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21.When following the parent company concept in the preparation of consolidated financial statements, noncontrolling interest in combined income is considered a(n) a.prorated share of the combined income. b.addition to combined income to arrive at consolidated net income. c.expense deducted from combined income to arrive at consolidated net income. d.deduction from current assets in the.
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11.Auditors examine the physical environment of the computer center as part of their audit. Many characteristics of computer centers are of interest to auditors. What are they? Discuss. 12.Explain why certain duties that are deemed incompatible in a manual system may be combined in a CBIS environment? Give an example. 13.Compare and.
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SHORT ANSWER 1.Briefly define an operating system. 2.What is a virus? 3.Describe one benefit of using a call-back device. 4.Contrast the Private Encryption Standard approach with the Public Key Encryption approach to controlling access to telecommunication messages. 5.List three methods of controlling unauthorized access to telecommunication messages. .
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4.Prior to SOX, external auditors were required to be familiar with the client organization’s internal controls, but not test them. Explain. 5.Does a qualified opinion on managements assessment of internal controls over the financial reporting system necessitate a qualified opinion on the financial statements? Explain. 6.The PCAOB’s standard No. 2 specifically requires.
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11.Which of the following is a limitation of consolidated financial statements? a.Consolidated statements provide no benefit for the stockholders and creditors of the parent company. b.Consolidated statements of highly diversified companies cannot be compared with industry standards. c.Consolidated statements are beneficial only when the consolidated companies operate within the same industry. d.Consolidated statements are.
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SHORT ANSWER 1.Contrast the source program library (SPL) management system to the database management system (DBMS). 2.Describe two methods used to control the source program library. 3.New system development activity controls must focus on the authorization, development, and implementation of new systems and its maintenance. Discuss at least five control activities that are.
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MULTIPLE CHOICE 1.The operating system performs all of the following tasks except a.translates third-generation languages into machine language b.assigns memory to applications c.authorizes user access d.schedules job processing 2.Which of the following is considered an unintentional threat to the integrity of the operating system? a.a hacker gaining access to the system because of a security flaw b.a hardware.
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6.Describe two ways that passwords are used to authorize and validate messages in the electronic data interchange environment. 7.Explain how transactions are audited in an electronic data interchange environment. 8.Describe are some typical problems with passwords? 9.Discuss the key features of the one-time password technique: 10.Describe two tests of controls that would provide evidence.
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Problems 1-1Plantier Company is considering the acquisition of Barkley, Inc.  To assess the amount it might be willing to pay, Plantier makes the following computations and assumptions. A.Barkley, Inc. has identifiable assets with a total fair value of $9,000,000 and liabilities of $5,300,000.  The assets include office equipment with a fair value.
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26.What is an auditor looking for when testing computer center controls? 27.Define and contrast attestation services and assurance services. 28.What is IT Governance? 29.Why should the tasks of systems development and maintenance be segregated from operations? 30.Why should new systems development activities be segregated from the program change (maintenance) function. .
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21.Run-to-run control totals can be used for all of the following except a.to ensure that all data input is validated b.to ensure that only transactions of a similar type are being processed c.to ensure the records are in sequence and are not missing d.to ensure that no transaction is omitted 22.Methods used to maintain an.
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2-5              The stockholders’ equities of P Corporation and S Corporation were as follows on January 1, 2004:     P Corp.    S Corp.  Common Stock, $1 par$2,000,000$   600,000 Other Contributed Capital  5,500,000  1,100,000 Retained Earnings  1,300,000     340,000   Total Stockholders’ equity$8,800,000$2,040,000 On January 2, 2004 P Corp. issued 200,000 of its shares with a market value.
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2-3Pate Company acquired the assets (except cash) and assumed the liabilities of Sand Company on January 1, 2004, paying $1,200,000 cash. Immediately prior to the acquisition, Sand Company's balance sheet was as follows: BOOK VALUEFAIR VALUE Accounts receivable (net)$   120,000$   110,000 Inventory145,000160,000 Land480,000754,000 Buildings (net)     510,000     696,000 Total$1,255,000$1,720,000 Accounts payable$   135,000$  135,000 Note payable300,000300,000 Common stock, $5 par210,000 Other contributed.
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2-7 Proust Corporation is considering a merger with Seville Company.  After considerable negotiations, the two companies determined that two shares of each Seville Company stock would be replaced with one share of Proust stock.  The balance sheets of the two companies are below, along with the fair value of Seville’s identifiable.
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Multiple Choice 1.A majority-owned subsidiary that is in legal reorganization should normally be accounted for using a.consolidated financial statements. b.the equity method. c.the market value method. d.the cost method. 2.Under the purchase method, indirect costs relating to acquisitions should be a.included in the investment cost. b.expensed as incurred. c.deducted from other contributed capital. d.none of these. 3.Eliminating entries are made to.
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8.Contrast Embedded Audit Modules with Generalized Audit Software. 9.What is the purpose of the auditor's review of SDLC documentation? 10.Microcomputers have traditionally been difficult to control, leaving auditors with special problems in verifying physical controls. Discuss what an auditor's objectives might be in testing microcomputer controls. 11.Contrast the "black box" approach to IT.
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Problems 2-1Balance sheet information for Steve Corporation at January 1, 2004, is summarized as follows: Current assets$ 230,000Liabilities$ 300,000 Plant assets   450,000Capital stock $10 par   200,000      Retained earnings   180,000 $ 680,000$ 680,000 Steve’s assets and liabilities are fairly valued except for plant assets that are undervalued by $50,000.  On January 2, 2004, Paul Corporation.
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6.What are the three categories of processing control? 7.What control issue is related to reentering corrected error records into a batch processing system? What are the two methods for doing this? 8.Output controls ensure that output is not lost, misdirected, or corrupted and that privacy is not violated. What are some output.
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11.The most frequent victims of program viruses are microcomputers. 12.Access controls protect databases against destruction, loss or misuse through unauthorized access. 13.Operating system integrity is not of concern to accountants because only hardware risks are involved. 14.Audit trails in computerized systems are comprised of two types of audit logs: detailed logs of individual.
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16.The distributed data processing approach carries some control implications of which accountants should be aware. Discuss two. 17.__________________________ are intentional mistakes while __________________________ are unintentional mistakes. 18.Explain the relationship between internal controls and substantive testing. 19.Discuss the interrelationship of tests of controls, audit objectives, exposures, and existing controls. 20.Distinguish between errors and irregularities. Which.
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1-4The following balances were taken from the records of S Company: Common stock (1/1/04 and 12/31/04)$360,000 Retained earnings 1/1/04$81,000 Net income for 200490,000 Dividends declared in 2004              (21,000) Retained earnings, 12/31/04  150,000 Total stockholders' equity on 12/31/04$510,000 P Company purchased 75% of S Company's common stock on January 1, 2004 for $450,000.  The difference between cost and.
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11.Describe a test of controls that would provide evidence that only authorized program maintenance is occurring. 12.Auditors do not rely on detailed knowledge of the application's internal logic when they use the __________________________ approach to auditing computer applications. 13.Describe parallel simulation. 14.What is meant by auditing around the computer versus auditing through the.
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31.All of the following concepts are associated with the black box approach to auditing computer applications except a.the application need not be removed from service and tested directly b.auditors do not rely on a detailed knowledge of the application's internal logic c.the auditor reconciles previously produced output results with production input transactions d.this approach.
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11.A business combination is accounted for properly as a purchase. Which of the following expenses related to effecting the business combination should enter into the determination of net income of the combined corporation for the period in which the expenses are incurred? Accounting and Overhead allocated consulting feesto the merger a.YesYes b.YesNo c.NoYes d.NoNo 12. In a.
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11.An example of a hash total is a.total payroll checks–$12,315 b.total number of employees–10 c.sum of the social security numbers–12,555,437,251 d.none of the above 12.Which statement is not true? A batch control record a.contains a transaction code b.records the record count c.contains a hash total d.control figures in the record may be adjusted during processing e.All the above are true 13.Which.
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11.Which is not a biometric device? a.password b.retina prints c.voice prints d.signature characteristics 12.Which of the following is not a basic database backup and recovery feature? a.checkpoint b.backup database c.transaction log d.database authority table 13.All of the following are objectives of operating system control except a.protecting the OS from users b.protesting users from each other c.protecting users from themselves d.protecting the environment from users 14.Passwords.
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7.What fraud detection responsibilities (if any) are imposed on auditors by SOX. 8.Describe how a Corporate Computer Services Function can overcome some of the problems associated with distributed data processing. 9.Discuss the advantages and disadvantages of the second site backup options. 10.Internal control in a computerized environment can be divided into two broad.
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11.A potential offering price for a company is computed by adding the estimated goodwill to the book value of the company’s net assets. book value of the company’s identifiable assets. fair value of the company’s net assets. fair value of the company’s identifiable assets. 12.Estimated goodwill is determined by computing the present value of the .
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11.Achieving batch control objectives requires grouping similar types of input transactions (such as sales orders) together in batches and then controlling the batches throughout data processing. 12.The "white box" tests of program controls are also known as auditing through the computer. 13.The presence of a SPLMS effectively guarantees program integrity. 14.When using the.
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ESSAY 1.Discuss the key features of Section 404 of the Sarbanes-Oxley Act 2.Section 404 requires management to make a statement identifying the control framework used to conduct their assessment of internal controls. Discuss the options in selecting a control framework. 3.Explain how general controls impact transaction integrity and the financial reporting process. .
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MULTIPLE CHOICE 1.Which statement is not correct? The audit trail in a computerized environment a.consists of records that are stored sequentially in an audit file b.traces transactions from their source to their final disposition c.is a function of the quality and integrity of the application programs d.may take the form of pointers, indexes, and embedded.
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TRUE/FALSE 1.In a computerized environment, the audit trail log must be printed onto paper documents. 2.Disguising message packets to look as if they came from another user and to gain access to the host’s network is called spooling. 3.Access controls take on increased importance in a computerized environment because all of the records.
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Multiple Choice 1.Assets and liabilities acquired are recorded at their fair values under a.The pooling of interests method. b.The purchase method. c.Both the purchase and the pooling of interests methods. d.Neither the purchase nor the pooling of interests methods. 2.Equity shares issued as consideration are recorded at the book value of the acquired shares under a.The pooling.
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31.In an electronic data interchange environment, the audit trail a.is a printout of all incoming and outgoing transactions b.is an electronic log of all transactions received, translated, and processed by the system c.is a computer resource authority table d.consists of pointers and indexes within the database 32.All of the following are designed to control exposures.
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5.After data is entered into the system, it is processed. Processing control exists to make sure that the correct things happen during processing. Discuss processing controls. 6.If input and processing controls are adequate, why are output controls needed? 7.Describe and contrast the test data method with the integrated test facility. .
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TRUE/FALSE 1.Programs in their compiled state are very susceptible to the threat of unauthorized modification. 2.Maintenance access to systems increases the risk that logic will be corrupted either by the accident or intent to defraud. 3.Source program library controls should prevent and detect unauthorized access to application programs. 4.A check digit is a method.
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21.In a business combination in which the total fair value of the identifiable assets acquired over liabilities assumed is greater than the cost, the excess fair value is: classified as an extraordinary gain. allocated first to reduce proportionately non-current assets, except long-term marketable securities, and any remaining excess over cost is classified.
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21.Describe two tests that an auditor would perform to ensure that the disaster recovery plan is adequate. 22.Distinguish between inherent risk and control risk. How do internal controls and detection risk fit in? 23.Contrast internal and external auditing. 24.What are the components of audit risk? 25.How do the tests of controls affect substantive tests? .
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Multiple Choice 1.A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n) a.agreeable combination. b.friendly combination. c.hostile combination. d.unfriendly combination. 2.A merger between a supplier and a customer is a(n) a.friendly combination. b.horizontal combination. c.unfriendly combination. d.vertical combination. 3.When a business acquisition is financed using debt, the interest payments are tax.
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21.All of the following tests of controls will provide evidence that adequate computer virus control techniques are in place and functioning except a.verifying that only authorized software is used on company computers b.reviewing system maintenance records c.confirming that antivirus software is in use d.examining the password policy including a review of the authority table 22.Audit.
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3.The presence of an audit trail is critical to the integrity of the accounting information system. Discuss three of the techniques used to preserve the audit trail. 4.Define each of the following input controls and give an example of how they may be used: a.  Missing data check b.  Numeric/alphabetic data check c.  Limit.
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1-3Penn Company acquired an 80% interest in the common stock of Sweet Company for $772,000 on July 1, 2004.  Sweet Company's stockholders' equity on that date consisted of: Common stock$400,000 Other contributed capital200,000 Retained earnings165,000 The book values of Sweet's assets and liabilities are equal to their fair values except for the following:     Book.
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