QUESTION 2 (25 MARKS)

A. The fraud triangle consists of three factors that contribute to management and employee fraud.

Explain the relationship among these three factors. (4 Marks)

B. Indicate whether the following risks in accounting information system can be classified as natural and political disasters, software errors and equipment malfunction, unintentional acts or intentional acts:

(a) Failure to follow established procedures.

(b) Fire or excessive heat.

(c) Undetected data transmission errors.

(d) Misrepresentation, false use, or unauthorized disclosure of data.

(e) Operating system crashes.

(f) Misappropriation of assets.

(g) Systems that do not meet needs or are incapable of performing intended tasks.

(h) War and terrorist attack. (4 Marks)

C. Effective segregation of accounting duties is achieved when the authorization, processing/recording and custody functions are separated. Explain TWO (2) ways how the segregation of duties can be established and give ONE (1) example for each. (4 Marks)

D. Classify the following controls as preventive, defective or corrective: (a) Internal auditor rechecking the debits and credits on the payment voucher. (b) Separation of cash and accounting records. (c) Maintaining backup copies of master and transaction files. (d) Prenumbering of sales invoices. (e) Periodic bank reconciliation. (f) Resubmission of transaction for subsequent processing. (3 Marks)

E. Distinguish between financial reporting system (FRS) and management reporting system (MRS). (2 Marks)

F. General ledger system database includes a variety of files. Explain TWO (2) of general ledger database system files. (4 Marks)

G. Explain TWO (2) types of data coding schemes and give ONE (1) example for each. (4 Marks)