AIS Exam Questions & Answers 2024/2025
Which of the following statements is correct concerning internal control when a client is using an electronic data interchange system for its sales:
controls should be established over determining that all suppliers are included in the system
encryp...
Which of the following statements is correct concerning internal control when a client is using an
electronic data interchange system for its sales:
controls should be established over determining that all suppliers are included in the system
encryption controls may help to assure that messages are unreadable to unauthorized persons
a value-added-network (VAN) must be used to assure proper control
attention must be paid to both the electronic and "paper" versions of transactions - ANSWERSencryption
controls may help to assure that messages are unreadable to unauthorized persons
Why should an individual learn to read and interpret financial statements? - ANSWERSIndividuals cannot
necessarily rely on auditors and management of firms to offer honest information about the financial
well-being of firms.
Which organizations write accounting rules? - ANSWERSSEC, FASB, and ISAB
What is the goal of the ISAB? - ANSWERSto have a worldwide acceptance of a set of international
financial reporting standards
What are the basic financial statements provided in an annual report? - ANSWERSBalance Sheet, Income
Statement, Statement of Cash Flows, and Statement of Stockholder's Equity
What items are included in the notes to the financial statements? - ANSWERSsummary of accounting
policies, changes in accounting policies, and detail about particular accounts
,What does an unqualified auditor's report indicate? - ANSWERSthe financial statements present fairly
the financial position, the results of operations, and the changes in cash flows for the company
Which of the following statements in false:
The Sarbanes-Oxley Act of 2002 was the cause of the demise of Enron
The FASB and IASB are working closely to develop a set of accounting rules that would ultimately be used
by all publicly traded companies worldwide
The Public Company Accounting Oversight Board in responsible for monitoring auditor of all publicly
owned companies
The Sarbanes-Oxley Act requires the CEO and CFO of a publicly traded company to certify the accuracy of
the financial statements - ANSWERSthe Sarbanes-Oxley Act of 2002 was the cause of the demise of
Enron
What does section 404 of the Sarbanes-Oxley Act require? - ANSWERSA statement by the company
regarding the effectiveness of internal controls and disclosure of any material weaknesses in a firm's
internal control system
What subjects should the management discussion and analysis section discuss? - ANSWERSliquidity,
commitments for capital expenditures, and a breakdown of sales increases into price and volume
components
Which of the following statements is true:
Annual reports only contain glossy pictures
Public relations material should be used cautiously
Market data refers to the advertising budget of a firm
The shareholders' letter should be ignored - ANSWERSpublic relations material should be used cautiously
What information can be found on a proxy statement? - ANSWERSinformation of voting procedures,
executive compensation, and the breakdown of audit and non-audit fees paid to the audit firm
What information is hard to find or missing from the financial statements? - ANSWERSreputation of the
firm with its customers
,What is the accrual basis of accounting? - ANSWERSrecognition of revenue when the sale is made, and
recognition of expenses when incurred
What are methods by which managements can manipulate earnings and possibly lower the quality of
reported earnings? - ANSWERSchanging an accounting policy to increase earnings, refusing to take a loss
on inventory in an accounting period when the inventory is known to be obsolete, and decreasing
discretionary expenses
Where would you find an attestation to the fairness of financial statements? - ANSWERSauditor's report
Where would you find a summary of significant accounting policies? - ANSWERSnotes to the financial
statements
Where would you find cash flow from operating, financing, and investing activities? - ANSWERSfinancial
statements
Where would you find a qualified opinion? - ANSWERSauditor's report
Where would you find information about a principle, interest, and maturity of long-term debt? -
ANSWERSnotes to the financial statements
Where would you find financial position on a particular date? - ANSWERSfinancial statements
Where would you find a discussion of the company's results of operations? - ANSWERSmanagement
discussion and analysis
Where would you find description of pension plans? - ANSWERSnotes to the financial statements
Where would you find anticipated commitments for capital expenditures? - ANSWERSmanagement
discussion and analysis
, Where would you find reconciliation of beginning and ending balances of equity accounts? -
ANSWERSfinancial statements or notes to the financial statements
What does the balance sheet summarize for a business enterprise? - ANSWERSfinancial position at a
point in time
What is the balancing equation for the balance sheet? - ANSWERSAssets = Liabilities + Stockholders'
Equity
What is a common-size balance sheet? - ANSWERSa statement that expresses each account on the
balance sheet as a percentage of total assets
What assets are classified as current assets on the balance sheet? - ANSWERScash equivalents,
inventory, prepaid expenses
What items should be calculated when analyzing the accounts receivable and allowance for doubtful
accounts? - ANSWERSThe growth rates for sales, accounts receivable, and the allowance for doubtful
accounts, as well as the percentage of allowance account relative to the total or gross accounts
receivable
What type of firm generally has the highest proportion of inventory to total assets? - ANSWERSretailers
Why is the method of valuing inventory important? - ANSWERSthe inventory valuation method chosen
determines the value of inventory on the balance sheet and the cost of goods sold expense on the
income statement, two items having considerable impact on the financial position of the company
What are the three major cost flow assumptions used by U.S. companies in valuing inventory? -
ANSWERSFIFO, LIFO, and average cost
Assuming a period of inflation, which statement in true:
the FIFO method understates balance sheet inventory
the FIFO method understates the cost of goods sold on the income statement
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