Flashcards V1C5 - Sheet1

Question

``` Question: V1C5-0025 Usually control decisions do not include Answers A: What measures to implement. B: How to evaluate performance. C: What type of punishments to impose. D: What type of incentives to use. ```

Answer 1

Answer Explanations Answer (a) is incorrect because what measures to implement is a part of the control decision. Answer (b) is incorrect because how to evaluate performance is a part of the control decision. Answer (c) is the correct answer. Control involves the use of incentives and rewards and to motivate employees in order to help them accomplish organizational goals and objectives. Controls should be seen as positive actions, not so much of negative actions (punishments). People prefer positive things rather than negative things. Answer (d) is incorrect because incentives are part of the control decision.

Answer 2

Answer Explanations Answer (a) is incorrect because hard controls, third-party reviews, and hard skills are used by lower-level managers. Answer (b) is the correct answer. Generally speaking, senior managers most often use soft skills and soft controls to achieve their business objectives. Self-assessment is a tool to implement soft control. Answer (c) is incorrect because lower-level managers depend on third-party reviews such as contractors and consultants. Answer (d) is incorrect because lower-level managers use hard controls and hard skills.

Answer 3

Answer Explanations Answer (a) is the correct answer. Many policies and controls are informal and undocumented yet are regularly performed and highly effective. However, the unwritten policy must be thoughtful, clear, and consistent for others to understand and implement it. Answer (b) is incorrect because policies must be thoughtful to be useful. Answer (c) is incorrect because policies must be clear to be useful. Answer (d) is incorrect because policies must be consistent to be useful.

Answer 4

Answer Explanations Answer (a) is incorrect because it is essential to internal control systems and should be done prior to monitoring. Answer (b) is incorrect because it is essential to internal control systems and should be done prior to monitoring. Answer (c) is incorrect because it is essential to internal control systems and should be done prior to monitoring. Answer (d) is the correct answer. Monitoring comes after developing strategic plans, setting objectives, and conducting risk assessment. Monitoring will assess the current performance of controls and their adequacy over time.

Answer 5

Answer Explanations Answer (a) is incorrect because a user does not have the power and authority to implement controls. Answer (b) is incorrect because a sponsor is a person who funds a control system. Answer (c) is the correct answer. An effective control system requires an ultimate owner. The only truly effective owner of the control system is the chief executive officer (CEO). The CEO is the only person who can establish the right tone at the top of the organization and who has the power to ensure that all parts of the enterprise effectively communicate and coexist. The ownership responsibility cannot be delegated to an accountant or an auditor. Answer (d) is incorrect because customer could be internal or external to an internal control system.

Answer 6

Answer Explanations Answer (a) is incorrect. The threshold level for a reportable condition is lower than that of material weaknesses for reporting matters identified during an audit to the entity’s audit committee. Answer (b) is incorrect. It does not serve as a yardstick for determining whether an internal control system is “effective.” Answer (c) is the correct answer. Auditors are required to communicate only those findings meeting a specified threshold of seriousness or importance. Reportable conditions are defined as “significant deficiencies in the design or operation of the internal control structure, which could adversely affect the organization’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements.” Answer (d) is incorrect. The need to report a finding to an entity’s audit committee does not necessarily mean that the internal control system is ineffective.

Answer 7

Answer Explanations Answer (a) is incorrect. This is an example of a show of power, but is not a comprehensive definition or example of the concept of control. Answer (b) is the correct answer. This is the definition of control contained in the IIA Standards. Answer (c) is incorrect. Control as a concept is broader than processing controls and is designed by management, not by auditors. Answer (d) is incorrect. Some control procedures may be designed from the bottom up, but the concept of control flows from management down through the organization.

Answer 8

Answer Explanations Answer (a) is incorrect. External auditors are responsible for audit of financial statements. Answer (b) is incorrect. Accounts receivable staff are responsible for daily transaction handling. This answer is incorrect. Refer to the correct answer explanation. Answer (d) is the correct answer. Management is responsible for controls.

Answer 9

Answer Explanations Answer (a) is the correct answer. This is the best description of top management’s responsibility. Answer (b) is incorrect. This is a function assigned to internal auditing. Answer (c) is incorrect. Management cannot pass its responsibilities for control to auditors. Answer (d) is incorrect. The board may establish criteria but it usually does not design controls as such.

Answer 10

Answer Explanations Answer (a) is the correct answer. The best form of control over the performance of individuals is supervision. This is a managerial function. Answer (b) is incorrect. This does not control; it only advises. Answer (c) is incorrect. A quality control department is a form of internal review. The manager of quality control should be independent of the operations reviewed. Answer (d) is incorrect. Internal reviews (i.e., internal auditing) should be independent of the operations reviewed and are not a managerial function.

Answer 11

Answer Explanations Answer (a) is incorrect because it assumes the loss experience is same as the objective riskAnswer (b) is incorrect because it assumes collision losses are same as the objective risk. Answer (c) is the correct answer. Objective risk is probable variation of actual from expected losses divided by expected losses. (45 – 35)/30 = 10/30 = 33.3%. The loss experience information is not relevant here. Answer (d) is incorrect because it takes the average of collision losses of 35 and 45 and results in 40%.

Answer 12

Answer Explanations Answer (a) is incorrect because companies can be self-insured and do not need to purchase insurance. Answer (b) is the correct answer. The risk-management process involves identifying risks, evaluating risks, selecting risk-management techniques, and implementing and reviewing decisions. Answer (c) is incorrect because companies can be self-insured and do not need to purchase insurance. Answer (d) is incorrect because analyzing severity of expected losses is a part of identifying risks.

Answer 13

Answer Explanations Answer (a) is the correct answer. Risk means uncertainty. Risk regarding the possibility of loss can be especially problematic. It is when there is uncertainty about the occurrence of a loss that risk becomes an important problem. Answer (b) is incorrect because it defines the objective risk. Answer (c) is incorrect because it defines the probability. Answer (d) is incorrect because it relates contingencies to risks.

Answer 14

Answer Explanations Answer (a) is incorrect. It is a partial answer. Answer (b) is incorrect. It is a partial answer. Answer (c) is the correct answer. Risks can be classified into three types: static versus dynamic, subjective versus objective, and pure versus speculative. Answer (d) is incorrect. It is a partial answer. Pure risk is a condition in which there is the possibility of loss or no loss only. Peril is the cause of possible loss. Hazard is a condition that creates or increases the probability of loss.

Answer 15

Answer Explanations Answer (a) is incorrect. Contract analysis is used to identify risks. Answer (b) is incorrect. Statistical analysis is used to identify risks. Answer (c) is the correct answer. Flowcharts, contract analysis, statistical analysis, on-site inspections, and others are used to identify risks. Financial engineering is used to reduce financial risk. This includes options, calls, and puts. Answer (d) is incorrect. On-site inspections provide a direct observation of activities and are used to identify risks

Answer 16

Answer Explanations Answer (a) is the correct answer. This question is based on probability calculation, which ranges from 0 to 1. The probability of an employee being injured is defined as the chance of injury in terms of number of injuries divided by the number of employees. 5/30 equals 0.1667. Answer (b) is incorrect. It multiplies the 0.1667 with 100, resulting in 16.67. Answer (c) is incorrect. It misplaces the decimal point, resulting in 6.67. Answer (d) is incorrect. It multiplies 0.1667 with 10 resulting in 1.67.

Answer 17

Answer Explanations Answer (a) is incorrect. It forgets to add $50, resulting in $500.5. Answer (b) is incorrect. It forgets to add $123.5, resulting in 432.0. Answer (c) is the correct answer. The expected value is defined as the probability of loss multiplied by the amount of loss. 0.06 × $700 + 0.07 × $3,000 + 0.02 × $2,500 + 0.13 × $950 + 0.13 × $1,000 = $42 + $210 + $50 + $123.5 + $130 = $555.5. Answer (d) is incorrect. It forgets to add $42, resulting in $513.5.

Answer 18

Answer Explanations Answer (a) is incorrect because risk retention, risk avoidance, and risk transfer are risk-management techniques focusing on risk financing methods. Risk avoidance is different from loss control, because the firm or individual is sill engaging in operations that gave rise to particular risks. Answer (b) is incorrect because self-insurance, diversification, and risk transfer are not loss control methods. Instead, they are risk financing methods. Answer (c) is the correct answer. Common methods of loss control include reducing the probability of losses or decreasing the cost of losses that do occur. Probability of losses is related to frequency and severity. Cost reduction is also a method of controlling losses. Answer (d) is incorrect because it mixes both correct and incorrect answers.

Answer 19

Answer Explanations Answer (a) is incorrect because a reserve fund may not be enough for large losses. Answer (b) is incorrect because it is a necessary element of self-insurance. Answer (c) is the correct answer. Self-insurance by a firm is possible and feasible when it has accurate records or has access to satisfactory statistics to enable it to make good estimate of expected losses. The general financial condition of the firm should be satisfactory and the firm’s management must be willing and able to deal with large and unusual losses. Answer (d) is incorrect because self-insurance does not require the creation of a subsidiary company.

Answer 20

Answer Explanations Answer (a) is incorrect because risk retention is a technique for managing risk and does not involve insurance. Answer (b) is the correct answer. The most widely used form of risk transfer is insurance. Answer (c) is incorrect because risk avoidance is best if it can be done and does not involve insurance. Answer (d) is incorrect because loss control involves risk reduction or risk mitigation and does not involve insurance.

Answer 21

Answer Explanations Answer (a) is incorrect because the degree of diversification is not related to frequency or severity. Answer (b) is incorrect because it is an example of risk retention. Answer (c) is incorrect because it is an example of risk avoidance. Answer (d) is the correct answer. As a rule, risk retention is optimal for losses that have a low expected severity, with the rule becoming especially appropriate when expected frequency is high. Another general guideline applies to risks that have a low expected frequency but a high potential severity. In this situation, risk transfer often is the optimal choice. Finally, when losses have both high expected severity and high expected frequency, it is likely that risk transfer, risk retention, and loss control all will need to be used in varying degrees.

Answer 22

Answer Explanations Answer (a) is incorrect because the use of credit is an example of risk retention. Answer (b) is incorrect because use of reserve fund is an example of risk retention. Answer (c) is the correct answer. Incorporating an organization is an example of risk transfer. The other three choices are examples of risk retention. Answer (d) is incorrect because self-insurance is an example of risk retention.

Answer 23

Answer Explanations Answer (a) is the correct answer. The following conditions are suggestive of the types of situations where selfinsurance by a business is both possible and feasible: (1) The firm should have a sufficient number of objects so situated that they are not subject to simultaneous destruction; (2) The firm must have accurate records or have access to satisfactory statistics to enable it to make good estimates of expected losses; (3) The firm must make arrangements for administering the plan and managing the self-insurance fund; and (4) The general financial condition of the firm should be satisfactory, and the firm’s management must be willing and able to deal with large and unusual losses. Answer (b) is incorrect because it is one of the conditions for a self-insurance. Answer (c) is incorrect because it is one of the conditions for a self-insurance. Answer (d) is incorrect because it is one of the conditions for a self-insurance.

Answer 24

Answer Explanations Answer (a) is the correct answer. Captive insurers combine risk retention and risk transfer. Captive insurers is a form of funded risk retention. Answer (b) is incorrect because risk mapping is not an example of captive insurer. Answer (c) is incorrect because risk mapping and risk profiling are the same. Answer (d) is incorrect because risk profiling is not part of captive insurer.

Answer 25

Answer Explanations Answer (a) is incorrect because self-insurance is an example of risk retention. Answer (b) is the correct answer. Using a disclaimer of warranties clause on product packaging is an example of risk avoidance. Answer (c) is incorrect because unplanned retention is an example of risk retention. Answer (d) is incorrect because use of a reserve fund is an example of risk retention. Risk retention can be planned or unplanned, funded or unfunded. Self-insurance and reserve funds are examples of risk retention.

Answer 26

Answer Explanations Answer (a) is incorrect because it is the second step. Answer (b) is incorrect because it is the third step. Answer (c) is the correct answer. The steps for selecting among available risk-management techniques for a given situation may be summarized as: (1) avoid risks if possible, (2) implement appropriate loss control measures, and (3) select the optimal mix of risk retention and risk transfer. Answer (d) is incorrect because it is a part of the third step.

Answer 27

Answer Explanations Answer (a) is incorrect because diversification is an example of risk transfer. Answer (b) is incorrect because hedging is an example of risk transfer. Answer (c) is the correct answer. Self-insurance is an example of risk retention. Risk transfer methods include diversification, hedging, and hold-harmless agreements. Answer (d) is incorrect because hold-harmless agreement is an example of risk transfer.

Answer 28

Answer Explanations Answer (a) is incorrect because capital budgeting and statistical analysis can be used in risk management. Answer (b) is incorrect because deductibles and self-insurance can be used together. Answer (c) is the correct answer. Both capital budgeting and statistical procedures may be used in selecting an appropriate retention level (a mix consisting of risk retention and transfer), with insurance purchased for losses in excess of that level. Answer (d) is incorrect because risk transfer is more than insurance.

Answer 29

Answer Explanations Answer (a) is incorrect because more information is obtained to manage subjective risk. Answer (b) is incorrect because group discussion is used to manage subjective risk due to its consensus approach. Answer (c) is incorrect. If risks have been systematically identified and analyzed, and if decisions have been made regarding the appropriate methods for dealing with those risks, then in most cases subjective risk can be expected to decrease. Answer (d) is the correct answer. Severity reduction is used to manage objective risk due to its quantitative nature. Because objective and subjective risks are often both present in the same situation, some consideration must also be given to managing subjective risk. In one sense, the techniques applied to objective risk should also affect subjective risk.

Answer 30

Answer Explanations Answer (a) is incorrect because the degree of loss frequency and severity are not the same for all firms. Answer (b) is the correct answer. What constitutes “high” and “low” loss frequency and severity must be established on an individual basis. What is low loss severity for a multimillion-dollar company may be quite high for a small firm or an individual. In this regard, concepts such as total assets, net worth, and expected future income all are relevant. Answer (c) is incorrect because they are not identifiable by industry standards. Answer (d) is incorrect because they are important when considering risk avoidance.

Answer 31

Answer Explanations Answer (a) is incorrect because insurance is not needed if risk can be avoided. Answer (b) is incorrect because short-term assets are not relevant, but total assets are. Answer (c) is incorrect because expected losses come into play in computing frequency and severity levels. Answer (d) is the correct answer. Because in many situations both risk retention and risk transfer will be used in varying degrees, it is important to determine the appropriate mix of these two risk-management techniques. Both capital budgeting methods and statistical procedures may be used in selecting an appropriate retention level, with insurance purchased for losses in excess of that level.

Answer 32

Answer Explanations Answer (a) is incorrect because it is one of the conditions for a self-insurance. Answer (b) is the correct answer. Self-insurance can be contracted out to a third-party administrator so there is no need to have an in-house staff to administer it. The following conditions are suggestive of the types of situations where self-insurance by a business is both possible and feasible: (1) The firm should have a sufficient number of objects so situated that they are not subject to simultaneous destruction; (2) The firm must have accurate records or have access to satisfactory statistics to enable it to make good estimates of expected losses; (3) The firm must make arrangements for administering the plan and managing the self-insurance fund; and (4) The general financial condition of the firm should be satisfactory, and the firm’s management must be willing and able to deal with large and unusual losses. Answer (c) is incorrect because it is one of the conditions for a self-insurance. Answer (d) is incorrect because it is one of the conditions for a self-insurance.

Answer 33

Answer Explanations Answer (a) is incorrect. A professional bureaucracy is a structure with high complexity and low formalization in which professionals are required. Answer (b) is incorrect. A mechanistic structure is one that is highly formalized and standardized and that has no dual authority structure. It is not the optimal structure. Answer (c) is the correct answer. A matrix organizational structure combines functional and product departmentalization, creates a dual reporting structure, and is optimal where product groups are necessary. Answer (d) is incorrect. In a machine bureaucratic structure, rules and regulations permeate the entire structure and tasks are highly routine.

Answer 34

Answer Explanations Answer (a) is the correct answer. This principle applies to both types of organizational structure (items I and III). Answer (b) is incorrect. Item IV is incorrect. This principle does not apply in a hierarchical organization. Answer (c) is incorrect. Item II is incorrect. This principle does not apply in an open organization. Choice (d) is incorrect. See choice (b).

Answer 35

Answer Explanations Answer (a) is incorrect. Mass production technology should not be matched with an organic structure. Answer (b) is incorrect. Matrix is not a type of structure, but rather a type of departmentalization and should not be used with mass production. Answer (c) is the correct answer. Mass production would be best matched with a mechanistic, highly formalized structure. Answer (d) is incorrect. There is no such thing as integrated structure, and integration is not conducive to mass production.

Answer 36

Answer Explanations Answer (a) is the correct answer. Routine tasks are conducive to formalized structure. Answer (b) is incorrect. Routine tasks are conducive to centralization. Answer (c) is incorrect. Routine tasks are conducive to mechanistic, not organic, structures. Answer (d) is incorrect. Job satisfaction is often low in tasks that are routine and repetitive.

Answer 37

Answer Explanations Answer (a) is incorrect. In equity theory, the employees compare their job inputs and outcomes with others and then respond to eliminate inequities. Answer (b) is the correct answer. The strength of a tendency to act in a certain way depends on the strength of an expectation that an act will be followed by a given outcome. Answer (c) is incorrect. Goal-setting theory postulates that specific and difficult goals lead to higher performance. Answer (d) is incorrect. Reinforcement theory states that behavior is a function of its consequences.

Answer 38

Answer Explanations Answer (a) is incorrect. The autocratic model is based on pure power. Answer (b) is incorrect. The custodial model depends on material rewards for staff. Answer (c) is the correct answer. If the people do not want to work, grow, and achieve, the manager will be unsuccessful when using this approach. Answer (d) is incorrect. The manager’s beliefs alone will not be enough.

Answer 39

Answer Explanations Answer (a) is incorrect. This structure is designed to maximize unity of command by giving only line managers the authority to make decisions affecting those in their chain of command. Answer (b) is incorrect. This is merely a method of dividing an organization into more homogeneous units to better serve specific markets. Answer (c) is incorrect. A centralized structure need not have unity-of-command problems if management is organized in a line and staff fashion. Answer (d) is the correct answer. This structure allows authority to flow both vertically and horizontally.

Answer 40

Answer Explanations Answer (a) is incorrect. It is a traditional theory. Answer (b) is incorrect. It is a traditional theory. Answer (c) is incorrect. This relates to Barnard and systems theory. Answer (d) is the correct answer. This is the basis for Theory Y.

Answer 41

Answer Explanations Answer (a) is incorrect. Lines of authority are vertical in this situation, with staff positions acting as advisors. Answer (b) is the correct answer. Matrix structures are found in construction and aerospace firms that work on large projects. Answer (c) is incorrect. Under this format, staff’s positions can temporarily assume line functions. Answer (d) is incorrect. Authority is hierarchical in this structure.

Answer 42

Answer Explanations Answer (a) is the correct answer. The chain of command is called vertical hierarchy while the division of labor is called horizontal specialization. Answer (b) is incorrect. Staff and line does not discuss the chain of command. Answer (c) is incorrect. Departmentalization does not discuss chain of command. This answer is incorrect. Refer to the correct answer explanation.

Answer 43

Answer Explanations Answer (a) is incorrect. A hierarchy of authority implies top-down authority. Answer (b) is incorrect. Synergy is a characteristic of open systems. It results when components combine to form more than their sum. Answer (c) is the correct answer. The characteristics listed are typical of a bureaucracy as defined by Weber. Answer (d) is incorrect. Equifinality is a characteristic of open systems in which the same result is achieved through different means.

Answer 44

Answer Explanations Answer (a) is incorrect. It is a symptom of a dysfunctional bureaucracy. Answer (b) is the correct answer. These are all symptoms of a dysfunctional bureaucracy. Answer (c) is incorrect. It is a symptom of a dysfunctional bureaucracy. Answer (d) is incorrect. It is a symptom of a dysfunctional bureaucracy.

Answer 45

Answer Explanations Answer (a) is incorrect. This refers to the degree of geographic separation between facilities and personnel. Answer (b) is incorrect. This refers to the degree of job standardization through descriptions and rules. Answer (c) is the correct answer. This refers to the vertical depth of the organizational hierarchy. Answer (d) is incorrect. This term refers to the variety of jobs within an organization that require specialized knowledge or skills.

Answer 46

Answer Explanations Answer (a) is incorrect. A mechanistic structure is appropriate for organizations focusing on cost minimization through tight controls, extensive division of labor, and high formalization. Answer (b) is incorrect. This is not a true structural option. Imitative strategies are best suited to a mechanistic and organic structure. Answer (c) is the correct answer. Innovative strategy organizations operate best with a loose structure, low division of labor, and low formalization. Answer (d) is a distracter.

Answer 47

Answer Explanations Answer (a) is the correct answer. A mechanistic structure is appropriate for organizations focusing on cost minimization through tight controls, extensive division of labor, and high formalization. Answer (b) is incorrect. This is not a true structural option. Imitative strategies are best suited to a mechanistic and organic structure. Answer (c) is incorrect. An organic structure exhibits an innovative strategy and operates best with a loose structure, low division of labor, and low formalization. Answer (d) is incorrect. It is a distracter.

Answer 48

Answer Explanations Answer (a) is incorrect. In a bureaucracy, each subordinate reports to only a single manager. Answer (b) is the correct answer. In a matrix organization, project managers may “borrow specialists from line managers...” Answer (c) is incorrect. Departmental organization structures represent the “typical organization” with unified and thus clear-cut single lines of authority. Answer (d) is incorrect. Mechanistic organization structure is another term referring to bureaucracy.

Answer 49

Answer Explanations Answer (a) is the correct answer. The key to the contingency approach is that different types of organization structures are appropriate in different situations or external environments. Answer (b) is incorrect. Open systems involve a continual interaction between the organization and its external environment. Answer (c) is incorrect. It is based on the belief that a single management process can be applied in all organizations. Answer (d) is incorrect. The emphasis is on principles distilled from past organizational experience.

Answer 50

Answer Explanations Answer (a) is the correct answer. The operational approach serves to make work as efficient as possible, and is characterized by technical and quantitative terms. Answer (b) is incorrect. The behavioral approach is humanistic, emphasizing the manager’s ability to understand and work with people. Answer (c) is incorrect. The systems approach recognizes the many organizational and environmental variables in the manager’s role and responsibilities. Answer (d) is incorrect. The contingency approach advocates research to determine which managerial practices and techniques are appropriate in specific situations.

Answer 51

Answer Explanations Answer (a) is incorrect. Centralized organizations are generally easier to control. Answer (b) is incorrect. This advantage is usually associated with centralized organizations. Answer (c) is incorrect. The number of managers is not related to the degree of centralization or decentralization but is a function of the “span of control.” Answer (d) is the correct answer. This advantage is normally associated with decentralized organizations.

Answer 52

Answer Explanations Answer (a) is incorrect because it is suitable for many traditional firms as it avoids duplication of effort and allows or specialization of tasks and simplified training. Answer (b) is incorrect because it is appropriate for multiproduct and multiline firms. Answer (c) is suitable for company’s heavily engaged in research and development and project management work. Answer (d) is the correct answer. Divisional organization structure is appropriate for large firms operating in different markets and different regions with many business units. Each business unit can be a separate division.

Answer 53

Answer Explanations Answer (a) is incorrect because it is inappropriate or incompatible combinations. For example, compartmentalization cannot be informal in nature. Answer (b) is incorrect because it is inappropriate or incompatible combinations. For example, compartmentalization cannot be informal in nature. Answer (c) is incorrect because it is inappropriate or incompatible combinations. For example, compartmentalization cannot be informal in nature. Answer (d) is the correct answer. A high division of labor results in compartmentalization. Strict adherence to unity of command results in formal relationships.

Answer 54

Answer Explanations Answer (a) is the correct answer. For the professionals to accomplish their jobs, they must be afforded substantial autonomy. Answer (b) is incorrect. The machine bureaucracy can accomplish routine tasks in a highly efficient manner. A professional bureaucracy can accomplish its tasks very efficiently also. Answer (c) is incorrect. Both organization structures thrive on rules. Answer (d) is incorrect. This is a characteristic of both organization structures.

Answer 55

Answer Explanations Answer (a) is incorrect. It meets the criteria described. Answer (b) is the correct answer. Employees working in a matrix organization will have two supervisors and two job duties. Answer (c) is incorrect. It meets the criteria described. Answer (d) is incorrect. It meets the criteria described.

Answer 56

Answer Explanations Answer (a) is incorrect. This is a lower-level need, including the need for food, water, and sleep. Answer (b) is the correct answer. Esteem addresses the self-respect and self-worth of an individual. Answer (c) is incorrect. This relates to the desire to belong with others. Answer (d) is incorrect. Safety needs are just above the physiological needs and deal with safety from the elements and from enemies.

Answer 57

Answer Explanations Answer (a) is incorrect. It describes a mechanistic approach. Answer (b) is the correct answer. It recognizes that different organizational structures and processes are required for effectiveness in different kinds of environments. Answer (c) is incorrect. It basically describes an organic approach but is not the “best” answer. Answer (d) is incorrect. It describes a matrix organization.

Answer 58

Answer Explanations Answer (a) is incorrect. Systems theory is based on the premise that everything is a component of a larger, interdependent system. Answer (b) is incorrect. This theory focuses on the causes of human work behavior and how management techniques can best influence positive results. Answer (c) is incorrect. Operations theory frequently uses complex models and other quantitative techniques to simulate and predict the workings of production systems. Answer (d) is the correct answer. This scenario is essentially a definition of the contingency approach to management.

Answer 59

Answer Explanations Answer (a) is the correct answer. In order for a flat structure to be successful, employees must be able to work unsupervised much of the time since the manager with many employees has little time for each one. Answer (b) is incorrect. Geographically dispersed work areas are very difficult to control by a manager with many subordinates. Answer (c) is incorrect. Tasks that are highly complex and varied are more appropriate for narrow spans. Answer (d) is incorrect. Narrow spans are more appropriate where the similarity of work performed by subordinates is identical or slightly different.

Answer 60

Answer Explanations Answer (a) is the correct answer. It is not a coordinating mechanism; it helps create the need for coordination. Answer (b) is incorrect. This is an example of coordinating mechanisms. Answer (c) is incorrect. This is an example of coordinating mechanisms. Answer (d) is incorrect. This is an example of coordinating mechanisms.

Answer 61

Answer Explanations Answer (a) is incorrect. True, members are assigned to work groups based on their specialization. Answer (b) is incorrect. True, members are also organized around specific products/projects. Answer (c) is the correct answer. Matrix can work regardless of whether the product life cycle is long or short. Answer (d) is incorrect. True, the dual reporting systems in matrix structures enhance these risks.

Answer 62

Answer Explanations Answer (a) is the correct answer. In the contingency view, the manager’s alternative course of action depends on his or her assessment of various situational variables. In this case, responding to a change in the external environment. Answer (b) is incorrect. The systems view is a way looking at organizations and assumes that all organizations are systems with common characteristics. This answer is a good distracter since an “open” system interacts with its environment. Answer (c) is incorrect. The universality view would call for a rigid, inflexible structure regardless of the external environment. Answer (d) is incorrect. The classical view is an early theory of management and should include the universality concept.

Answer 63

Answer Explanations Answer (a) is incorrect. The central focus of the behavioral approach is on the human resource and success is largely dependent on the manager’s ability to understand and work with people. Answer (b) is incorrect. The focus of the systems approach is on the total environment of the organization, especially the external component and the effect it has upon the success of the organization. Answer (c) is incorrect. The focus of the contingency approach is on making adjustments in management decisions making that are based on changes in situational variables. Answer (d) is the correct answer. The focus of the operational approach is on improving efficiency and reducing waste. Over the years this approach has been identified with the fields of scientific management, management science, operations research, and operations management.

Answer 64

Answer Explanations Answer (a) is incorrect. This is an example of a line rather than staff activity. Further, the line/staff question is an example of the delegation of authority rather than an example of departmentalization. Answer (b) is incorrect. The matrix form of departmentalization is a compromise between the functional and product forms of departmentalization. Answer (c) is the correct answer. This is an example of the use of the functional form of departmentalization. Answer (d) is incorrect. The project form of departmentalization is used for specific organizational tasks that are usually large, experimental, or unique.

Answer 65

Answer Explanations Answer (a) is incorrect because equity refers to fairness and justice. Answer (b) is incorrect because unity of direction refers to coordinated efforts in same direction. Answer (c) is incorrect because initiative refers to formulating and executing plans. Answer (d) is the correct answer. Harmonious efforts (esprit de corps) make this the correct choice according to Fayol’s universal principles of management.

Answer 66

Answer Explanations Answer (a) is incorrect. The universal process approach is also known as the universalist or functional approach. This approach assumes the parts of an organization operate independently and that “the whole is equal to the sum of its parts.” Answer (b) is incorrect. The operational approach is a system of management that focuses on production oriented issues. An early form of this approach is scientific management. This approach also assumes the parts of an organization operate independently and that “the whole is equal to the sum of its parts.” Answer (c) is incorrect. The behavioral approach is based on the belief that people deserve to be the central focus of organized activity. The assumptions of this approach are the same as the first two answers. Answer (d) is the correct answer. This answer represents a completely different style of thinking about organizations. The assumption is that managers affect, and in turn are affected by, many other organizational and environmental variables.

Answer 67

Answer Explanations Answer (a) is the correct answer. The contingency approach believes that the relationships between management techniques and situations can be categorized and an appropriate course of action selected depending on the outcome of the analysis. Answer (b) is incorrect. This answer refers only to researchers who have done work in the area. Answer (c) is incorrect. The behavioral approach is not necessarily situational in nature. Answer (d) is incorrect. An operational management technique deals with actual management practice rather than research.

Answer 68

Answer Explanations Answer (a) is incorrect. A manufacturer of this type would probably adopt a functional (marketing, production, engineering, etc.) structure. Answer (b) is incorrect. A national grocer would probably use a regional or geographic structure. Answer (c) is incorrect. The most appropriate type of structure for this type of business would probably a divisional structure (new car sales, used car sales, service, etc.). Answer (d) is the correct answer. Since each project might have its own situational and technical demands as well as budget and profit targets, this type of business is well suited to the matrix structure.

Answer 69

Answer Explanations Answer (a) is incorrect. This principle deals with the proper placement of materials and personnel. Answer (b) is incorrect. This principle deals with specialization of labor to achieve organizational success. Answer (c) is the correct answer. The scalar chain requires that the chain of command be followed. Answer (d) is incorrect. This principle requires the focus of all efforts in the same direction.

Answer 70

Answer Explanations Answer (a) is incorrect. These individuals are senior to the auditor, who would be perceived as lacking authority. Answer (b) is the correct answer. This would give the auditor experience as a spokesperson for the audit department and as a horizontal link with other areas. Answer (c) is incorrect. The auditor does not have the knowledge or experience to present a reasonably comprehensive budget. This role cannot be delegated so far down the chain of command. Answer (d) is incorrect. This task resides solely with the audit director and cannot be delegated.

Answer 71

Answer Explanations Answer (a) is incorrect. It reflects the universal approach to management. Answer (b) is the correct answer. It reflects the operational approach, which stresses efficiency. Answer (c) is incorrect. It reflects the behavioral approach. Answer (d) is incorrect. It reflects the systems approach to management.

Answer 72

Answer Explanations Answer (a) is incorrect. It reflects the universal approach to management. Answer (b) is incorrect. It reflects the operational approach, which makes people its control focus. Answer (c) is the correct answer. It reflects the behavioral approach. Answer (d) is incorrect. It reflects the systems approach to management.

Answer 73

Answer Explanations Answer (a) is incorrect. While organization charts indicate some of the relationships requiring communication, by no means does an organization chart show all lines of communication in an organization. Answer (b) is the correct answer. Vertical hierarchy and horizontal specialization are the two dimensions of all organization charts. Answer (c) is incorrect. While in most cases the more important people (to the mission of the organization) are listed at the top of an organization chart, it is possible, even likely, that a person with lower organizational rank might be shown at a higher position on the chart. For example, an administrative assistant to the president might be shown nearer the top of the chart than the vice president of sales. Choice (d) is incorrect. See choices (a) and (c).

Answer 74

Answer Explanations Answer (a) is incorrect. While a manager under these conditions would be able to supervise a large number of employees, there is an upper limit. Answer (b) is incorrect. The conditions described in the stem support a wide span rather than a narrow span. Answer (c) is the correct answer. These conditions support a wide span of control. Answer (d) is incorrect. Geographical dispersion would decrease the span of control rather than increase it.

Answer 75

Answer Explanations Answer (a) is incorrect. Informal organization not shown. Answer (b) is incorrect. Responsibility is not defined on the chart. Answer (c) is the correct answer. The division of labor (horizontal dimension) indicates who does what, and the chain of command (vertical dimension) shows who reports to whom. It shows formal structure only. Answer (d) is incorrect. Both refer to the vertical dimension.

Answer 76

Answer Explanations Answer (a) is incorrect. The organization described is not a business; it is not profit seeking. Answer (b) is incorrect. The organization described provides no direct service to customers. Answer (c) is the correct answer. A mutual benefit organization is one in which individuals join together strictly in pursuit of self-interests. Answer (d) is incorrect. A commonweal organization offers standardized service to all members of a given population, not true of the organization described here.

Answer 77

Answer Explanations Answer (a) is incorrect. Synthesis perspective refers to the struggle between stability and change in a society. Answer (b) is incorrect. Decentralization refers to the delegation of decision-making authority. Answer (c) is the correct answer. Networking is the interaction of persons of essentially equal status for the purpose of information transfer or support. Answer (d) is incorrect. Self-reliance defines a person’s conviction that self-help is preferable to that of the institution.

Answer 78

Answer Explanations Answer (a) is incorrect. Managers who can contact subordinates frequently are able to control more people than those who have relatively infrequent contact with subordinates. Answer (b) is incorrect. Managers who delegate authority have more time to control the subordinates who report to them. These individuals can therefore supervise more people than managers who prefer not to delegate authority. Answer (c) is incorrect. Managers who have received effective training and are skillful communicators are equipped to control more individuals than managers who are untrained and/or have deficient communication skills. Answer (d) is the correct answer. The number of people in an organization has no impact on the number of individuals that a manager can control effectively.

Answer 79

Answer Explanations Answer (a) is the correct answer. Organization by function is common to almost all firms at some level. It avoids duplication of effort and allows for specialization and supplied training. Answer (b) is incorrect. Product departmentalization is appropriate for multiline firms. Answer (c) is incorrect. Matrix organization is used in research and development and project management. Answer (d) is incorrect. Divisional organization is appropriate for large firms.

Answer 80

Answer Explanations Answer (a) is the correct answer. As organizations grow, their strategies become more ambitious and elaborate. Companies often expand their activities within their industry. Answer (b) is incorrect. Vertical integration depends on the industry. Larger organizations normally implement a decentralized (divisional) strategy. Answer (c) is incorrect. The change is from a single product line to a more diverse set of products. Answer (d) is incorrect. Structures follow strategies; strategies do not follow structures.

Answer 81

Answer Explanations Answer (a) is incorrect. Innovation minimization is not a type of strategy. An innovation strategy is one type that emphasizes the introduction of new products or services, but it does not describe discount stores or sellers of generic grocery products. Answer (b) is incorrect. Imitation strategy describes one such as the imitator of designer styles, a strategy seeking to move into new products only after their viability has been proven elsewhere. Answer (c) is the correct answer. A cost-minimization strategy tightly controls costs, refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling a discount product. This describes the strategy pursued by the sellers of generic grocery products. Answer (d) is incorrect. There is no strategy described as initiation strategy.

Answer 82

Answer Explanations Answer (a) is incorrect. The attributes listed place an emphasis of people over technology. Answer (b) is incorrect. A contingency approach would suggest that what is important for any business depends on a number of internal and external factors. Answer (c) is the correct answer. The four elements are part of the eight attributes of excellence as defined in Peters and Waterman’s book In Search of Excellence. Answer (d) is incorrect. Continuous strategic planning is not a major focus of such an organization.

Answer 83

Answer Explanations Answer (a) is incorrect. Long-range business plans are a central aspect of strategic decisions. Answer (b) is incorrect. Support of daily business operations is an important aspect of strategic decisions. Answer (c) is incorrect. Measurement of plan fulfillment is essential to management’s evaluation of the system. Answer (d) is the correct answer. Cutting costs, per se, is the least important issue. Payoff, or return on costs, is a more relevant strategic consideration.

Answer 84

Answer Explanations Answer (a) is incorrect. Size affects structure at a decreasing rate. Answer (b) is incorrect. The organization will become fixed once it has around 2,000 employees. This answer is incorrect. Refer to the correct answer explanation. Answer (d) is the correct answer. The size-structure relationship may be linear at some point, but it will not remain linear indefinitely. Size affects structure at a decreasing rate.

Answer 85

Answer Explanations Answer (a) is incorrect. The small size and simplicity of these organizations generally precludes significant inefficiency in the use of resources. Answer (b) is the correct answer. Since each division is essentially a self-contained organization, there is substantial duplication of functions compared to more centralized structures. Answer (c) is incorrect. The central tendencies of a bureaucracy minimize the duplication of functions found in a divisional structure. Answer (d) is incorrect. The central tendencies of a bureaucracy minimize the duplication of functions found in a divisional structure.

Answer 86

Answer Explanations Answer (a) is the correct answer. These are positive characteristics that should be encouraged. Answer (b) is incorrect. Taking personal responsibility for reducing overhead is a positive characteristic. However, seeking incremental budget increases is a frequently used budget game and should be discouraged. Answer (c) is incorrect. Imagination in addressing direct and indirect costs should be encouraged, but goal displacement is a management problem that is exhibited when the means become more important then the ends. Answer (d) is incorrect. Seeking opportunities for cost synergy is a good managerial characteristic. However, trying hard to keep the prior budget intact is a budget game that should be discouraged.

Answer 87

Answer Explanations Answer (a) is incorrect. SBUs should not impact the market of the parent company. Answer (b) is incorrect. SBUs must operate as profit centers in order to provide a measure of their effectiveness independent of the original organization. Answer (c) is the correct answer. The purpose of a strategic business unit (SBU) is to allow for entrepreneurial risk taking, which is generally limited by the parent organization’s bureaucratic structure and concomitant reluctance to take risks. Answer (d) is incorrect. The requirement of coping effectively with competition means that the SBU is a more appropriately sized unit for dealing with competition (as opposed to the larger parent, which makes decisions more slowly and hence less competitively).

Answer 88

Answer Explanations Answer (a) is the correct answer. It is the correct definition of matrix organization, which is applicable to new product management project, system development project, software package evaluation, and so on. Answer (b) is incorrect. The basic functional structure is not decentralized. Answer (c) is incorrect. The basic structure described is functional. Answer (d) is incorrect. It is classical, not organic.

Answer 89

Answer Explanations Answer (a) is incorrect. Functional departmentalization is when the major activities of a firm are organized by function (marketing, finance, etc.) and products or services are subordinate to the functional level. Answer (b) is incorrect. “Organic” is not a method of departmentalization. Instead it is a category of organizations, which is defined as being fluid and flexible in structure. Answer (c) is the correct answer. Product-service organizations use products or services provided by the firm as the unifying theme in organizing. Under this option, functions are subordinate to product grouping. Answer (d) is incorrect. The term “strategic business unit” is not a type of departmentalization. However, this answer is a good distracter because the semiautonomous units created may be treated as SBUs in the planning process.

Answer 90

Answer Explanations Answer (a) is incorrect. Dynamic environments are best matched with an organic firm structure. Answer (b) is the correct answer. Complex environments are best matched with an organic firm structure. Answer (c) is incorrect. Stable environments are best matched with a mechanistic firm structure. Answer (d) is incorrect. Scarce environments are best matched with an organic firm structure.

Answer 91

Answer Explanations Answer (a) is incorrect. This structure is designed to maximize unity of command by giving only line managers the authority to make decisions affecting those in their chain of command. Answer (b) is incorrect. This is merely a method of dividing an organization into more homogeneous units to better serve specific markets. Answer (c) is incorrect. A centralized structure need not have unity-of-command problems if management is organized in a line and staff fashion. Answer (d) is the correct answer. This structure allows authority to flow both vertically and horizontally.

Answer 92

Answer Explanations Answer (a) is incorrect. It is a company that owns all of its production facilities and still depend on suppliers for component parts. Answer (b) is the correct answer. This is the best description of a vertically integrated company. Answer (c) is incorrect. Departmentalization by product or service is the grouping of organizational subsystems that permits extensive authority for a division executive over a given product or product line or over a service or group of services. Answer (d) is incorrect. A narrow span of control limits the number of subordinates to a minimum that each individual supervises.

Answer 93

Answer Explanations Answer (a) is incorrect because organizational development is planned change programs intended to help people and organization function more effectively. Answer (b) is the correct answer. Organizational change is defined as the adoption of a new idea or behavior by an organization. Answer (c) is incorrect because organizational structure refers to who reports to whom in the company. Answer (d) is incorrect because organizational intervention refers to management’s degree of involvement in the day-to-day operation.

Answer 94

Answer Explanations Answer (a) is incorrect because competitive actions are external actions to a company. Answer (b) is the correct answer. Internal forces for change arise from internal activities and decisions. If top managers select a goal of rapid company growth, internal actions will have to be changed first to meet that growth. Answer (c) is incorrect because external actions include competitive and regulatory actions. Answer (d) is incorrect because environmental actions are external actions.

Answer 95

Answer Explanations Answer (a) is the correct answer. Tuning is the most common, least intense, and least risky type of change. Answer (b) is incorrect. Reorientation change is anticipatory and strategic in scope. Answer (c) is incorrect. Re-creation is most intense and most risky change. Answer (d) is incorrect. Adaptation changes are in reaction to external pressures, events, or problems.

Answer 96

Answer Explanations Answer (a) is incorrect because tuning is a partial answer. Answer (b) is incorrect because reorientation change is anticipatory and strategic in scope. Answer (c) is incorrect because adaptation is a partial answer. Answer (d) is the correct answer. Both tuning and adaptation involve incremental change or continuous improvement (kaizen).

Answer 97

Answer Explanations Answer (a) is incorrect because tuning is anticipatory and incremental change. Answer (b) is the correct answer. Reorientation is anticipatory and strategic change. It is called frame bending because the organization is significantly redirected. Answer (c) is incorrect because re-creation is reactive and strategic change. Answer (d) is incorrect because adaptation is reactive and incremental change.

Answer 98

Answer Explanations Answer (a) is incorrect because tuning is anticipatory and incremental change. Answer (b) is incorrect because reorientation is anticipatory and strategic change. Answer (c) is the correct answer. Re-creation is reactive and strategic change. It is called frame breaking because it puts organizations to competitive pressures. Answer (d) is incorrect because adaptation is reactive and incremental change.

Answer 99

Answer Explanations Answer (a) is the correct answer. According to Kreitner (Management, 9th edition [Boston: Houghton and Mifflin Company, 2004]), there are six strategies for overcoming resistance to change, including education and communication, participation and involvement, facilitation and support, negotiation and agreement, manipulation and co-optation, and explicit and implicit coercion. Education and communication strategy is appropriate because it teaches prevention rather than cure. Answer (b) is incorrect because participation and involvement increase the stake in success and do not prevent the resistance to change. Answer (c) is incorrect because facilitation and support help to reduce fear and anxiety and do not prevent the resistance to change. Answer (d) is incorrect because negotiation and agreement neutralize potential or actual resistance and do not prevent the resistance to change.

Answer 100

Answer Explanations Answer (a) is incorrect because manipulation and co-optation strategies take time to change. Answer (b) is the correct answer. When management does not have time, they can force employees to go along with a change by threatening them with termination, loss of pay raises, or promotions, transfers, and the like. It uses explicit and implicit coercion techniques. Answer (c) is incorrect because facilitation and support help to reduce fear and anxiety and take time to change Answer (d) is incorrect because negotiation and agreement neutralize potential or actual resistance and take time to change.

Answer 101

Answer Explanations Answer (a) is incorrect because it is a partial answer. Answer (b) is incorrect because it is a partial answer. Answer (c) is the correct answer. Organization development (OD) consists of planned efforts or planned changes in an organization’s culture. Answer (d) is incorrect because frame bending is reorientation while frame breaking is re-creation.

Answer 102

Answer Explanations Answer (a) is the correct answer. The organization development (OD) process consists of three phases, such as unfreezing, change, and refreezing. Diagnosis occurs in the unfreezing phase. Answer (b) is incorrect because intervention occurs in the change phase. Answer (c) is incorrect because follow-up occurs in the refreezing phase. Answer (d) is incorrect because intervention is not one of the phases of OD.

Answer 103

Answer Explanations Answer (a) is incorrect because a leader can facilitate change efforts. Answer (b) is incorrect because a manager can implement change efforts. Answer (c) is the correct answer. Trust is the glue that holds a change effort together in an organization. Usually employees are afraid of change, and trust is the solution. Answer (d) is incorrect because a change agent turns ideas into actions.

Answer 104

Answer Explanations Answer (a) is incorrect because negative behaviors are not necessarily incompatible behaviors. Answer (b) is incorrect because destructive behaviors are nonproductive. Answer (c) is the correct answer. Conflict involves incompatible behaviors that make other people less effective and productive. There are two faces of conflict, including competitive and cooperative conflict. There are two sets of tools for managing conflict, including conflict triggers to stimulate conflict and conflict resolution to solve destructive conflict. Answer (d) is incorrect because competitive behavior is one face of conflict.

Answer 105

Answer Explanations Answer (a) is the correct answer. According to Kreitner (Management, 9th edition [Boston: Houghton and Mifflin Company, 2004]), conflict triggers include ambiguous or overlapping jurisdictions, competition for scarce resources, communication breakdowns, time pressures, unreasonable standards, personality clashes, status differentials, and unrealized expectations. Answer (b) is incorrect because communication trigger is a part of conflict trigger. Answer (c) is incorrect because personality trigger is a part of conflict trigger. Answer (d) is incorrect because time pressure trigger is a part of conflict trigger.

Answer 106

Answer Explanations Answer (a) is incorrect. This response illustrates two of the characteristics of organizational decline: increased centralization of decision making and lack of long-term planning. The exclusive emphasis on short-term results is likely to be counterproductive. Answer (b) is incorrect. Another characteristic of organizational decline is nonprioritized cuts. Downsizing, by itself, rarely turns a company around. Answer (c) is incorrect. This is too crude a method of prioritizing cuts. Reducing staff disproportionately in control functions could have disastrous consequences. Answer (d) is the correct answer. This is a long-term solution, which contains the elements needed to counter organizational decline.

Answer 107

Answer Explanations Answer (a) is incorrect. Organizational change is conducted through change agents, which include employees of the organization. Answer (b) is incorrect. Organizational change is conducted through change agents, which include all levels of management. Answer (c) is the correct answer. Common stockholders are not responsible for implementing decisions within the organization. If members of the management team are also common stockholders, they must make decisions using the stewardship function and separate their ownership interests from their managerial responsibilities. Answer (d) is incorrect. Outside consultants often act as change agents because they can offer an objective, independent view of the organization.

Answer 108

Answer Explanations Answer (a) is incorrect because all five items listed may either increase or decrease morale. Answer (b) is the correct answer. The five items listed in the question are generally recommended as means of overcoming resistance to change. Each technique is recommended in different situations and is likely to address specific resistance to change factors. Answer (c) is incorrect because all five items listed may either increase or decrease a manager’s control over information or the organization. Answer (d) is incorrect. Although use of manipulation and coercion may help a manager demonstrate power, education, communication, and negotiation would not.

Answer 109

Answer Explanations Answer (a) is incorrect. The three factors listed do not lead to a desire to change the culture—as a matter of fact, they would inhibit culture change. Answer (b) is incorrect. The three factors are also not typically related to satisfaction with organizational structure, although they all may, in some cases, lead to dissatisfaction. Answer (c) is incorrect. They are not generally identified as inhibitors of performance. Answer (d) is the correct answer. The 3 factors listed are among the 11 most common reasons employees resist change in organizations.

Answer 110

Answer Explanations Answer (a) is incorrect. Focus on employees’ higher-level needs in order to help them achieve self-actualization would be a recommendation based on Maslow’s hierarchy of needs. Maslow’s theories do not address the job itself as source of motivation. Additionally, given the complexity of self-actualization, Maslow’s theory does not focus on selfactualization as the core of practical motivation. Answer (b) is incorrect. These actions would not address the issue of overspecialization although they may remove some of the obstacle to proper motivation. Answer (c) is incorrect. Implementing an optimal organizational rewards systems and providing extensive training to keep employees up to date would not, once again, address the job and the issue of overspecialization. Good reward systems are key to motivation. However, they would not address the source of the problem as presented in the question and therefore would only provide an incomplete solution. Answer (d) is the correct answer. Job design theories of motivation are the ones that specifically address the issue of overspecialization. These theories focus on the match between the person and the job as the key to motivation. If there is overspecialization and boredom, the recommendation is to either enrich the job or move the employee to a job that provides the appropriate level of challenge.

Answer 111

Answer Explanations Answer (a) is incorrect. Complaints about “why it will not work” virtually always represent an “acceptable” roadblock to a plan that has unacceptable behavioral consequences. Answer (b) is the correct answer. “Members of cohesive work groups often exert ...pressure... to resist changes that threaten to break up the group.” Answer (c) is incorrect. Issues of under- or overstaffing for a task represent symptoms of resistance to change but not the actual or root cause of the problem. Answer (d) is incorrect. Citing cost factors also represents an “acceptable” rationale to block the implementation of a new approach.

Answer 112

Answer Explanations Answer (a) is incorrect because this is a management approach first espoused by Henri Fayol. Answer (b) is incorrect because this is a component of the scientific school of management. Answer (c) is the correct answer. Change is of primary concern, and the environment is composed of factors within and outside of the organization. Answer (d) is incorrect because strategic planning is a function of top management.

Answer 113

Answer Explanations Answer (a) is incorrect. It is a factor that managers seek to change. Answer (b) is incorrect. It is a factor that managers seek to change. Answer (c) is the correct answer. Environment is often determined by external forces, outside direct control of the organization. Answer (d) is incorrect. It is a factor that managers seek to change.

Answer 114

Answer Explanations Answer (a) is incorrect. Anticipatory changes are any systematically planned changes intended to take advantage of expected situations. Answer (b) is the correct answer. Reactive changes are necessitated by unexpected environmental events or pressures. Answer (c) is incorrect. Incremental changes involve subsystem adjustments needed to keep the organization on its chosen path. Answer (d) is incorrect. Strategic changes alter the overall shape or direction of the organization.

Answer 115

Answer Explanations Answer (a) is incorrect. Continuous improvement is important to be sure high levels of performance are achieved. Answer (b) is incorrect. More and more manufacturers are automating every day to achieve high quality, deliver customized products on time, minimize inventory, and increase flexibility. Answer (c) is the correct answer. Maintaining and manufacturing the existing products over introducing new ones may not be consistent with product quality and continuous improvement. If an existing product is not of high quality, it should be dropped. Answer (d) is incorrect. Customers are the final judges and most important people for the enterprise. Customer needs must be satisfied by providing services and products that were made right the first time.

Answer 116

Answer Explanations Answer (a) is incorrect. Imposing the decision (II) is unlikely to change attitudes, and threats (V) are unlikely to change attitudes. Answer (b) is the correct answer. All the activities will help to change employees’ attitudes. Answer (c) is incorrect. Imposing the decision (II) is unlikely to change attitudes, and threats (V) are unlikely to change attitudes. Answer (d) is incorrect. Imposing the decision (II) is unlikely to change attitudes, and threats (V) are unlikely to change attitudes.

Answer 117

Answer Explanations Answer (a) is incorrect. Negotiation presents a scenario where at least one party sacrifices rather than producing a winwin situation. Also, if significant concessions are made to one manager, the others will try to gain a similar advantage. Answer (b) is the correct answer. Participation of the operating managers in the decision process can improve the overall decision, reduce resistance, and actually obtain their commitment to the change. Answer (c) is incorrect. Coercion can be a temporary solution, but resistance will only be subdued, not eliminated. In addition, future cooperation between the auditor and operating managers will be severely restricted. Answer (d) is incorrect. This approach with the managers could produce a solution, but it would not be optimal because the auditor would have acquiesced on some points to obtain manager agreement.

Answer 118

Answer Explanations Answer (a) is the correct answer. The directive would not sell if it directs employees. Thus, it is not a true statement. Answer (b) is incorrect. The use of the brochure is a recommended procedure. Answer (c) is incorrect. The questionnaire allows the auditee to participate in the conduct of the audit organization. Answer (d) is incorrect. The bulletins disclose the beneficial results of the internal audit process.

Answer 119

Answer Explanations Answer (a) is incorrect. Complaints about “why it will not work” virtually always represent an “acceptable” roadblock to a plan that has unacceptable behavioral consequences. Answer (b) is the correct answer. “Members of cohesive work groups often exert ...pressure... to resist changes that threaten to break up the group.” Answer (c) is incorrect. Issues of under or over-staffing for a task represent symptoms of resistance to change but not the actual or root cause of the problem. Answer (d) is incorrect. Citing cost factors also represent an “acceptable” rationale to block the implementation of a new approach.

Answer 120

Answer Explanations Answer (a) is incorrect. It is too time consuming under the circumstances. Answer (b) is incorrect. It is time consuming, expensive and still prone to failure. Answer (c) is incorrect. It alerts others to begin negotiations, thus increasing the delay. Answer (d) is the correct answer. Explicit and implicit coercion are particularly good where speed is essential and the initiators possess considerable power.

Answer 121

Answer Explanations Answer (a) is incorrect. It is a valid reason to resist change, but it is not consistent with the scenario. Answer (b) is incorrect. It is a valid reason to resist change, but it is not consistent with the scenario. Answer (c) is the correct answer. This is a reason to resist change, and the individuals feared they would be unable to learn to work with the new machines. Answer (d) is incorrect. It is a valid reason to resist change, but it is not consistent with the scenario.

Answer 122

Answer Explanations Answer (a) is the correct answer. This is not a principal reason as both low- and high-ranking individuals may resist change. Answer (b) is incorrect. This is a principal reason for resisting change. Answer (c) is incorrect. This is a principal reason for resisting change. Answer (d) is incorrect. This is a principal reason for resisting change.

Answer 123

Answer Explanations Answer (a) is incorrect. This is a factor that managers seek to change. Changing the environment is less frequently observed. Answer (b) is incorrect. This is a factor that managers seek to change. Changing the environment is less frequently observed. Answer (c) is the correct answer. Sometimes an organization becomes a victim of its environment. External forces are beyond the control of any manager and hence are difficult to change by the manager. Answer (d) is incorrect. This is a factor that managers seek to change. Changing the environment is less frequently observed.

Answer 124

Answer Explanations Answer (a) is incorrect. This would be helpful in changing the existing organizational culture. Answer (b) is the correct answer. This step would tend to further entrench the existing culture. Answer (c) is incorrect. This would be helpful in changing the existing organizational culture. Answer (d) is incorrect. This would be helpful in changing the existing organizational culture.

Answer 125

Answer Explanations Answer (a) is incorrect. This is a quality control program in which everyone sees quality control as his or her job. Answer (b) is the correct answer. With participative management, employees participate in these four key areas. Answer (c) is incorrect. This is a just-in-time inventory control technique. Answer (d) is incorrect. Just-in-time refers to inventory control methods that minimize production inventories while providing needed materials and parts just in time.

Answer 126

Answer Explanations Answer (a) is incorrect. OD does not aim at increasing the leader’s power. To the contrary, it often focuses on participation and power sharing. Answer (b) is the correct answer. Organizational development (OD) is one of the major approaches to a proactive management of change in organizations. Among its major guiding principles is the alignment of individual and organizational goals. Answer (c) is incorrect. Attracting better applicants to an organization is not a major goal of OD, although a strong culture and high employee satisfaction, which can result from successful OD efforts, may become powerful recruiting tools for an organization. Increased efficiency may result from a healthier organization; however, OD can be considered successful if higher effectiveness but not better efficiency is achieved. Answer (d) is incorrect. Providing an organization and its managers with means of increasing efficiency is not the primary goal of OD. Increased efficiency may result from a healthier organization; however, OD can be considered successful if higher effectiveness but not better efficiency is achieved.

Answer 127

Answer Explanations This answer is incorrect. Refer to the correct answer explanation. Answer (b) is the correct answer. The economic-value-added system is a new system to measure corporate performance. The open-book management system focuses on sharing company’s financial information to all employees. The activity-based costing system identifies various activities needed to produce a product or service and determines the cost of those activities. The market-value-added system determines the market value of a firm based on its market capitalization rate. This answer is incorrect. Refer to the correct answer explanation. This answer is incorrect. Refer to the correct answer explanation.

Answer 128

Answer Explanations Answer (a) is the correct answer. The balanced scorecard system is a comprehensive management control system that balances the traditional accounting (financial) measures with the operational (nonfinancial) measures. This answer is incorrect. Refer to the correct answer explanation. This answer is incorrect. Refer to the correct answer explanation. This answer is incorrect. Refer to the correct answer explanation.

Answer 129

Answer Explanations This answer is incorrect. Refer to the correct answer explanation. This answer is incorrect. Refer to the correct answer explanation. Answer (c) is the correct answer. Detecting an exception in a business transaction or process is detective in nature, but reporting it is an example of corrective control. Both preventive and directive controls do not either detect or correct an error; they simply stop if possible. This answer is incorrect. Refer to the correct answer explanation.

Answer 130

Answer Explanations Answer (a) is incorrect. In management by objectives, subordinates and their managers jointly formulate the subordinate’s set of objectives and the plans for attaining those objectives for a subsequent period. Answer (b) is incorrect. Responsibility accounting is a technique to allocate cost and expense. Answer (c) is incorrect. Benchmarking involves looking at best practices in other companies. Answer (d) is the correct answer. Management by exception involves the actions described in the question.

Answer 131

Answer Explanations Answer (a) is incorrect. This is a retrospective control based on the outcome of a completed activity. Answer (b) is incorrect. This is a broader based control that should go hand-in-hand with strategic planning. Answer (c) is the correct answer. Procedures provide guidance on how tasks should be accomplished. Answer (d) is incorrect. This is a retrospective control.

Answer 132

Answer Explanations Answer (a) is the correct answer. Feedback control makes sure past mistakes are not repeated. Answer (b) is incorrect. The controls mentioned are after processing and therefore cannot provide feed-forward control. Answer (c) is incorrect. Complaints are not part of production control. Answer (d) is incorrect. The question is not limited to inventory.

Answer 133

Answer Explanations Answer (a) is incorrect. Organizations are artificial open systems and do not have automatic controls. Natural open systems, such as the human body, have automatic controls to maintain balance and sustain life. Answer (b) is the correct answer. Feedback controls can allow costs to build up due to their back-end position. Answer (c) is incorrect. This is a planning-type control and, as such, would be a feed-forward control. Answer (d) is incorrect. A feed-forward control attempts to anticipate problems and effect timely solutions.

Answer 134

Answer Explanations Answer (a) is incorrect. Feedback controls deal with decision making based on evaluations of past performance. Answer (b) is incorrect. Strategic controls are broad based and effect an organization over a long period of time. Answer (c) is incorrect. Control of budgeted expenditures is not mentioned in the example. Answer (d) is the correct answer. Feed-forward control provides for the active anticipation of problems so that they can be resolved in a timely manner.

Answer 135

Answer Explanations Answer (a) is incorrect. These are means of financial control. Answer (b) is the correct answer. These items are the basic components of complex organizational control systems in large companies. Answer (c) is incorrect. These are several types of organizational development interventions. Answer (d) is incorrect. Mentoring fulfills several types of career enhancement functions, including these.

Answer 136

Answer Explanations Answer (a) is the correct answer. Setting performance standards is one of the six elements. Answer (b) is incorrect. Securing data files is not one of the elements of a closed control system. Answer (c) is incorrect. Approving of the audit charter is not one of the control elements. Answer (d) is incorrect. Establishing the audit function is not one of the closed system control elements.

Answer 137

Answer Explanations Answer (a) is the correct answer. Policies and procedures provide guidance on how an activity should be performed to best ensure that an objective is achieved (feed-forward). Answer (b) is incorrect. Implementation controls refer to controls applied during systems development. Answer (c) is incorrect. Policies and procedures provide primary guidance before and during the performance of some task rather than give feedback on its accomplishment. Answer (d) is incorrect. Application controls apply to specific applications, such as payroll or accounts payable.

Answer 138

Answer Explanations Answer (a) is incorrect. Feed-forward controls precede the production of the product or delivery of the service. Inspection of raw material would be a feed-forward control. Answer (b) is incorrect. Steering controls is another name for feed-forward controls. Answer (c) is incorrect. Concurrent controls are controls that occur during the process. An example might be the inspection of component parts. Answer (d) is the correct answer. Controls that evaluate the final product or output are feedback controls.

Answer 139

Answer Explanations Answer (a) is the correct answer. These are the three basic components of a control system. Answer (b) is incorrect. These three terms are all used to describe subsystems of a control system. Answer (c) is incorrect. These three terms are used to describe either a subsystem of a control process or a tool used in a control system. Answer (d) is incorrect. While “objectives” is a correct answer, the other two are incorrect. “Inputs” is a good distracter because it is part of the “input-process-output” relationship used to describe a system.

Answer 140

Answer Explanations Answer (a) is incorrect. A feedback control provides information on the results of a completed activity. Answer (b) is incorrect. Strategic plans are developed by senior management and provide a long-range path for the organization. Answer (c) is incorrect. Policies and procedures are developed by management and are the most basic control subsystem of an organization. Answer (d) is the correct answer. A feed-forward control provides information on potential problems so that corrective action can be taken in anticipation of rather than as a result of a problem.

Answer 141

Answer Explanations Answer (a) is incorrect. A feedback control provides information on the results of a completed activity. Answer (b) is incorrect. Strategic plans are developed by senior management and provide a long-range path of the organization. Answer (c) is incorrect. Policies and procedures are developed by management and are the most basic control subsystem of an organization. Answer (d) is the correct answer. A feed-forward control provides information on potential problems so that corrective action can be taken in anticipation of rather than as a result of a problem.

Answer 142

Answer Explanations Answer (a) is incorrect. This relates to the management function of organizing. Answer (b) is the correct answer. Verifying that the prompt feedback on variances is provided to management is one way internal auditors facilitate the management function of controlling. Answer (c) is incorrect. This relates to the management function of directing. Answer (d) is incorrect. This relates to the management function of planning.

Answer 143

Answer Explanations Answer (a) is incorrect. Application controls are dependent on the general controls. Answer (b) is incorrect. In an EUC environment, responsibility for general controls may be shared by several individuals in different departments or locations. Answer (c) is incorrect. The need for specific general controls varies with the complexity and importance of the application. Answer (d) is the correct answer. The relationship between the application controls and the general controls is such that general controls are needed to support the functioning of application controls, and both are needed to ensure complete and accurate information processing.

Answer 144

Answer Explanations Answer (a) is incorrect. Restricting access to LAN workstations is a control to prevent unauthorized persons from gaining access to the network. Answer (b) is the correct answer. Sophisticated software packages may inadvertently threaten data security by allowing users to bypass existing system level security. Answer (c) is incorrect. Password security when logging on may not prevent authorized users of the LAN from accessing unauthorized functions. Answer (d) is incorrect. A security policy may establish responsibility but will not prevent inappropriate update of information.

Answer 145

Answer Explanations Answer (a) is the correct answer. Edit or validation routines should be present in the application to reject or flag these unusual items. Answer (b) is incorrect. Rejected and suspense item controls are relevant only if the data are first subject to edit and validation checks. Answer (c) is incorrect. Controls over update access to the database are general controls rather than application controls. Answer (d) is incorrect. Programmed balancing controls are designed to identify errors in the processing of data rather than in the data itself.

Answer 146

Answer Explanations Answer (a) is incorrect. A record count provides the number of documents entered into a process. Answer (b) is incorrect. An echo check is designed to check the reliability of computer hardware. Answer (c) is incorrect. A self-checking number contains digits that are a formula of the other digits. Account numbers with a self-checking digit reduce data input errors. Answer (d) is the correct answer. A limit test is a test of whether a field amount fits within a predetermined upper and/or lower limit. It can catch only certain errors (i.e., those that exceed the acceptable range).

Answer 147

Answer Explanations Answer (a) is incorrect. A limit test is a test of whether a field amount fits within a predetermined upper and/or lower limit. It can catch only certain errors (i.e., those that exceed the acceptable range). Answer (b) is the correct answer. A validity test can compare the value of a customer account number field with a master file containing valid customer accounts. Answer (c) is incorrect. A control total is the number of transactions in a batch. Answer (d) is incorrect. A hash total is the number obtained from totaling the same field value for each transaction in a batch. The total has no meaning or value other than as a comparison with another hash total.

Answer 148

Answer Explanations Answer (a) is incorrect. Application controls are specific to the flow of transactions. Answer (b) is the correct answer. Policies and procedures are part of the administration of EUC, which is defined at an organizational level. Answer (c) is incorrect. Environmental controls influence the effective operation of all internal controls. Answer (d) is incorrect. System control is not a specific response; it is too broad.

Answer 149

Answer Explanations Answer (a) is incorrect. Batch totals require numerical control. Answer (b) is the correct answer. One-for-one checking is as described. Answer (c) is incorrect. Computer sequence checks require that transactions be numbered. Answer (d) is incorrect. Computer matching is performed under program control and not by the user

Answer 150

Answer Explanations Answer (a) is incorrect. Programmed checks are used to check the potential accuracy of input data (e.g., a range check). Answer (b) is incorrect. Batch control is used to ensure the completeness and accuracy of input and update. Answer (c) is the correct answer. Implementation controls are designed to ensure that only authorized program procedures are introduced into the system. Answer (d) is incorrect. One-for-one checking is a technique used to check individual documents for accuracy and completeness of data input or update.

Answer 151

Answer Explanations Answer (a) is the correct answer. During each program run in a series, the computer accumulates the totals of transactions that have been processed and reconciles them with the totals forwarded from the previous program run. Answer (b) is incorrect. Existence checking ensures that individual data codes agree with valid codes held in a file or a program. Answer (c) is incorrect. Key verification ensures the completeness and accuracy of selected fields on individual documents. Answer (d) is incorrect. Prerecorded input (turnaround document) is used to ensure accuracy and completeness of input.

Answer 152

Answer Explanations Answer (a) is the correct answer. Computer matching of fields such as goods received number, product code, supplier code, and quantity assures agreement between goods received and goods invoiced. Answer (b) is incorrect. Control totals do not identify specific item-by-item differences. Answer (c) is incorrect. Batch totals provide only a total value for a field and do not allow for detail matching. Answer (d) is incorrect. Check digits provide only for validation of predefined account numbers.

Answer 153

Answer Explanations Answer (a) is incorrect. Keystroke verification (a labor-intensive procedure) consists of entering data a second time, with differences detected by a mechanical signal. Answer (b) is the correct answer. A combination of edit checks, resulting in exception reports, would be the most efficient way of reducing errors. Answer (c) is incorrect. Balancing and reconciliation make tests of equality and analyze differences. Like answer (a), it is laborious. Answer (d) is incorrect. Batch totals are used to control input via agreement of preestablished totals and are better suited for completeness control.

Answer 154

Answer Explanations Answer (a) is incorrect. Computer matching is used to ensure that data are completely entered. Answer (b) is incorrect. Check digits are used to determine if a number has been keyed incorrectly. Answer (c) is incorrect. A transaction log is used in conjunction with special programs to reperform processing and compare results. Answer (d) is the correct answer. Run-to-run totals are used to ensure completeness of update.

Answer 155

Answer Explanations Answer (a) is incorrect. When agreed, batch totals are useful. Answer (b) is the correct answer. To be of benefit, manual postings of batch totals must be agreed to the master file. Answer (c) is incorrect. Unless agreed or reconciled, batch totals in a control account do not serve as a control. Answer (d) is incorrect. Hash totals are not required or appropriate in this situation.

Answer 156

Answer Explanations Answer (a) is the correct answer. Operational controls frequently are not supported by clear criteria or standards. There is no firm external procedural framework for operational controls such as generally accepted accounting principles provide for accounting controls. Answer (b) is incorrect. Computer hardware controls are relatively obvious physical processing controls. Answer (c) is incorrect. These controls are well defined by the framework of GAAP. Answer (d) is incorrect. Physical controls, and the objectives, are apparent. They are not subject to any significant degree of misinterpretation.

Answer 157

Answer Explanations Answer (a) is incorrect. An example of a bank’s input controls is an edit test of the bank. Answer (b) is incorrect. Auditing controls are the system of checks and balances in effect throughout the bank. Answer (c) is incorrect. Corrective controls are those that correct errors discovered. Answer (d) is the correct answer. Operating controls include all those that promote safe, accurate, and timely processing of the bank’s transactions, for example, dual control, joint custody, rotation of employees, and segregation of duties.

Answer 158

Answer Explanations Answer (a) is incorrect. This is a typical example of a monitoring control. Answer (b) is incorrect. This is a monitoring control, which is deployed by lower-level management to determine when operations may be out of control. Answer (c) is the correct answer. This is an example of a processing control procedure. Answer (d) is incorrect. Effective internal auditing can be recognized as a form of effective monitoring, that is, it represents an analysis of the integrity of management’s other controls. When audits or reviews are performed on a regular basis, such as the control reviews over cash, they provide an effective monitoring control.

Answer 159

Answer Explanations Answer (a) is incorrect. A group has a better chance of successfully perpetrating an irregularity than does an individual employee. Answer (b) is the correct answer. A good system of internal controls is likely to expose an irregularity if one employee perpetrates it without the aid of others. Answer (c) is incorrect. Management can override controls, singly or in groups. Answer (d) is incorrect. Management can override controls, singly or in groups.

Answer 160

Answer Explanations Answer (a) is incorrect. This is a detective control. The events under scrutiny have already occurred. Answer (b) is incorrect. It is a preventive control. The controls are designed to deter an undesirable event. Answer (c) is incorrect. It is a preventive control. The controls are designed to deter an undesirable event. Answer (d) is the correct answer. This is a directive control. The control is designed to encourage a desirable event to occur, that is, to enhance the professionalism and level of expertise of the internal auditing department.