Exam Preparation

26 Oct, 8h00-11h00HP2

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Bloom’s Taxonomy:

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Paper: Section A:

Theory, will be answered on Exam script Section B:

Practical, SFC

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Section A: Test Prep Ch 1:

What is discretionary reporting?  Why have re-engineering efforts been made to

integrate AIS and MIS? Page 4-5; Fig 1-1: the internal and external flows

of information Page 5: Information Objectives Page 9: general model for AIS, Fig 1-4 Page 14: Fig 1-6: Application, next slide

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Pr 5: Draw a diagram of functional segments for an

oil company that has the following operations: Head office in NY responsible for international

and national marketing, acquisition of leases and contracts, and corporate reporting

Two autonomous regional facilities in Tulsa, Oklahoma, and New Orleans. These facilities are responsible for oil exploration, drilling, refining, storage, and the distribution of petroleum products to corporate service stations worldwide.

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Ch 2 What is destructive update?  Explain the types of coding schemes and give

examples of their use.  What are the reasons companies use coding

schemes in their accounting information systems?

 Compare and contrast the relative advantages and disadvantages of sequential, block, group, alphabetic and mnemonic codes.

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Ch2, 1 Categorize each of the following activities

into expenditure, conversion, or revenue cycles, and id the applicable subsystem:

Preparing the weekly payroll for manufacturing personnel

Release raw materials for use in the manufacturing cycle

Recording the receipt of payment for goods sold

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DFD, SFC I provide you with a flowchart Explain it

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Ch 3: What is the relationship between COSO and

SAS 78? How are they similar/different?  What are the key points of the section 404 of

the Sarbanes-Oxley Act?  Describe the factors that constitute the fraud

triangle. How does personal ethics influences fraud in

general

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Ch 3: Audit trail controls Page 122 - 128

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Ch 4 Conceptual system:

Page 146 – 155, Cash Receipts Procedures Understand the process

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Practical Component Draw a system flow chart Questions on flow chart: Page 115-118

Segregation of duties, Fig 3-4

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Typical Problem:

Jabu Dube Is the warehouse manager for a large office supply wholesaler. Dube receives two copies of the customer sales order from the sale department. He picks the goods from the shelves and sends them and one copy of the sales order to the shipping department. He then files the second copy in a temporary file. At the end of the day, he retrieves the sales orders from the temporary file and updates the inventory subsidiary ledger from a terminal in his office. At that time, he identifies items that have fallen to low levels, select a supplier, and prepares three copies of a purchase order. One copy is sent to the supplier, one is sent to the AP clerk, and one is filed in the warehouse. When the goods arrive from the supplier, he reviews the attached packing slip, counts and inspects the goods, places them on the shelves, and updates the inventory ledger to reflect the receipt. He then prepares a receiving report and sends it to AP department.

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Questions: Draw SFC Identify any control problems What sorts of fraud are possible in this

system

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Control Problems:Control Activity Example

Authorization general (purchase of inventory when level drops) or specific (credit approval beyond normal limit)

Segregation of functions separate authorization from processing separate custody of assets from record keeping

Supervision required when separation of duties is not possible, such as opening the mail (cash receipts)

Accounting records maintain an adequate audit trail

Access controls maintain physical security

Independent verification bank reconciliation, physical inventory count

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Control problems: The following segregation of functions

problems exist: Dube is the warehouse manager (asset custody)

and is responsible for updating the inventory subsidiary ledger (record keeping).

Dube determines what should be ordered (authorization) and the places the order (transaction processing).

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Fraud: Kickback fraud—Since Dube selects the supplier and

also places the order, he could order inventory that is not needed or that is above market price from a supplier with whom he has a personal fraudulent arrangement. In exchange, the supplier pays a kickback to the warehouse manager.

Vendor fraud—Dube authorizes, orders, and receives the goods; he could establish himself as a vendor and process fraudulent transactions.

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Fraud: Theft of inventory—Dube can simply remove

the assets from the warehouse, sell them, and adjust the inventory records. A reconciliation between the physical inventory on hand and the records would indicate no discrepancies

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Fraud: The 3 P’s?

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