To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ACCOUNTING INFORMATION SYSTEMS ADMINISTRATIVE PROCESSES AND CONTROLS TURNER / WEICKGENANNT CHAPTER 12: Administrative Processes and Controls TEST BANK – CHAPTER 12 – TRUE / FALSE The sale of bonds should be considered a regular, recurring process since these types of transactions are recorded in the general ledger Administrative processes are transactions and activities that either are specifically authorized by top managers or are used by managers to perform administrative functions Not all organizations require long-term, capital assets such as land, buildings, and equipment to operate Capital usually comes from assets or short-term debt Source of operational processes are those processes to authorize the raising of capital, the execution of raising capital, and the proper accounting of that capital The board of directors must decide between debt, assets, or equity for capital funds An underwriter is a third party that contracts with a corporation to bring a new issue of securities to the public market Operations processes are those processes which authorize, execute, manage, and properly account for debt A corporation’s own stock that is repurchased by the company on the open market is a marketable security 10 For both source of capital processes and investment processes, the important control is the specific authorization and oversight by top management 11 Business processes in an organization not include events that are accounting transactions To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 12 Subsidiary ledgers maintain the detail information regarding routine transactions, with an account established for each entity 13 Special journals are journals that are established to record the transactions of specific customers and vendors 14 In the case of a manual accounting system, an approved journal voucher must be forwarded to the general ledger department before transactions can be recorded 15 Approvals for each journal voucher are specific authorizations 16 An example of good internal control is having one person responsible for the value of the total of the sales in the sales journal and another person responsible for the balance of sales in the general ledger 17 General ledger employees should record journal vouchers, but they should not authorize journal vouchers, have custody of assets, or have recording responsibility for any special journals or subsidiary ledgers 18 A well-defined chart of accounts would contain an account titled “Rent.” 19 Because of their access to the accounting system, internal managers need less detailed reports than external users 20 External users need detailed balance information on every existing account in the general ledger 21 Service firm internal reports are more likely to focus on sales and the status of projects 22 Unethical and fraudulent behaviors are much more likely to be initiated by employees, not management 23 One of the reasons that management, not employees, initiate more unethical and fraudulent activities are that employees not have access to much of the documentation needed to affect the event 24 Employees are more likely to hide or conceal fraudulent activity in the records of fixed assets and capital acquisition events than elsewhere 25 Reports disseminated to lower level managers are usually used to provide feedback and establish production schedules or sales goals To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 26 To set a proper ethical tone, top managements should measure several factors of managerial performance without over-emphasizing profitability or cost cutting 27 The only method of exercising corporate governance over administrative processes and financial reporting is through the company’s budgeting process 28 Because of regulatory and auditing issues, good corporate governance does not depend upon the ethical conduct of management ANSWERS TO TEST BANK - CHAPTER 12 - TRUE/FALSE: F T F F F F 10 11 12 T F F T F T 13 14 15 16 17 18 F T F T T F 19 20 21 22 23 24 F F T F T F 25 26 27 28 F T F F To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER 12 – MULTIPLE CHOICE 29 Capital or investment processes: A is a regular and frequent event B only requires the specific approval of someone such as a senior accountant C requires the specific approval of top management or board of directors D can be considered revenue since it results in cash inflows 30 Capital or investment processes: A is a regular and frequent event B not require established procedures or internal controls due to their infrequency C require established procedures and internal controls even though they are considered infrequent events D not involve the company’s own bond issues 31 Conversion processes, systems and controls result from transactions: A that are large volumes of daily materials transactions B that are large volumes of daily sales and cash inflow transactions C that are periodic D that are infrequent 32 Revenue and return processes, systems and controls result from transactions: A that are large volumes of daily materials transactions B that are large volumes of daily sales and cash inflow transactions C that are periodic D that are infrequent 33 Administrative processes, systems and controls result from transactions: A that are large volumes of daily materials transactions B that are large volumes of daily sales and cash inflow transactions C that are periodic D that are infrequent or intermittent 34 External reports not include: A balance sheets B income statements C sales reports D cash flows To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 35 Internal reports not include: A balance sheets B sales reports C cash flows D inventory status reports 36 Select the answer that contains only external reports A Balance sheet, income statement, cash flow statement B Sales, balance sheet, income statement C Balance sheet, income statement, aged receivables D Sales, inventory, aged receivables 37 Select the answer that contains only internal reports A Balance sheet, income statement, cash flow statement B Sales, balance sheet, income statement C Balance sheet, income statement, aged receivables D Sales, inventory, aged receivables 38 Payroll transactions are considered: A large volume daily events B small volume daily events C periodic events D intermittent or infrequent events 39 Raw material events can be found in which two processes? A 1) Revenue and return processes, systems & controls and 2) expenditures and return processes, systems & controls B 1) Expenditures and return processes, systems & controls and 2) conversion processes, systems & controls C 1) Conversion processes, systems & controls and 2) Administrative processes, systems & controls D 1) Administrative processes, systems & controls and 2) Revenue and return processes, systems & controls 40 Capital is/are the funds: A utilized to acquire long-term and short-term or current assets B received from customers from accounts receivable C utilized to acquire long-term assets D that are cash inflows regardless of source To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 41 The A B C D decision to raise or acquire capital funds is: the responsibility of contract stock underwriters the responsibility of contract bond underwriters affects only bonds is the responsibility of the board of directors 42 Capital funds are acquired through: A the issuance of bonds only B the issuance of stocks and/or bonds C the issuance of stocks only D the initiation of debt instruments only 43 Long-term debt is considered: A Bonds and loans with payment schedules several years in the future B stocks C loans with payment due in the near future D All of the above, A, B, and C, are examples of long-term debt 44 Equity is considered: A Bonds and loans with payment schedules several years in the future B stocks C loans with payment due in the near future D All of the above, A, B, and C, are examples of long-term debt 45 The transactions and resulting processes related to loans, bonds payable, and stock should be executed only when A received funds have been expended through the purchase of fixed assets B the transactions are completed C top supervisors authorize them D top management or the board of directors authorize them 46 Select the correct statement from those listed below A Issuance of bonds and the origination of loans are considered debt while the issuance of stock is considered equity B Issuance of bonds and the origination of loans are considered debt while the issuance of stock is considered revenue C Issuance of bonds, the origination of loans, and the issuance of stock are all considered debt D Issuance of bonds, the origination of loans, and the issuance of stock are all considered equity To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 47 Items associated with debt not include: A interest B maturity date C dividends D changes in stockholders’ equity 48 Items associated with equity include all but: A interest B maturity date C dividends D changes in stockholders’ equity 49 Investment processes: A issue stock B issue bonds C purchase of fixed assets D invest excess funds 50 The _ of a corporation has the responsibility for making investment decision A board of directors B chief financial officer C treasurer D president/CEO 51 The _ of a corporation usually has physical custody of securities held as investments A treasurer B president/CEO C board of directors D chief financial officer 52 Corporations with complex IT systems: A may automate their investment process B still handle all investment processes manually C generally isolate the investment process from their accounting application D cannot forecast surplus cash levels To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 53 Select the true statement from those given below A Capital processes require top management approval while investment processes only require treasurer approval B Both the capital process and the investment process require only treasurer approval C Both the capital process and the investment process require top management approval D Neither the capital process nor the investment processes require top management approval 54 Fraud associated with the capital and investment process is: A is generally the actions of the employees handling the cash associated with transactions B usually related to management fraud C prevented by the use of electronic funds transfers D usually not pursued by the Securities and Exchange Commission 55 The proper sequence of events for the accounting cycle is: A journalize, post, trial balance, adjusting entries, financial statements, and closing entries B journalize, post, trial balance, adjusting entries, closing entries, and financial statements C journalize, post, adjusting entries, trial balance, closing entries, and financial statements D trial balance, adjusting entries, journalize, post, closing entries, and financial statements 56 Special journals include: A accounts receivable journal, cash receipts journal, payroll journal, purchases journal, and sales journal B accounts payable journal, cash disbursements journal, payroll journal, purchases journal, and sales journal C cash disbursements journal, cash receipts journal, general journal, payroll journal, purchases journal, and sales journal D cash disbursements journal, cash receipts journal, payroll journal, purchases journal, and sales journal 57 Special journals so not include the: A sales journal B inventory journal C cash receipts journal D payroll journal To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 58 Special journals include the: A accounts receivable journal B accounts payable journal C purchases journal D inventory journal 59 Select the correct statement from the following A To review purchases from a vendor inspect the purchases journal, to review payments to a vendor inspect the cash receipts journal B To review purchases from a vendor and review payments to a vendor inspect the cash disbursements journal C To review the purchases from a vendor inspect the purchases journal, to determine inventory levels of a specific item inspect the inventory journal D To review the payments to a vendor inspect the cash receipts journal, to determine inventory levels of a specific item inspect the inventory journal 60 Select the correct statement from the following: A The accounts payable journal will not show detail of purchases from a vendor B Details of amounts owed by a customer in are the accounts payable journal C The sales journal contains all sales information D Details of amounts owed to a vendor are contained in the purchases journal 61 Select the correct statement from the following: A If the trial balance debits equal the trial balance credits, adjusting entries are not necessary B Adjusting entries are made after the adjusted trial balance report is printed C Accounts payable information in detail can be found in both the general ledger and the accounts payable subsidiary ledger D Financial statements must be prepared before the closing entries are journalized 62 Sales and sales returns can affect which journals? A Accounts receivable, accounts payable, inventory, and sales B Accounts receivable, cash, inventory, and sales C Accounts receivable, accounts payable, purchases, and inventory D Sales, cash receipts, cash disbursements, inventory, and purchases 63 Special journals are: A utilized for infrequent special journal entries B for regular and recurring transactions C not utilized in automated accounting processes D often the source of information regarding a specific customer To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 64 The A B C D sales journal would have columns for: a debit to sales, a credit to accounts receivable a debit to cash, a debit to accounts receivable, and a credit to sales a debit to accounts receivable and a credit to cost of goods sold a debit to accounts receivable and a credit to sales 65 Subsidiary ledgers: A would not contain the detailed information of a customer’s account B would contain the detailed information of a customer’s account C would contain only information related to secondary interests of the organization D would not be utilized in automated accounting processes 66 When special journals are utilized: A a general journal is not required B segregation of duties is required C a general journal is still utilized for infrequent and unique journal entries D a general ledger is not required 67 Corrections to posting errors are made: A before the first trial balance B only after the first trial balance C when discovered D only when directed by top management 68 Closing entries are: A journalized in all of the special journals B journalized in the general journal C journalized in the subsidiary ledgers D journalized in the general ledger 69 Closing entries: A close all of the general ledger accounts B end the fiscal period C close all of the subsidiary ledger accounts D are journalized in the subsidiary ledgers 70 Today’s automated accounting process: A is built on a structure independent of manual accounting B does not require special journals or subsidiary ledgers C is built on an operational structure similar to manual accounting D eliminate errors in the accounting process 10 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 101 in a A B C D properly controlled system of administrative and reporting functions, employees have access to related assets or source documents administrative processes are tightly controlled by supervisors employees have the authority to initiate processes such as investing in processes such as sales and cash receipts employees are given general authorization to initiate and process transactions Only and are true Only 1, 2, and are true Only is true Only 1, 3, and are true 102 Examples of employee initiated fraud would not include: A the writing off uncollectible accounts of a friend even when it could be collected B the inflation of hours worked on time card C the theft of cash or checks from the mailroom D the release of false or misleading general purpose financial statements 103 Fraud is: A harder to conceal in the routine events of conversion and sales because of their visibility B harder to conceal in the administrative processes such as investments because of the limited access to the records C harder to conceal when initiated by top management due to limited access to the records D precluded by proper internal control processes 104 The A B C D raising of capital: requires the complete and honest details of the utilization of the funds should be supported by correct and factual financial statement values should be supported by correct and factual financial statement footnotes All of the above, A, B, and C, are correct 105 The A B C D four primary functions of corporate governance not include: management oversight inventory control financial stewardship ethical conduct 17 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 106 A proper corporate governance structure must be in place in order to properly deter instances of: and reports A fraud B theft C misuse or manipulation of administrative resources D All of the above, A, B, and C, are correct 107 When management designs and implements effective administrative processes: A delegation of responsibility is prohibited B the ability to steal or misuse capital is eliminated C constant monitoring is necessary D the responsibility of executing related capital functions to employees is prohibited 108 When management designs and implements effective administrative processes: A delegation of responsibility is prohibited B a budgeting process is a method of corporate governance C the responsibility of executing related capital functions to employees is prohibited D the ability to steal or misuse capital is eliminated ANSWERS TO TEST BANK - CHAPTER 12 - MULTIPLE CHOICE: 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 C C A B C C A A D C B C D B A B C 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 A C A D C C A C B A D B C C A D B 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 18 B D B C C B B C A A D B C B D D B 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 C A B B D A D B C C B C B D B D B 97 98 99 100 101 102 103 104 105 106 107 108 D A B A C C A D B D C B To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER 12 – END OF CHAPTER QUESTIONS: 109 Which of the following is not part of an administrative process? A The sale of stock B The sale of bonds C The write-off of bad debts D The purchase of marketable securities 110 Which of the following statements is not true regarding source of capital transactions? A These processes should not be initiated unless there is specific authorization by management at a top level B Source of capital processes will result in potential dividend or interest payments C Retirement of debt is a source of capital process D The fact that these transactions and processes cannot occur without oversight by top management means other controls are not necessary 111 The officer within a corporation that usually has oversight responsibility for investment processes is the A controller B treasurer C chief executive officer (CEO) D chief accounting officer (CAO) 112 Which of the following statements is not true regarding internal controls of capital and investment processes? A Internal controls aimed at preventing and detecting employee fraud in capital and investment processes are not as effective B Top management fraud, rather than employee fraud, is more likely to occur C Any fraud is likely to involve manipulating capital and investment processes D Because of top management oversight, the auditor need not review these processes 113 Which of the following statements is true? A Routine transactions are recorded in the general journal B Nonroutine transactions are entered in the general journal C Nonroutine transactions are recorded in a subsidiary ledger D Nonroutine transactions are recorded in a special journal 19 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 114 Regarding subsidiary ledgers and general ledger control accounts, which of the following is not true? A Total balances in a subsidiary ledger should always equal the balance in the corresponding general ledger account B The general ledger maintains details of subaccounts C Control is enhanced by separating the subsidiary ledger from the general ledger D Reconciling a subsidiary ledger to the general ledger can help to detect errors or fraud 115 Which of the following statements regarding the authorization of general ledger posting is not true? A Posting to the general ledger always requires specific authorization B User IDs and passwords can serve as authorization to post transactions to the general ledger C A journal voucher serves as authorization for manual systems D As IT systems become more automated, the authorization of general ledger posting is moved to lower levels of employees 116 In a manual system with proper segregation of duties, an employee in the general ledger department should only A authorize posting to the general ledger B post transactions to the general ledger C reconcile the subsidiary ledger to the general ledger D post transactions to the subsidiary ledger 117 Which of the following statements about reporting is true? A External users need detailed, rather than summarized, information B All reports, internal and external, are derived only from general ledger data C All organizations need similar internal reports D Internal reports are tailored to the specific needs of each management level and function 118 Which of the following is not an area of measure in a balanced scorecard? A Vendor B Customer C Financial D Learning and growth ANSWERS: 109 C 110 D 111 B 112 B 113 B 114 B 20 115 A 116 B 117 D 118 A To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER 12 – SHORT ANSWER QUESTIONS 119 What characteristics of administrative processes are different from the characteristics of revenue, expenditures, or conversion processes? Answer: The characteristics of administrative processes that are different from revenue, expenditure, or conversion processes are the frequency of occurrence and the extent of management authorization Whereas revenue, expenditure, and conversion processes typically occur on a regular, recurring basis (usually daily), administrative processes occur on a non-regular basis, either as the need arises or on a periodic basis Therefore, revenue, expenditure, and conversion processes usually involve established procedures and controls that allow these processes to occur without intervention or specific authorization by management Administrative processes, on the other hand, typically require that specific authorization for each transaction would be necessary 120 How other processes (revenue, expenditures, conversion) affect the general ledger? Answer: Revenue, expenditure and conversion processes affect the general ledger periodically through the administrative processes of financial reporting This is the process of funneling all of the transactions into the general ledger accounts so they can be included in various financial reports 121 How would you describe capital? Answer: Capital can be described as the funds used to acquire the long-term capital assets of an organization Capital usually comes from long-term debt or equity 122 Describe the nature of the authorization of source of capital processes Answer: Source of capital processes are those processes that authorize the raising of capital, the execution of raising capital, and the proper accounting of that capital Because of the magnitude and importance of these methods of raising capital, these financial instruments should be used only when necessary The transactions and resulting processes related to loans, bonds, and stock should be executed only when management authorizes, and the use of the resulting capital must be properly controlled and used 123 How does the specific authorization and management oversight of source of capital processes affect internal controls? Answer: Since top management authorizes and controls the capital transaction processes, there is inherent control The fact that these transactions and processes cannot occur without specific authorization and oversight by top management is a strong internal control 21 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 124 Describe when an organization would have a need to undertake investment processes Answer: An organization would need to undertake investment processes when it finds that it has more funds on hand than necessary to operate the business The proper performance of the stewardship function would suggest that management should park (or invest) the excess funds in a place that it can earn a return 125 Why is the monitoring of funds flow an important underlying part of investment processes? Answer: The monitoring of funds flow is an important part of the investment process because funds should be invested only if management has no immediate plans for their use Therefore, future cash needs of the organization should be monitored regularly in comparison with cash balances to determine if there are excess funds available for investment 126 How are IT systems potentially useful in monitoring funds flow? Answer: IT systems can help management to monitor the organization’s cash needs by forecasting future cash payments and collections The system can continually compare current cash balances to forecasted needs and sources and provide feedback to top management about potential excess funds that would be available for investing 127 Explain how cash resulting from source of capital processes may be handled differently than cash in revenue processes Answer: The cash resulting from source of capital processes is likely to be handled differently than in revenue processes because of the large sums of money involved in source of capital transactions Whereas collections from revenue processes are typically handled by the organization’s employees, these employees are not likely to handle the large sums of cash that tend to result from stock sales or other source of capital transactions Instead the funds are usually transferred electronically between brokers and banks 128 What advantages would motivate management to conduct fraud related to source of capital processes? Answer: Management may be motivated to conduct fraud through the source of capital processes because of the large sums of money that tend to result from these transactions In addition, there is a lack of traditional controls covering this process; there are no other employees responsible for reporting or controlling these transactions Internal controls are not as effective in this area because of their nonregular occurrence and their dependence on close scrutiny by top management and the auditors The opportunity is greater for management to perpetrate fraud in this process than for other more routine processes 22 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 129 Why are internal controls less effective in capital and investment processes? Answer: Internal controls are not as effective in this area because of their nonregular occurrence and their dependence on close scrutiny by top management and the auditors The opportunity is greater for management to perpetrate fraud in this process than for other more routine processes 130 How is a special journal different from a general journal? Answer: A special journal is a chronological record of specific types of transactions (such as a sales journal, purchases journal, cash receipts journal, etc.); whereas a general journal records irregular, non-recurring transactions that are not included in a special journal 131 How is a subsidiary ledger different from a general ledger? Answer: A subsidiary ledger is a detailed record of routine transactions, with an account established for each entity; whereas a general ledger is a summary of information from special journals, with specific accounts established for each type of transaction A subsidiary ledger is updated whenever new transactions occur A general ledger is updated periodically for the summarization of the special journal details 132 In what way are subsidiary ledgers and special journals replicated in accounting software? Answer: Subsidiary ledgers and special journals are replicated in accounting software as they are summarized for the general ledger postings at the end of the period Although transaction recording in the special journals and subsidiary ledgers takes place at the time the transaction occurs, their replication in the general ledger is an end-of-period summarization process 133 Within accounting software systems, what is the purpose of limiting the number of employees authorized to post to the general ledger? Answer: Limiting the number of employees authorized to post to the general ledger allows management to give general authority to certain employees to post to the general ledger Through the assignment of limited access to the general ledger module, management can limit the capability of general ledger posting to selected employees When an employee with the appropriate access level logs into the accounting system, he can process the general ledger posting Employees who have not been given access to general ledger posting will be unable to post to the general ledger In this manner, management may be able to prevent the recording of unauthorized general ledger transactions 23 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 134 In a complex IT system, how may a customer actually “authorize” a sale? Answer: A customer may actually authorize a sale in a complex IT environment when their inventory systems interact For example, When a customer’s inventory levels fall below an establish reorder point, the IT system may authorize a transfer of products from the supplier to the customer This means that the sale and subsequent update of sales and receivable accounts are triggered by the customer’s computer system Therefore, these systems require pre-existing and negotiated relationships between buyer and seller companies Both parties must have already approved these processes and established IT systems that execute the processes 135 To properly segregate duties, what are the three functions that general ledger employees should not do? Answer: Three important segregations should be in place in a manual general ledger system The three segregations are that the general ledger employees should record journal vouchers, but they should not (1.) authorize journal vouchers, (2.) have custody of assets, or (3.) have responsibility for recording the transactions in the subsidiary ledgers 136 In an IT accounting system, which IT controls ensure the security of the general ledger? Answer: In an IT accounting system where the records are electronic file images, access to the system is limited through the use of user IDs, passwords, and resource authority tables These general controls establish which employees have access to specific records or files 137 Describe the nature of reports for external users Answer: Since external users not need detailed balance information on every existing account in the general ledger, certain accounts may be combined or “rolled up” into a single line item that appears on a financial statement This summary process may occur for all of the line items on the general purpose financial statements The four general purpose financial statements, the balance sheet, income statement, statement of cash flows, and statement of retained earnings, are each derived from general ledger account balances These general ledger balances are rolled up in such a manner as to provide summarized information that is useful to evaluate business performance 24 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 138 Does the general ledger provide all information necessary for internal reports? Answer: The general ledger does not provide all information necessary for internal reports Internal reports often rely on information from various parts of the organization For instance, manufacturing, retail, service, and charitable organizations would each use different types of information to manage the details of their revenue and expenditure processes In each of these scenarios, non-financial information is often useful to managers in order to supplement the financial information derived from the general ledger In addition, there may be detailed financial and non-financial information in an organization’s accounting system that is useful for internal reporting purposes but may not be readily apparent in the general ledger In addition, internal reports may contain past or future information that is not included in the current period’s general ledger 139 How would operational internal reports differ from financial internal reports? Answer: Operational internal reports focus on non-financial details of operations, such as machine hours, down-time, inventory and sales units, headcounts for human resources, etc These types of operational reports may not be prepared from data in the general ledger However, as transactions are recorded in the accounting processes, financial as well as non-financial data is accumulated Therefore, the accounting system often records both financial and operational data that can be used in reports Financial reports, on the other hand, are prepared directly from ledgers, journals, and other accounting records 140 How does time horizon affect the type of information in internal reports? Answer: In day-to-day management, managers are more likely to use unit measures and physical counts For time horizons of one month or longer, however, managers are more likely to use financial measures such as those generated by information in the general ledger 25 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 141 Why are managers, rather than employees, more likely to engage in unethical behavior in capital and investment processes? Answer: There are three main reasons why management may be more likely to engage in unethical behavior in the capital and investment processes: • Employees typically not have access to the assets or records in the capital and investment processes These assets and records are controlled by management because of their non-routine nature and because of the high amounts of related funds • Internal controls for these processes are dependent upon the close scrutiny and specific authorization of top management, whereas employees typically have no authority over these types of transactions However, managers are most likely to be tempted to alter or hide financial information in an effort to improve the appearance of the organization’s financial results for investors and creditors • The non-routine nature of these transactions makes it more difficult to hide fraudulent transactions Fraud as committed by employees would be much easier to hide within the volumes of transactions in the routine processes like revenues, expenditures, etc 142 How processes with large volumes of transactions make fraudulent behavior easier? Answer: The routine nature and large volumes of transactions in the processes for sales, purchases, payroll, etc make it easier for employees to hide fraudulent transactions or unethical behavior Fraud may be hidden in the large masses of transactions within these processes 143 Explain the importance of full disclosure in source of capital processes Answer: Full disclosure is extremely important in the source of capital processes so that creditors can be fully informed of all relevant information in making credit decisions Accordingly, financial reports and other disclosures must be complete and accurate in order to avoid misleading any current or potential creditors 26 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER 12 – SHORT ESSAY 144 Describe the steps in source of capital processes and explain how top management is involved Answer: When the need for capital arises, the Board of Directors is consulted for approval and for determination of whether debt of equity capital will be pursued If equity capital is chosen, a stock underwriter will be contracted to sell the shares of stock and collect the proceeds The company will need to determine whether or not to pay dividends If debt capital is chosen, the company will need to decide whether it should issue bonds or borrow the funds If bonds are chosen, the company will contract with a bond underwriter, who will sell the bonds and collect the proceeds, as well as handle the periodic payment of interest If funds are borrowed, arrangements must be made for the bank loan by contracting with creditors The proceeds will be collected and periodic interest will be paid Throughout this process, management is involved in most of these steps Management would present the need for capital to the Board of Directors Depending on the source of capital determined by the Board, management would then be responsible for contracting with the appropriate party (stock or bond underwriter or bank creditor) Finally, management would be involved in the arrangements for collecting proceeds from the source of capital processes as well as the payment of interest or dividends 145 Describe the steps in investment processes and explain how top management is involved Answer: When excess funds are identified, they are to be evaluated in comparison with upcoming needs of the organization If it is decided that the excess should be invested, the type of investment must be determined The company may invest in marketable securities, in which case it would contract with a stock broker to buy stocks or bonds (and sell these securities as necessary) Alternatively, the company may invest in treasury stock, in which case it would contract with a stock broker to buy the treasury shares and reissue shares as desired Throughout this process, management involvement occurs at many points Management is responsible for monitoring cash flows to determine if excess funds exist and if they are available for investment or needed for upcoming operations Management would also be responsible for contracting with a stock broker for the purchase of stocks, bonds, or treasury stock (as well as the subsequent sale of these investments, as needed) 27 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 146 Explain the internal control environment of source of capital and investment processes Answer: For both source of capital and investment processes, the important control is the specific authorization and oversight by top management The very close supervision of these transactions helps prevent risks related to the theft or misuse of the cash that is related to capital and investment processes In addition, the large sums of money involved in capital and investment decisions usually dictates that the cash not be handled by the regular company employees Instead, the funds are likely to be transferred electronically between brokers and banks Because of the high risk of management fraud in these processes and the potential for management circumvention of controls, typical internal controls such as segregation of duties and reconciliations are not as effective in the prevention or detection of fraud surrounding these processes As an added control feature, auditors are often urged to carefully examine capital and investment transactions 147 Describe the steps in a manual accounting cycle Answer: When a transaction occurs, it must be identified as either routine or nonroutine Routine transactions are recorded in a special journal and subsidiary ledger; non-routine transactions are recorded in the general journal At the end of the day, week, or other period, the journals and ledgers are summarized and posted to the general ledger General ledger totals are summarized in a trial balance, and end-ofperiod adjusting entries are prepared The adjusted general ledger is used to prepare financial statements Once the financial statements are completed, closing entries are prepared, and then the cycle may begin anew 148 Describe why it is true that there may be two authorizations related to revenue, expenditures, and conversion processes before they are posted to the general ledger Answer: In a properly controlled accounting system, transactions within the revenue and conversion processes must be authorized before they are carried out In addition, another authorization is needed to begin the process of posting entries from the special journals and subsidiary ledgers to the general ledger Thus, there may be two authorizations related to these routine processes 28 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 149 For each report shown, indicate in the appropriate column whether the report is likely to be for internal or external users (some reports may be both), and whether data would come exclusively from the general ledger Report Name Income statement Aged accounts receivable Inventory stock status Open purchase orders Machine down-time Cash flow statement Production units produced Answer: Report Name Income statement Aged accounts receivable Inventory stock status Open purchase orders Machine down-time Cash flow statement Production units produced Internal or External Exclusively G/L Data? Internal or External External Both Internal Internal Internal External Internal Exclusively G/L Data? Yes No No No No No No TEST BANK – CHAPTER 12 – PROBLEMS 150 Compare source of capital processes with sales processes in terms of a the frequency of transactions; b the volume of transactions; c the magnitude in dollars of a single transaction; and d the manner of authorization Answer: Compared with the sales processes, (a and b.) source of capital processes occur much less frequently and in smaller volumes Whereas sales transactions typically occur on a daily basis (and may even occur several times per day), source of capital transactions tend to occur in small volumes and on an irregular basis Often, there may be only a few times within any given annual period that a source of capital transaction occurs In addition, (c.) the magnitude of an individual source of capital transaction tends to be much greater than for an individual sales transaction Finally, (d.) whereas routine sales transactions are usually authorized by employees having general authorization privileges, source of capital transactions require specific authorization of management 29 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 151 Compare investment processes with sales processes in terms of a the frequency of transactions; b the volume of transactions; c the magnitude in dollars of a single transaction; and d the manner of authorization Answer: Compared with the sales processes, (a and b.) investment processes occur much less frequently and in smaller volumes Whereas sales transactions typically occur on a daily basis (and may even occur several times per day), investment transactions tend to occur in small volumes and on an irregular basis Often, there may be only a few times within any given annual period that an investment transaction occurs In addition, (c.) the magnitude of an individual investment transaction tends to be much greater than for an individual sales transaction Finally, (d.) whereas routine sales transactions are usually authorized by employees having general authorization privileges, investment transactions require specific authorization of management 152 Exhibit 12-9 shows a screen capture from Dynamics GP® accounting software The following modules in Dynamics GP® are shown: > Financial > Sales > Purchasing > Inventory > Payroll > Manufacturing >Fixed Assets 30 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 153 For each of the transactions listed, explain which module would you choose and why a Entering an invoice received from a supplier b Entering the receiving of materials at the shipping dock c Enter a check received in payment of an account receivable d Posting a batch of sales invoices to the general ledger e Enter hours worked by employees f Print checks for suppliers Answer: a Entering an invoice received from a supplier- this would fall under the Purchasing module The purchasing module is appropriate because it would record the purchase or expenditure in the purchases journal, as well as the related payable to the supplier in an accounts payable subsidiary ledger b Entering the receipt of material at the shipping dock – this would fall under the Inventory module The inventory module is appropriate because it would record the items on hand and the movement of goods available for production c Entering a check received in payment of an account receivable – this would fall under the Sales module The sales module is appropriate because it would include collections of sales in the cash receipts journal and the related customer accounts in the accounts receivable subsidiary ledger d Posting a batch of sales invoices to the general ledger – this would fall under the Financial module The financial module is appropriate because it includes all accounting cycle functions, including the summarization of special journals and their posting to the general ledger e Entering hours worked by employees – this would fall under the Payroll module The payroll module is appropriate because it records all periodic workforce activities in a payroll journal f Printing checks for suppliers – this would fall under the Purchasing module The purchasing module is appropriate because it would record the payment to the supplier in an accounts payable subsidiary ledger as well as the related release of funds in a cash disbursements journal 31 ... manual accounting B may be more difficult in less complex computerized accounting systems C is not a factor with computerized accounting systems D is not a factor with manual accounting systems... B D C B To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER 12 – END OF CHAPTER QUESTIONS: 109 Which of the following is not part... C 110 D 111 B 112 B 113 B 114 B 20 115 A 116 B 117 D 118 A To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com TEST BANK – CHAPTER 12 – SHORT ANSWER