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1 Link download full: Solution Manual for Accounting Information Systems 10th Edition by Bodnar Addendum to Bodnar/Hopwood Accounting Information Systems 10th Edition Author's Discussion of Solutions to Multiple-Choice Professional Examination Questions The 10th Edition contains an extensive collection of multiple-choice questions from professional examinations. The majority of these questions are from CPA examinations. The Instructor's Manual contains the Official Answer to these questions. However, the Official Answers were published without any explanation as to 'why' the indicated answers are 'correct'. Usually, the correctness of the answer will be evident. However, this may not be the case for at least a few of these questions. The textbook's collection of multiple-choice questions from professional examination is one of its strongest pedagogical features. These questions pertain to the most important control concepts in the textbook, and are an excellent vehicle for stimulating classroom discussion. Accordingly, the authors have prepared this document, which provides a detailed discussion/explanation of each stem for each question. This material was prepared to facilitate the instructor's use of these questions in the classroom. This addendum contains discussion of the following questions from the textbook: Chapter 4: Questions 21 to 46 page 2 Chapter 6: Questions 16 to 45 page 12 Chapter 7: Questions 26 to 50 page 23 Chapter 8: Questions 24 to 59 page 34 Chapter 9: Questions 17 to 32 page 48 Chapter 13: Questions 13 to 33 page 55

2 Chapter 4 Transaction Processing and the Internal Control Process Author's Discussion of Solutions to Multiple-Choice Professional Examination Questions 21. Answer B a. Internal accounting controls are designed to provide reasonable assurance that transactions are executed in accordance with management's authorization. This is part of the definition of internal control in SAS No. 1. b. Internal accounting controls are not designed to provide reasonable assurance that irregularities will be eliminated. This concept is not part of the definition of internal control that was included in SAS No. 1. c. Internal accounting controls are designed to provide reasonable assurance that access to assets is permitted only in accordance with management's authorization. This is part of the definition of internal control in SAS No. 1. d. Internal accounting controls are designed to provide reasonable assurance that recorded accountability for assets is compared with the existing assets at reasonable intervals. This is part of the definition of internal control that was included in SAS No Answer B a. Responsibility for accounting and financial (i.e., treasury) duties should be separated and not combined in one responsible officer as they are incompatible functions. b. The concept of a plan of organization in the definition of internal control which was contained in SAS No. 1 implies that responsibility for the performance of duties must be fixed. c. The audit committee is normally an advisory function and in no event should it have accounting responsibilities. d. This statement violates the concept of reasonable assurance, which has to do with the relative costs and benefits of internal controls. Normally the cost of bonding accounting employees would exceed the expected benefits as such employees should not have custody of financial assets. 23. Answer B a. Internal auditors should report to the audit committee of the board of directors to maintain organizational independence of internal auditing from other functions.

3 b. The controller should not report to the vice president of production because this would involve an activity (production) having responsibility and authority over the record-keeping function for that activity. c. Payroll is an accounting function and as such should report to the chief accountant. d. The cashier is a treasury function and as such should report to the treasurer. 24. Answer B a. Setting automatic reorder points is an example of general authorization as no specific transaction is involved. b. Approval of a construction budget for a (specific) warehouse is an example of specific authorization. c. Establishment of requirements to be met in determining a customer's credit limits is an example of general authorization as no specific transaction is involved. d. Establishment of sales prices for products to be sold to any customer is an example of general authorization as no specific transaction is involved. 25. Answer B a. Internal accounting controls are not designed to provide reasonable assurance that employees act with integrity when performing their assigned tasks. This concept is not part of the definition of internal control included in SAS No. 1. b. Internal accounting controls are designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization. This is part of the definition of internal control that was included in SAS No. 1. c. Internal accounting controls are not designed to provide reasonable assurance that decision processes leading to management's authorization of transactions are sound. This concept is not part of the definition of internal control that was included in SAS No. 1. d. Internal accounting controls are not designed to provide reasonable assurance that collusive activities would be detected by segregation of employee duties. This concept is not part of the definition of internal control that was included in SAS No Answer C

4 a. The concept of reasonable assurance has to do with the relative costs and benefits of internal controls. This statement concerns only one type control, competent employees, and is thus incorrect. b. The concept of reasonable assurance has to do with the relative costs and benefits of internal controls. This statement concerns management's responsibility for internal control, and is thus incorrect. c. This is a correct statement of the concept of reasonable assurance. d. The concept of reasonable assurance has to do with the relative costs and benefits of internal controls. This statement concerns the concept of segregation of incompatible functions, and is thus incorrect. 27. Answer B a. Control procedures are the policies and procedures in addition to the control environment and accounting system that management has established to provide reasonable assurance that specific entity objectives will be achieved. b. Control environment is the collective effect of various factors on establishing, enhancing, or mitigating the effectiveness of specific policies and procedures. Such factors include personnel policies and practices, and thus the development of personnel manuals which document promotion and training policies. c. Accounting system is the methods and records established to identify, assemble, analyze, classify, record, and report the entity's transactions and to maintain accountability for the related assets and liabilities. d. The quality control system is not an element of an entity's internal control structure. 28. Answer D a. An entity's internal control structure is not designed to provide reasonable assurance that collusion among employees cannot occur. b. The establishment and maintenance of the internal control structure is an important responsibility of management. c. An exceptionally strong internal control structure may be sufficient for the auditor to reduce, but never to totally eliminate, substantive tests on a significant account balance. d. Cost-benefit relationship (i.e, reasonable assurance) is a primary criterion that should be considered in designing an internal control structure.

5 29. Answer A a. According to SAS No. 55, an entity's internal control structure consists of three elements: the control environment, the accounting system, and control procedures. b. According to SAS No. 55, an entity's internal control structure includes control procedures. c. According to SAS No. 55, an entity's internal control structure includes the accounting system. d. According to SAS No. 55, an entity's internal control structure includes the control environment. 30. Answer B a. Fidelity bonds do not protect employees who make unintentional errors from possible monetary damages resulting from their errors. b. Fidelity bonds deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts. c. Fidelity bonds do not facilitate an independent monitoring of the receiving and depositing of cash receipts. d. Fidelity bonds do not in of themselves force employees in positions of trust to take periodic vacations and rotate their assigned duties. 31. Answer D a. The concept of execution functions was not part of the definition of internal control that was included in SAS No. 1. b. The concepts of execution functions and payment functions were not part of the definition of internal control that was included in SAS No. 1. c. The concepts of receiving functions and shipping functions were not part of the definition of internal control that was included in SAS No. 1.