Question 1

Management of companies should have the ability to hire and fire the external auditor.

Accepted Answer

A) True 
 B)False

Question 2

Material fraud perpetrated by management must always be reported by the auditor to the SEC.

Accepted Answer

A) True 
 B)False

Question 3

Auditor's fraud communication responsibilities Discuss the auditor's responsibility to communicate fraud to the audit committee.When is the auditor required to communicate possible fraud to parties other than the audit committee and management?

Accepted Answer

If the fraud is material (as previously

Question 4

Management of Premium Discovery Company is compensated through large salaries,stock options and bonuses tied to the company's working capital growth.The CEO is constantly holding meetings to ensure that management is on target for increased operating income each month.Based upon the above information only,what type of probable motivation is there to commit fraud at the Premium Discovery Company?

Accepted Answer

A) Incentive. 
B) Opportunity. 
C) Rationalization. 
D) Expectation. 
A) Incentive. 
B) Opportunity. 
C) Rationalization. 
D) Expectation.

Question 5

Which of the following is most likely considered an omission from financial statement reporting?

Accepted Answer

A) The company no longer discloses a contingency because it was settled previously. 
B) The company does not present goodwill because it was impaired currently. 
C) The company does not disclose earnings per share because it is privately held. 
D) The company does not present a statement of cash flows because of its current net loss. 
A) The company no longer discloses a contingency because it was settled previously. 
B) The company does not present goodwill because it was impaired currently. 
C) The company does not disclose earnings per share because it is privately held. 
D) The company does not present a statement of cash flows because of its current net loss.

Question 6

Which of following best describes the audit committee's oversight responsibility?

Accepted Answer

A) Provide oversight of reporting outside the organization. 
B) Provide oversight of internal auditing function. 
C) Provide oversight of the external audit. 
D) All of the above. 
A) Provide oversight of reporting outside the organization. 
B) Provide oversight of internal auditing function. 
C) Provide oversight of the external audit. 
D) All of the above.

Question 7

The audit committee must be composed of outsiders such as the organization's attorney and audit partner.

Accepted Answer

A) True 
 B)False

Question 8

When the risk of fraud is high in financial statements,the auditor should assign less experienced auditors to the engagement.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following frauds involved primarily asset misappropriation?

Accepted Answer

A) Enron. 
B) Worldcom. 
C) Dell. 
D) Koss. 
A) Enron. 
B) Worldcom. 
C) Dell. 
D) Koss.

Question 10

Auditors are responsible to fraud even if it has an immaterial effect on the financial statements.

Accepted Answer

A) True 
 B)False

Question 11

An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits.

Accepted Answer

A) True 
 B)False

Question 12

There are many important reasons to diligently plan for an audit.If an audit firm wrongly skips the planning stage of an audit,what will be effect relative to fraud detection?

Accepted Answer

A) The firm will not be able to apply GAAP to the financial statements. 
B) The firm will not adequately identify the types of fraud that may occur in the client company. 
C) The firm will not be able to perform direct tests of account balances. 
D) The firm will lack the competency and technical training necessary to complete the audit in accordance with GAAS. 
A) The firm will not be able to apply GAAP to the financial statements. 
B) The firm will not adequately identify the types of fraud that may occur in the client company. 
C) The firm will not be able to perform direct tests of account balances. 
D) The firm will lack the competency and technical training necessary to complete the audit in accordance with GAAS.

Question 13

Sam Jones,controller of Mitnikco,spends three days researching the accounting statements to find loopholes in the "rules" and to make a case for recognizing revenue earlier,rather than in later years.In the end,Sam and the other members of management determine that they will reduce the company's deferred revenue accounts and begin accounting for all revenues as agreements are signed.What are the motivations of Mitnikco management based solely on the information above?

Accepted Answer

A) Pressures. 
B) Opportunity. 
C) Rationalization. 
D) Skepticism. 
A) Pressures. 
B) Opportunity. 
C) Rationalization. 
D) Skepticism.

Question 14

The audit committee is a subcommittee of the board of directors comprised of independent outside directors.

Accepted Answer

A) True 
 B)False

Question 15

The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements about fraud is true?

Accepted Answer

A) Unless auditors can provide assurance that the financial statements are free of material misstatements due to fraud,there is no justification for the audit function. 
B) The AICPA has mandated that the auditor take on more responsibility than previously required because of management's demand for fraud detection. 
C) It is the responsibility of the auditor to provide internal control over a client organization sufficient to discover or prevent fraud from occurring. 
D) Auditor-initiated fraud is a large concern of shareholders and the audit committee must continually monitor the auditors to ensure they are not misstating financial statements. 
A) Unless auditors can provide assurance that the financial statements are free of material misstatements due to fraud,there is no justification for the audit function. 
B) The AICPA has mandated that the auditor take on more responsibility than previously required because of management's demand for fraud detection. 
C) It is the responsibility of the auditor to provide internal control over a client organization sufficient to discover or prevent fraud from occurring. 
D) Auditor-initiated fraud is a large concern of shareholders and the audit committee must continually monitor the auditors to ensure they are not misstating financial statements.

Question 17

One fraud risk factor includes the presence of domineering members of management who seek the ultimate loyalty of subordinates.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following best describes management responsibilities under the Sarbanes-Oxley Act of 2002?

Accepted Answer

A) Certify the accuracy of financial statements. 
B) Establish a corporate code of conduct. 
C) Accept responsibility for restated earnings. 
D) All of the above. 
A) Certify the accuracy of financial statements. 
B) Establish a corporate code of conduct. 
C) Accept responsibility for restated earnings. 
D) All of the above.

Question 19

The Center for Audit Quality (CAQ)report identifies which of the following ways in which individuals involved in the financial reporting process can mitigate the risk of fraudulent financial reporting?

Accepted Answer

A) Individuals involved in financial reporting need to acknowledge that there needs to exist a strong,highly ethical tone at the top of an organization that permeates the corporate culture,including an effective fraud risk management program. 
B) Individuals involved in financial reporting need to continually exercise professional skepticism. 
C) Individuals involved in financial reporting need to remember that strong communication among those involved in the financial reporting process is critical. 
D) All of the above. 
A) Individuals involved in financial reporting need to acknowledge that there needs to exist a strong,highly ethical tone at the top of an organization that permeates the corporate culture,including an effective fraud risk management program. 
B) Individuals involved in financial reporting need to continually exercise professional skepticism. 
C) Individuals involved in financial reporting need to remember that strong communication among those involved in the financial reporting process is critical. 
D) All of the above.

Question 20

Audit committees are required to include which of the following types of professionals?

Accepted Answer

A) A CPA. 
B) A public regulator. 
C) A financial expert. 
D) An attorney-at-law. 
A) A CPA. 
B) A public regulator. 
C) A financial expert. 
D) An attorney-at-law.

Management of companies should have the ability to hire and fire the external auditor.

Material fraud perpetrated by management must always be reported by the auditor to the SEC.

Auditor's fraud communication responsibilities Discuss the auditor's responsibility to communicate fraud to the audit committee.When is the auditor required to communicate possible fraud to parties other than the audit committee and management?

Which of the following is most likely considered an omission from financial statement reporting?

Which of following best describes the audit committee's oversight responsibility?

The audit committee must be composed of outsiders such as the organization's attorney and audit partner.

When the risk of fraud is high in financial statements,the auditor should assign less experienced auditors to the engagement.

Which of the following frauds involved primarily asset misappropriation?

Auditors are responsible to fraud even if it has an immaterial effect on the financial statements.

An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits.

There are many important reasons to diligently plan for an audit.If an audit firm wrongly skips the planning stage of an audit,what will be effect relative to fraud detection?

The audit committee is a subcommittee of the board of directors comprised of independent outside directors.

The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud.

Which of the following statements about fraud is true?

One fraud risk factor includes the presence of domineering members of management who seek the ultimate loyalty of subordinates.

Which of the following best describes management responsibilities under the Sarbanes-Oxley Act of 2002?

The Center for Audit Quality (CAQ)report identifies which of the following ways in which individuals involved in the financial reporting process can mitigate the risk of fraudulent financial reporting?

Audit committees are required to include which of the following types of professionals?

Auditing: Integral to the Economy

Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters

Exam 2: The Risk of Fraud and Mechanisms to Address Fraud: Regulation,corporate Governance,and Audit Quality

Management of companies should have the ability to hire and fire the external auditor.

Material fraud perpetrated by management must always be reported by the auditor to the SEC.

Auditor's fraud communication responsibilities Discuss the auditor's responsibility to communicate fraud to the audit committee.When is the auditor required to communicate possible fraud to parties other than the audit committee and management?

Which of the following is most likely considered an omission from financial statement reporting?

Which of following best describes the audit committee's oversight responsibility?

The audit committee must be composed of outsiders such as the organization's attorney and audit partner.

When the risk of fraud is high in financial statements,the auditor should assign less experienced auditors to the engagement.

Which of the following frauds involved primarily asset misappropriation?

Auditors are responsible to fraud even if it has an immaterial effect on the financial statements.

An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits.

There are many important reasons to diligently plan for an audit.If an audit firm wrongly skips the planning stage of an audit,what will be effect relative to fraud detection?

The audit committee is a subcommittee of the board of directors comprised of independent outside directors.

The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud.

Which of the following statements about fraud is true?

One fraud risk factor includes the presence of domineering members of management who seek the ultimate loyalty of subordinates.

Which of the following best describes management responsibilities under the Sarbanes-Oxley Act of 2002?

The Center for Audit Quality (CAQ)report identifies which of the following ways in which individuals involved in the financial reporting process can mitigate the risk of fraudulent financial reporting?

Audit committees are required to include which of the following types of professionals?

Auditing: Integral to the Economy

Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters