Week 7 Homework Questions Download the attached Word document, type in your answers to the questions, rename the file with your name and "HW7", e.g., "Jim Peters HW7", and reattached the completed document to this assignment. 1) This question is based on Tom's Trailer Sales case included at the end of this assignment. The text lists nine IT duties roles (Figure 12-2)[footnoteRef:1]. Without adding any new employees but including Carla, describe how you would segregate these duties for Tom. Tom does not have the resources to develop an MIS internally and will need to outsource part of the process to Carla. Your plan should provide as much control as possible while being practical for an operation as small as Tom's Trailer Sales. You will not be able to segregate all the duties completely for a firm as small as Tom's. In addition, you need to consider how Tom operates and realize that all the employees run the computer system for some tasks. [1: Chief Information Officer or IT Manager, Security Administrator, Systems Analyst, Programmer, Computer Operations, Librarian, Network Administrator, Data Input/Output Control, and Database Administrator.] 7 Person Duties Reason Duties are assigned to this person Carla Tom Bookkeeper Other Staff members 2) Segregation of duties is only one form of controls over information production and distribution. Describe four additional general controls related to information systems that Tom should consider implementing and explain why you would recommend the control. Do not include any application controls. Control Description Purpose 3) The following are several multiple choice questions adapted from the CPA exam that cover types of audit tests. For each question, selected the best answer and then explain why it is better than all the alternatives. Your explanations should address all the possible alternatives presented in the question. a) The auditor looks for an indication on duplicate sales invoices to see whether the accuracy of invoices has been verified. This is an example of i) a test of details of balances. ii) a test of control. iii) a substantive test of transactions iv) both a test of control and a substantive test of transactions Answer: Explanation: b) A conceptually logical approach to the auditor's evaluation of internal controls consists of the following four steps: I. Determining the internal controls that should prevent or detect errors or fraud II. Identifying control deficiencies to determine their effect on the nature, timing, or extent of auditing procedures to be applied and suggestions to be made to the client. III. Determining whether the necessary internal control procedures and are prescribed and being followed satisfactorily. IV. Considering the types of errors and fraud that can occur. What should be the order in which these four steps are performed? i) I, II, III, IV ii) I, III, IV, II iii) III, IV, I, II iv) IV, I, III, II Answer: .

1. Week 7 Homework Questions
Download the attached Word document, type in your answers to
the questions, rename the file with your name and "HW7", e.g.,
"Jim Peters HW7", and reattached the completed document to
this assignment.
1) This question is based on Tom's Trailer Sales case included
at the end of this assignment. The text lists nine IT duties roles
(Figure 12-2)[footnoteRef:1]. Without adding any new
employees but including Carla, describe how you would
segregate these duties for Tom. Tom does not have the
resources to develop an MIS internally and will need to
outsource part of the process to Carla. Your plan should
provide as much control as possible while being practical for an
operation as small as Tom's Trailer Sales. You will not be able
to segregate all the duties completely for a firm as small as
Tom's. In addition, you need to consider how Tom operates and
realize that all the employees run the computer system for some
tasks. [1: Chief Information Officer or IT Manager, Security
Administrator, Systems Analyst, Programmer, Computer
Operations, Librarian, Network Administrator, Data
Input/Output Control, and Database Administrator.]
7

2. Person
Duties
Reason Duties are assigned to this person
Carla
Tom
Bookkeeper
Other Staff members
2) Segregation of duties is only one form of controls over
information production and distribution. Describe four
additional general controls related to information systems that
Tom should consider implementing and explain why you would
recommend the control. Do not include any application
controls.
Control Description
Purpose
3) The following are several multiple choice questions adapted
from the CPA exam that cover types of audit tests. For each

3. question, selected the best answer and then explain why it is
better than all the alternatives. Your explanations should
address all the possible alternatives presented in the question.
a) The auditor looks for an indication on duplicate sales
invoices to see whether the accuracy of invoices has been
verified. This is an example of
i) a test of details of balances.
ii) a test of control.
iii) a substantive test of transactions
iv) both a test of control and a substantive test of transactions
Answer:
Explanation:
b) A conceptually logical approach to the auditor's evaluation of
internal controls consists of the following four steps:
I. Determining the internal controls that should prevent or
detect errors or fraud
II. Identifying control deficiencies to determine their effect on
the nature, timing, or extent of auditing procedures to be
applied and suggestions to be made to the client.
III. Determining whether the necessary internal control
procedures and are prescribed and being followed satisfactorily.
IV. Considering the types of errors and fraud that can occur.
What should be the order in which these four steps are
performed?
i) I, II, III, IV
ii) I, III, IV, II
iii) III, IV, I, II
iv) IV, I, III, II
Answer:
Explanation:

4. 4) The following are several multiple choice questions adapted
from the CPA exam that cover tests of controls. For each
question, selected the best answer and then explain why it is
better than all the alternatives. Your explanations should
address all the possible alternatives presented in the question.
a) The primary objective of performing tests of controls is to
obtain
i) a reasonable degree of assurance that the client's internal
controls are operating effectively on a consistent basis
throughout the year.
ii) sufficient, appropriate audit evidence to afford a reasonable
basis for the auditor's opinion, without the need for additional
evidence.
iii) assurances that informative disclosures in the financial
statements are reasonably adequate.
iv) knowledge and understanding of the client's prescribed
procedures and methods.
Answer:
Explanation:
b) To test the effectiveness of controls, an auditor ordinarily
selects from a variety of techniques, including
i) analysis.
ii) reperformance.
iii) confirmation
iv) comparison.
Answer:
Explanation:

5. c) Tests of controls are most likely to be omitted when
i) an account balance reflects many transactions.
ii) control risk is assessed at less than the maximum.
iii) the understanding of the control structure indicates that
evaluating the effectiveness of control policies and procedures
is likely to be inefficient.
iv) auditor wishes to increase the acceptable level of detection
risk.
Answer:
Explanation:
Tom's Trailer Sales, Inc. Case Description
Description of Tom's Trailer Sales
Tom Sullivan owns a small recreational trailer business in a
suburban community located close to the mountains. Tom sales
are mostly trailers for vacationing and camping, and a variety of
accessories for those trailers. Tom's Trailer Sales (Tom's) has
only one location that includes a parking lot of customers and
employees, a sales lot where he stores trailers for resale, and a
combine business office, warehouse, and preparation shop.
Tom's engaging in various activities like installing accessories
and trailers and doing repairs on trailers in the preparation
shop. It stores some accessories and repair parts in the
warehouse. The business office portion on the building
contains offices for Tom, his bookkeeper, and his sales staff.
In addition to Tom, who is the owner and general manager,
Tom's employs six sales people and three mechanics to do the
prep and repair work. The only other employee is the
bookkeeper.

6. Tom's Information System
Tom's Trailer does not own a computer, but Tom realizes that
he needs one to remain competitive. As a first step to
improving their information systems, Tom hired an MIS
consultant, Carla Denton, to design and implement of a new
MIS for his business. Carla spent her first two weeks talking to
Tom and the bookkeeper. In her discussions with the Tom,
Carla focused on clarifying Tom's goals and expectations for the
new system and determining how much time and money Tom
could afford both for system's design and implementation and
for the system's on-going operating costs.
Carla's discussions with the bookkeeper focused on
understanding how Tom's current accounting and reporting
functions worked. At the end of the second week, Carla had
developed a list of goals and priorities for the new system and
had accumulated copies of all forms and reports Tom's currently
generates manually.
Next, Carla built a small, prototype system in Access™ that
duplicated the functions of the current manual system and then
work on how to modify it to produce the additional detail that
Tom wanted. She spent the next three weeks setting up the
prototype, which included forms for recording data that looked
similar to the manual forms and logs Tom's currently used and
reports that contained the same information as the reports Tom's
currently created. Because Tom's was such a small operation
and she wanted to keep the cost of the new system down, Carla
did not produce much documentation of the system or the logic
she used to produce it, but depended on the built-in
documentation features of Access™. Access™ can produce
very detailed listings of the technical specifications of every
component in the database but does not have any way to
document how those components would be used by Tom's staff
to record information and use reports in their daily activities.

7. At the end of the Carla's fifth week, she had created a prototype
Access™ database that could record test data and produce
reports that duplicated the current, manual system. She spent
the next three weeks working with Tom to finalize the systems
design.
After two more months of work, Carla was able to present a
completed system (i.e., Access™ database) to Tom. She had
tested the system with some sample data Tom helped her
develop, but felt that running the system in parallel with Tom's
manual system was too expensive for Tom. She felt she had
accomplished as much as she could without running up too high
consulting fees and turned the system over to Tom along with a
list of hardware he would need to purchase to install computers
in various locations in Tom's operations.
In addition to the hardware specifications and Access™
database she produced, Carla spend half a day walking Tom
through the system and its various components. She also
developed a user's manual of how each component of the system
worked. Finally, she told Tom that she would be available to
answer any questions Tom had on the new system.
The hardware configuration that Carla developed for tome
included:
Three small personal computers (PCs) and one larger PC. The
three small PCs will be located in the sales area, the warehouse,
and in Tom's office. The larger PC will be located in the
business office and will be primarily used by the bookkeeper.
All four will be networked together with the larger PC acting as
the central server. The larger PC will also have high-speed
internet access. However, all of the PCs will have internet
access through the network linked to the large PC.
Tom reviewed all of Carla's work, but was concerned about how
to control the various activities associated with a computerized

8. environment so he met with Carla again. She prepared a list of
the basic activities that IT departments usually engage in and
discussed with Tom the nature of each activity and the
importance of segregating them from each other. Tom quickly
realized that he did not have the staff to handle some of the
duties, much less segregate all. Thus, he asked Carla if she
would consider working permanently as an IT consultant and
developing a plan of how to segregate the IT duties as best they
could by including her as part of the IT function.