IT Auditing 4th Ed.

—Test Bank, Chapter 6

Chapter 6— Transaction Processing and Financial Reporting Systems Overview

TRUE/FALSE

1. Processing more transactions at a lower unit cost makes batch processing more efficient than real-time
systems.

ANS: T PTS: 1

2. The process of acquiring raw materials is part of the conversion cycle.

ANS: F PTS: 1

3. Directing work-in-process through its various stages of manufacturing is part of the conversion cycle.

ANS: T PTS: 1

4. The portion of the monthly bill from a credit card company is an example of a turn-around document.

ANS: T PTS: 1

5. The general journal is used to record recurring transactions that are similar in nature.

ANS: F PTS: 1

6. Document flowcharts are used to represent systems at different levels of detail.

ANS: F PTS: 1

7. Data flow diagrams represent the physical system.

ANS: F PTS: 1

8. System flowcharts represent the input sources, programs, and output products of a computer system.

ANS: T PTS: 1

9. Program flowcharts are used to describe the logic represented in system flowcharts.

ANS: T PTS: 1

10. Batch processing systems can store data on direct access storage devices.

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS: T PTS: 1

11. The box symbol represents a temporary file.

ANS: F PTS: 1

12. Auditors may prepare program flowcharts to verify the correctness of program logic.

ANS: T PTS: 1

13. A control account is a general ledger account which is supported by a subsidiary ledger.

ANS: T PTS: 1

14. Real time processing is used for routine transactions in large numbers.

ANS: F PTS: 1

15. An inverted triangle with the letter “N” represents a file in “name” order.

ANS: F PTS: 1

16. Real-time processing in systems that handle large volumes of transactions each day can create
operational inefficiencies.

ANS: T PTS: 1

17. Operational inefficiencies occur because accounts common to many concurrent transactions need to be
updated in real time.

ANS: T PTS: 1

18. The block code is the coding scheme most appropriate for a chart of accounts.

ANS: T PTS: 1

19. Sequential codes may be used to represent complex items or events involving two or more pieces of
related data.

ANS: F PTS: 1

20. For a given field size, a system that uses alphabetic codes can represent far more situations than a
system with that uses numeric codes.

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS: T PTS: 1

21. Mnemonic codes are appropriate for items in either an ascending or descending sequence, such as the
numbering of checks or source documents.

ANS: F PTS: 1

22. The most common means of making entries in the general ledger is via the journal voucher.

ANS: T PTS: 1

23. Individuals with access authority to general ledger accounts should not prepare journal vouchers.

ANS: T PTS: 1

24. Each account in the chart of accounts has a separate record in the general ledger master file.

ANS: T PTS: 1

MULTIPLE CHOICE

1. Which system is not part of the expenditure cycle?

a. cash disbursements
b. payroll
c. production planning/control
d. purchases/accounts payable

ANS: C PTS: 1

2. Which system produces information used for inventory valuation, budgeting, cost control,
performance reporting, and make-buy decisions?
a. sales order processing
b. purchases/accounts payable
c. cash disbursements
d. cost accounting

ANS: D PTS: 1

3. Which of the following is a turn-around document?

a. remittance advice
b. sales order
c. purchase order
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 IT Auditing 4th Ed. —Test Bank, Chapter 6

d. payroll check

ANS: A PTS: 1

4. The order of the entries made in the general journal is by

a. date
b. account number
c. user
d. customer number

ANS: A PTS: 1

5. In general, a special journal would not be used to record

a. sales
b. cash disbursements
c. depreciation
d. purchases

ANS: C PTS: 1
6. A journal is used in manual accounting environments. What file is comparable to a journal in a
computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file

ANS: A PTS: 1

7. Data flow diagrams

a. depict logical tasks that are being performed, but not who is performing them
b. illustrate the relationship between processes, and the documents that flow between them
and trigger activities
c. represent relationships between key elements of the computer system
d. describe in detail the logic of the process

ANS: A PTS: 1

8. System flowcharts
a. depict logical tasks that are being performed, but not who is performing them
b. illustrate the relationship between database entities in systems.
c. represent relationships between key elements of both manual and computer systems.
d. describe the internal logic of computer applications in systems. .

ANS: C PTS: 1

9. In contrast to a batch processing system, in a real-time system

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

a. a lag occurs between the time of the economic event and when the transaction is recorded
b. relatively fewer hardware, programming, and training resources are required
c. a lesser resource commitment per unit of output is required
d. processing takes place when the economic event occurs

ANS: D PTS: 1

10. Both the revenue and the expenditure cycle can be viewed as having two key parts. These are
a. manual and computerized
b. physical and financial
c. input and output
d. batch and real-time

ANS: B PTS: 1

11. All of the following can provide evidence of an economic event except
a. source document
b. turn-around document
c. master document
d. product document

ANS: C PTS: 1

12. Which method of processing does not use the destructive update approach?
a. batch processing using direct access files
b. real-time processing
c. batch processing using sequential files
d. all of the above use the destructive update approach

ANS: C PTS: 1

13. Which symbol represents a manual operation?

a.

b.

c.

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

d.

ANS: D PTS: 1

14. Which symbol represents accounting records?

a.

b.

c.

d.

ANS: A PTS: 1

15. Which symbol represents a document?

a.

b.

c.

d.

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS: B PTS: 1

16. Which symbol represents a decision?

a.

b.

c.

d.

ANS: A PTS: 1

17. A file that stores data used as a standard when processing transactions is
a. a reference file
b. a master file
c. a transaction file
d. an archive file

ANS: A PTS: 1

18. Sequential storage means

a. data is stored on tape
b. access is achieved through an index
c. access is direct
d. reading record 100 requires first reading records 1 to 99

ANS: D PTS: 1

19. Real-time processing would be most beneficial in handling a firm’s

a. fixed asset records
b. retained earnings information
c. merchandise inventory
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 IT Auditing 4th Ed. —Test Bank, Chapter 6

d. depreciation records

ANS: C PTS: 1

20. Which accounting application is least suited to batch processing?

a. general ledger
b. vendor payments
c. sales order processing
d. payroll

ANS: C PTS: 1

21. Operational inefficiencies occur because

a. accounts both common and unique to many concurrent transactions need to be updated in
real time.
b. accounts common to many concurrent transactions need to be updated in real time.
c. accounts unique to many concurrent transactions need to be updated in real time.
d. None of the above are true statements

ANS: B PTS: 1

22. The coding scheme most appropriate for a chart of accounts is

a. sequential code
b. block code
c. group code
d. mnemonic code

ANS: B PTS: 1

23. The most important advantage of sequential coding is that

a. missing or unrecorded documents can be identified
b. the code itself lacks informational content
c. items cannot be inserted
d. deletions affect the sequence

ANS: A PTS: 1

24. When a firm wants its coding system to convey meaning without reference to any other document, it
would choose
a. an alphabetic code
b. a mnemonic code
c. a group code
d. a block code

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS: B PTS: 1

25. The most important advantage of an alphabetic code is that

a. meaning is readily conveyed to users
b. sorting is simplified
c. the capacity to represent items is increased
d. missing documents can be identified

ANS: C PTS: 1

26. Which statement is not true?

a. The journal voucher is the only source of input into the general ledger.
b. A journal voucher can be used to represent summaries of similar transactions or a single unique
transaction.
c. Journal vouchers are not used to make adjusting entries and closing entries in the general ledger.
d. Journal vouchers offer a degree of control against unauthorized general ledger entries.

ANS: C PTS: 1

27. What type of data is found in the general ledger master file?
a. a chronological record of all transactions
b. the balance of each account in the chart of accounts
c. budget records for each account in the chart of accounts
d. subsidiary details supporting a control account

ANS: B PTS: 1

28. Which report is not an output of the Financial Reporting System (FRS)?
a. variance analysis report
b. statement of cash flows
c. tax return
d. comparative balance sheet

ANS: A PTS: 1

29. Risk exposures in the General Ledger and Financial Reporting Systems include all of the following
except
a. loss of the audit trail
b. unauthorized access to the general ledger
c. loss of physical assets
d. general ledger account out of balance with the subsidiary account

ANS: C PTS: 1

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

30. Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems
(GL/FRS)?
a. the employee who maintains the cash journal computes depreciation expense
b. the cash receipts journal voucher is approved by the Treasurer
c. the cash receipts journal vouchers are prenumbered and stored in a locked safe
d. the employee who maintains the cash receipts journal records transactions in the accounts
receivable subsidiary ledger

ANS: D PTS: 1

31. With a limited work force and a desire to maintain strong internal control, which combination of duties
performed by a single individual presents the least risk exposure?
a. maintaining the inventory ledger and recording the inventory journal voucher in the
general ledger
b. recording the inventory journal voucher in the general ledger and maintaining custody of
inventory
c. maintaining the cash disbursements journal and recording direct labor costs applied to
specific jobs
d. preparing the accounts payable journal voucher and recording it in the general ledger

ANS: C PTS: 1

32. XBRL
a. is the basic protocol that permits communication between Internet sites.
b. controls Web browsers that access the Web.
c. is the document format used to produce Web pages.
d. was designed to provide the financial community with a standardized method for
preparing
e. is a low-level encryption scheme used to secure transmissions in higher-level (HTTP)
format.

ANS: D PTS: 1

SHORT ANSWER

1. List two of the three transaction cycles.

ANS:
expenditure cycle, conversion cycle, revenue cycle

PTS: 1

2. Documents that are created at the beginning of the transaction are called
__________________________.
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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS:
source documents

PTS: 1

3. ______________________________________ are the two data processing approaches used in modern

systems.

ANS:
Batch processing and real-time processing

PTS: 1

4. Give a specific example of a turn-around document.

ANS:
credit card, electricity, water, or telephone bill, etc.

PTS: 1

5. Explain when it is appropriate to use special journals.

ANS:
Special journals are used to record large volumes of recurring transactions that are similar in nature.

PTS: 1

6. What are the subsystems of the revenue cycle?

ANS:
sales order processing, cash receipts

PTS: 1

7. What are the subsystems of the expenditure cycle?

ANS:
purchasing, cash disbursements, payroll, fixed asset system

PTS: 1

8. Name four documentation techniques.

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS:
entity-relationship diagrams, data flow diagrams, system flowcharts, program flowcharts

PTS: 1

9. Why is the audit trail important?

ANS:
The audit trail is used to track transactions from the source document to the financial statements and
vice versa. Accountants use the audit trail to correct errors, answer queries, and perform audits.

PTS: 1

10. Only four symbols are used in data flow diagrams. What are they?

ANS:
process, data store, data flow, entity

PTS: 1

11. Which documentation technique depicts data relationship in databases?

ANS:
Entity relationship diagram

PTS: 1

12. In one sentence, what does updating a master file record involve?

ANS:
Updating a master file record involves changing the value of one or more of its variable fields to
reflect the effects of a transaction.

PTS: 1

13. What is destructive update?

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

ANS:
Destructive update involves replacing an old data value with a new value and thus destroying the
original.

PTS: 1

14. List, in order, the steps in the Financial Accounting Process.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

ANS:
1. Capture the transaction on source documents.
2. Record in special journals.
3. Post to subsidiary ledger.
4. Post to general ledger (using journal vouchers).
5. Prepare the unadjusted trial balance.
6. Make adjusting entries.
7. Journalize and post adjusting entries.
8. Prepare adjusted trial balance.
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 IT Auditing 4th Ed. —Test Bank, Chapter 6

9. Prepare financial statements.

10. Journalize and post closing entries.
11. Prepare the post-closing trial balance.

PTS: 1

15. List two duties that the general ledger clerk should not perform.

ANS:
make entries in special journals or subsidiary ledgers;
prepare journal vouchers; maintain custody of physical assets

PTS: 1

16. Explain the purpose and contents of the general ledger master file.

ANS:
The general ledger master file is the main file on the general ledger database. It is based on the firm’s
chart of accounts. Each record is either a general ledger account (e.g., sales) or a control account (e.g.,
the accounts payable control) for one of the subsidiary ledgers. The general ledger master file contains
the following for each account: the account number, description, account class (e.g., asset), the normal
balance (debit or credit), beginning balance, total debits for period, total credits for period, and current
balance.

PTS: 1

17. What is XML?

ANS:
XML (eXtensible Markup Language) is a meta-language for describing markup languages. The term
extensible means that any markup language can be created using XML. This includes the creation of
markup languages capable of storing data in relational form, where tags (formatting commands) are
mapped to data values.

PTS: 1

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

18. Why do many firms no longer use a general journal? What has taken its place?

ANS:
Many firms have replaced a traditional general journal with a journal voucher system. Each entry is
documented on a prenumbered journal voucher which contains additional information, such as
authorization, which enhances control. A voucher may contain information on a number of related
transactions.

PTS: 1

19. What are the major exposures in the general ledger/financial reporting system?

ANS:
The primary exposures are: a defective or lost audit trail, unauthorized access, GL accounts out of
balance with subsidiary ledger accounts, and incorrect account balances due to unauthorized or
incorrect entries.

PTS: 1

20. Why is the audit trail necessary?

ANS:
The audit trail is needed for several reasons: to provide the ability to answer inquiries from customers
and suppliers, to reconstruct files if lost, to provide historical data to auditors, to satisfy government
regulations, and for error control.

PTS: 1

ESSAY

1. Describe the key activities in the revenue, conversion, and expenditure cycles.

ANS:

Revenue cycle: Sales order processing involves preparation of sales orders, credit granting, shipment
and billing. Cash receipts collects cash and makes bank deposits.

Conversion cycle: Production system involves planning, scheduling, and control of the
manufacturing process. Cost accounting system monitors the flow of cost information related to
production.

Expenditure cycle: Purchases/accounts payable involves the acquisition of physical inventory. Cash
disbursements authorizes payment and disburses funds. Payroll monitors labor usage and disburses
paychecks to employees.
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 IT Auditing 4th Ed. —Test Bank, Chapter 6

PTS: 1

2. Categorize each of the following activities into the expenditure, conversion or revenue cycles and
identify the applicable subsystem.
a. Preparing the weekly payroll for manufacturing personnel.
b. Releasing raw materials for use in the manufacturing cycle.
c. Recording the receipt of payment for goods sold.
d. Recording the order placed by a customer.
e. Ordering raw materials.
f. Determining the amount of raw materials to order.

ANS:
a. Expenditure cycle-payroll subsystem.
b. Conversion cycle-production system subsystem.
c. Revenue cycle-cash receipts subsystem.
d. Revenue cycle-sales order processing subsystem.
e. Expenditure cycle-purchases subsystem.
f. Conversion cycle-production subsystem.

PTS: 1

3. What does an entity-relationship diagram represent? Why do accountants need to understand them?

ANS:
Entity relationship diagrams represent the relationship between entities in a system. An entity is
either 1) a resource (such as cash or inventory), 2) an event (such as a sale or a receipt of cash), or 3)
an agent (such as a customer or vendor). ERDs represent the relationship between entities graphically.
ERDs are used in the design of databases.

PTS: 1

4. Time lag is one characteristic used to distinguish between batch and real-time systems. Explain. Give
an example of when each is a realistic choice.

ANS:
Batch processing collects similar transactions into groups (batches) and processes them all at once.
Hence, affected files are up to date immediately after the update, but can be expected to be out of date
until the next run. Hence, there is a time lag between the event and its recording in the system. A
payroll system is often handled with batch processing since it must be up to date at fixed time periods
and need not be modified between pay dates.

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

Real-time systems process each transaction as it occurs and files are always up to date–there is no
time lag. This is preferred when there may be a need to query the system for the status of transactions.
A sales order processing system would benefit from real-time processing. Hence, customer questions
could be answered easily, without waiting for the next update (as would be required if the system was
batch).

PTS: 1

5. The revenue cycle has two subsystems. What are they and what occurs within each?

ANS:
The two subsystems of the revenue cycle are sales order processing and cash receipts. In the sales
order processing subsystem, the sales order is processed, credit granted, goods are shipped, customer is
billed, and related files updated (sales, accounts receivable, inventory, etc.). In the cash receipts
subsystem, cash is collected and deposited in the bank and files updated (cash, accounts receivable,
etc.).

PTS: 1

6. Give a brief description of each of the following documentation techniques: systems flowchart, and
program flowchart.

ANS:

System flowcharts portray the relationships between source data, transaction files, computer
programs, master files, and output, including the form or type of media of each.

Program flowcharts represent the logic of a particular program. Each step is represented by a separate
symbol, each of which represents one or more lines of computer instructions. The order of the steps is
represented by the flow lines.

PTS: 1

7. Give an example of how cardinality relates to business policy.

ANS:

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

Cardinality reflects normal business rules as well as organizational policy. For instance, the 1:1
cardinality between the entities “Salesperson” and “Company Car” suggests that each salesperson in
the organization is assigned one company car. If instead the organization’s policy were to assign a
single automobile to one or more salespersons who share it, this policy would be reflected by a 1:M
relationship.

PTS: 1

8. For what purpose are ER diagrams used?

ANS:
An entity relationship (ER) diagram is a documentation technique used to represent the relationship
between entities. One common use for ER diagrams is to model an organization’s database.

PTS: 1

9. With regard to an entity relationship diagram, what is an entity?

ANS:
Entities are physical resources (automobiles, cash, or inventory), events (ordering inventory, receiving
cash, shipping goods) and agents (salesperson, customer, or vendor) about which the organization
wishes to capture data.

PTS: 1

10. Is a DFD an effective documentation technique for identifying who or what performs a particular task?
Explain.

ANS:
No. A DFD shows which tasks are being performed, but not who performs them. It depicts the logical
system.

PTS: 1

11. Is a flowchart an effective documentation technique for identifying who or what performs a particular
task? Explain.

ANS:
Yes. A flowchart depicts the physical system and illustrates who, what, and where a task is performed.

PTS: 1

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 IT Auditing 4th Ed. —Test Bank, Chapter 6

12. How may batch processing be used to improve operational efficiency?

ANS:
A single transaction may affect several different accounts. Some of these accounts, however, may not
need to be updated in real-time. In fact, the task of doing so takes time which, when multiplied by
hundreds or thousands of transactions, can cause significant processing delays. Batch processing of
non-critical accounts, however, improves operational efficiency by eliminating unnecessary activities
at critical points in the process.

PTS: 1

13. If an organization processes large numbers of transactions that use common data records, what type of
system would work best (all else being equal)?

ANS:
Large-scale systems that process high volumes of transactions, often use real-time data collection and
batch updating. Master file records that are unique to a transaction such as customer accounts and
individual inventory records can be updated in real time without causing operational delays. Common
accounts should be updated in batch mode. Real-time processing is better suited to systems that
process lower transaction volumes and those that do not share common records.

PTS: 1

14. Why might an auditor use a program flowchart?

ANS:
When testing an application program, the auditor needs details about its internal logic provided by the
program flowchart to design the audit tests.

PTS: 1

15. How are computer system flowcharts and program flowcharts related?

ANS:
The system flowchart shows the relationship between two computer programs, the files that they use,
and the outputs that they produce. However, this level of documentation does not provide the
operational details that are sometimes needed. An auditor wishing to assess the correctness a program’s
logic cannot do so from the system flowchart. A program flowchart provides this detail. Every program
represented in a system flowchart should have a supporting program flowchart that describes its logic.

PTS: 1
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 IT Auditing 4th Ed. —Test Bank, Chapter 6

16. What are the key distinguishing features of legacy systems?

ANS:
Legacy systems tend to have the following distinguishing features: they are mainframe based
applications; they tend to be batch oriented; early legacy systems use flat-files for data storage,
however, hierarchical and network databases are often associated with later era legacy systems. These
highly structured and inflexible storage systems promote a single-user environment that discourages
information integration within business organizations.

PTS: 1

17. What information is provided by a record layout diagram?

ANS:
Record layout diagrams are used to reveal the internal structure of the records that constitute a file or
database table. The layout diagram usually shows the name, data type, and length of each attribute (or
field) in the record.

PTS: 1

18. How is backup of database files accomplished?

ANS:
The destructive update approach leaves no backup copy of the original master file. Only the current
value is available to the user. To preserve adequate accounting records in case the current master
becomes damaged or corrupted, separate backup procedures must be implemented.

Prior to each batch update or periodically (for example, every 15 minutes), the master file being
updated is copied to create a backup version of the original file. Should the current master be
destroyed after the update process, reconstruction is possible in two stages. First, a special recovery
program uses the backup file to create a pre-update version of the master file. Second, the file update
process is repeated using the previous batch of transactions to restore the master to its current
condition. Because of the potential risk to accounting records, accountants are naturally concerned
about the adequacy of all backup procedures.

PTS: 1
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license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 IT Auditing 4th Ed. —Test Bank, Chapter 6

19. What are the reasons companies use coding schemes in their accounting information systems?

ANS:
Companies use coding schemes in their AISs because codes concisely represent large amounts of
complex information that would otherwise be unmanageable. They also provide a means of
accountability over the completeness of the transactions processed and identify unique transactions
and accounts within a file. In addition, coding supports the audit function by providing an effective
audit trail.

PTS: 1

20. Compare and contrast the relative advantages and disadvantages of sequential, block, group, alphabetic
and mnemonic codes.

ANS:
Sequential codes are appropriate for items in either an ascending or descending sequence, such as the
numbering of checks or source documents. An advantage is that during batch processing, any gap
detected in the sequence is a signal that a transaction may be missing. A disadvantage is that the codes
carry little, if any, information other than the sequence order. Another disadvantage is that sequential
codes are difficult to manage when items need to be added; the sequence needs either to be reordered
or the items must be added to the end of the list.

Block codes provide some remedies to sequential codes by restricting each class to a pre-specified
range. The first digit typically represents a class, whereas the following digits are sequential items
which may be spaced in intervals in case of future additions. An example of block coding is a chart of
accounts. A disadvantage of block coding is that the information content does not provide much
meaning, i.e. an account number only means something if the chart of accounts is known.

Group codes may be used to represent complex items or events involving two or more pieces of
related data. The code is comprised of fields which possess specific meaning. The advantages of group
codes over sequential and block codes are 1) they facilitate the representation of large amounts of
diverse data, 2) they allow complex data structures to be represented in a hierarchical form that is
logical and thus more easily remembered by humans, and 3) they permit detailed analysis and
reporting both within an item class and across different classes of items. A disadvantage is that the
codes may be overused to link classes which do not need to be linked, and thus creating a more
complex coding system that is necessary.

Alphabetic codes may be used sequentially or in block or group codes. An advantage is that a system
which uses alphabetic codes can represent far more situations than a system with numeric codes given
a specific field size. Some disadvantages are that sequentially assigned codes mostly have little
meaning. Also, humans typically find alphabetic codes more difficult to sort than numeric data.
© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 IT Auditing 4th Ed. —Test Bank, Chapter 6

Lastly, mnemonic codes are alphabetic characters in the form of acronyms, abbreviations or other
combinations that convey meaning. The meaning aspect is its advantage. A disadvantage of mnemonic
codes is that they are limited in their ability to represents items within a class i.e. names of all of
American Express's customers.

PTS: 1

21. List and explain the six basic files in the general ledger database.

ANS:
The general ledger master file is the main file on the general ledger database. It is based on the firm’s
chart of accounts. Each record is either a separate general ledger account (e.g., sales) or a control
account (e.g., the accounts payable control) for one of the subsidiary ledgers.

The general ledger history file contains the same information for prior periods.

The journal voucher file contains all of the journal vouchers processed in the current period.

The journal voucher history file contains journal vouchers for past periods.

The responsibility center file contains the revenues, expenses, and other data for individual
responsibility centers.

The budget master file contains budgeted amounts for responsibility centers.

PTS: 1

22. Discuss the primary advantage of XBRL over traditional HTML as a means of on-line reporting of
financial information to users.
© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
 IT Auditing 4th Ed. —Test Bank, Chapter 6

Online reporting of financial data has become a competitive necessity for publicly traded
organizations. Currently, most organizations accomplish this by placing their financial statements and
other financial reports on their respective Web sites as HTML (Hyper Text Markup Language)
documents. These documents can then be downloaded by users such as the SEC, financial analysts,
and other interested parties. The HTML reports, however, cannot be conveniently processed through
IT automation. Performing any analysis on the data contained in the reports requires them to be
manually entered into the user’s information system. The solution to this problem is eXtensible
Business Reporting Language (XBRL), which is the Internet standard specifically designed for
business reporting and information exchange. The objective of XBRL is to facilitate the publication,
exchange, and processing of financial and business information. XBRL documents can thus be
downloaded, interpreted, and analyzed using computer software with no additional manual data input
necessary.

PTS: 1

© 2016 Cengage Learning®. May not be scanned, copied or duplicated or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.