AAT L4 Accounting Systems & Controls 2 — Questions and Answers
Question 1: A management information system (MIS) provides information to:
- Statutory auditors only
- Managers at all levels for decision making, control, and planning (Correct answer)
- Customers and suppliers about the company's financial position
- The government for taxation purposes
Correct answer: Managers at all levels for decision making, control, and planning
An MIS collects, processes, and presents data to support management decision making, planning, and control at strategic, tactical, and operational levels throughout the organisation.
Question 2: Reconciliation controls in accounting systems are designed to:
- Speed up transaction processing
- Verify the accuracy and completeness of data by comparing two independent sets of data that should agree (Correct answer)
- Generate management reports automatically
- Reduce the time spent on year-end adjustments
Correct answer: Verify the accuracy and completeness of data by comparing two independent sets of data that should agree
Reconciliation controls (e.g., bank reconciliation, control account reconciliation) compare two independently maintained records; any difference identifies an error, omission, or fraud that requires investigation.
Question 3: Which of the following is a detective control?
- Requiring dual authorisation for payments over £50,000
- Restricting physical access to the cash room
- Monthly bank reconciliation that identifies fraudulent payments (Correct answer)
- A formal purchase order system
Correct answer: Monthly bank reconciliation that identifies fraudulent payments
Detective controls identify errors or irregularities after they have occurred — a monthly bank reconciliation compares cash book and bank statement to detect fraud, errors, or unrecorded transactions.
Question 4: The three-way match in the payables process involves matching:
- Invoice, credit note, and remittance
- Purchase order, goods received note, and supplier invoice (Correct answer)
- Sales order, delivery note, and customer invoice
- Bank statement, cash book, and sales ledger
Correct answer: Purchase order, goods received note, and supplier invoice
Three-way matching compares the purchase order (what was ordered at what price), the goods received note (what was received), and the supplier's invoice (what is being charged) before authorising payment.
Question 5: In the context of internal controls, the term 'authorisation' refers to:
- The external auditor approving the accounts
- A responsible person checking and approving a transaction or activity before it proceeds (Correct answer)
- The board approving the annual report
- Management signing the letter of representation
Correct answer: A responsible person checking and approving a transaction or activity before it proceeds
Authorisation is the approval of a transaction by a person with appropriate authority before it is processed or committed to; it is a fundamental preventive control ensuring transactions are legitimate.
Question 6: Which of the following is a risk of over-reliance on spreadsheets in an accounting system?
- Spreadsheets automatically audit all calculations
- Formula errors, lack of access control, and no audit trail can lead to material misstatement (Correct answer)
- Spreadsheets cannot process more than 1,000 rows of data
- Spreadsheets do not support multi-currency transactions
Correct answer: Formula errors, lack of access control, and no audit trail can lead to material misstatement
Key spreadsheet risks include: undetected formula errors, version control failures (wrong file used), lack of user access controls, and no automatic audit trail — all of which can compromise data integrity.
AAT L4 Accounting Systems & Controls 2
A management information system (MIS) provides information to: