internal operations.
C) Innovation and learning.
D) Customer.

13) Which of the following is not one of the principles of proper graph design for bar charts?
A) Include data values with each element.
B) Use 3-D rather than 2-D bars to make reading easier.
C) Use colors or shades instead of patterns to represent different variables.
D) Use titles that summarize the basic message.

15) What is responsibility accounting?

Answer: Responsibility accounting involves the reporting of financial results on the basis of
managerial responsibilities within an organization. Reports show actual amounts and variances to
budget for the current month and year to date for items controllable at that level.

16) How is a balanced scorecard used to assess organizational performance?

Answer: The balanced scorecard contains four perspectives of measurement of the organization.
The perspectives are financial, internal operations, innovation and learning, and customer.
Together these different perspectives provide a dimensional overview of organizational
performance that is greater than financial measures alone. A scorecard that has been properly
designed will measure key aspects of the organization's strategy as well as show important links
across the perspectives or dimensions.

17) Discuss the value and role of budgets as managerial reports.

Answer: Budgets are managerial reports that can be extracted from the general ledger and
reporting system. Budgets are used for planning and evaluating the organization's performance.
There are several different types of budgets that an organization may use in this regard. The
operating budget shows the planned revenues and expenditures for each organizational unit.
Cash flow budgets compare the estimated cash inflows from operations with planned
expenditures, and they are particularly useful to determine the borrowing needs of the
organization. A capital expenditure budget shows the projected cash inflows and outflows for a
given project. Budgetary reports should be tailored to the nature of the unit or department being
evaluated, and they should show actual versus projected budget amounts. Unfortunately, many
budget amounts are viewed as fixed targets, and they are therefore static and inflexible. Such an
approach may either reward or penalize managers for factors that are beyond their control. A
solution to this problem is to develop a flexible budget, in which variable budgeted amounts
change in relation to some measure of organizational activity, such as labor hours, or a
percentage of sales. A flexible budget may also break amounts into their respective fixed and
variable components. Variable amounts can then be adjusted for fluctuations in sales or
production.

18) The balanced scorecard attempts to solve what major issue associated with traditional
accounting reports?
A) Traditional accounting reports focus too narrowly on financial performance.
B) Traditional accounting reports are not easily understood by non-accountants.
C) Traditional accounting reports are expensive to produce.
D) Traditional accounting reports are produced too slowly to provide value.

19) Which of the following is not a perspective reflected in the balanced scorecard?
A) Customer perspective.
B) Internal operations perspective.
C) Financial perspective.
D) Efficiency perspective.

21) Which type of graph is the most commonly used to display trends in financial data?
A) Pie chart.
B) Scatterplot chart.
C) Bar chart.
D) Stochastic chart.

22) Which of the following balanced scorecard dimensions provides measures on new products?
A) Financial.
B) Internal operations.
C) Innovation and learning.
D) Customer.

Which of the following tasks are facilitated by maintaining a strong and secure audit trail?

How is an audit trail used in the general ledger and reporting system?

Which of the following Balanced Scorecard Dimensions provides measures on how efficiently and effectively the organization is performing key business processes?

What control procedures should be used to reduce the risk of unauthorized disclosure of the financial statements?