Question 1

Which of the following is not an element of the Fraud Triangle?

Accepted Answer

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

Question 2

Once the fraud assessment is complete in the planning stage, the auditor need not consider fraud further.

Accepted Answer

A) True 
 B)False

Question 3

Complex transactions such as derivative instruments provide management certain opportunities to manipulate financial statements to its advantage.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following actions was a key element of the Enron audit fraud?

Accepted Answer

A)  Capitalizing line costs rather than expensing them. 
B)  Misrepresenting bribes from suppliers as a reduction of operating costs. 
C)  Shifting debt to off-balance sheet special entities. 
D)  Concealing large losses related to securities investments. 
A)  Capitalizing line costs rather than expensing them. 
B)  Misrepresenting bribes from suppliers as a reduction of operating costs. 
C)  Shifting debt to off-balance sheet special entities. 
D)  Concealing large losses related to securities investments.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The audit committee should have the authority to hire and fire the external auditor.

Accepted Answer

A) True 
 B)False

Question 7

An audit must be performed by persons who can make sound judgments relating to complex accounting issues.

Accepted Answer

A) True 
 B)False

Question 8

Fraud is an intentional act involving the use of deception that results in a material misstatement of the financial statements.

Accepted Answer

A) True 
 B)False

Question 9

Management compensation that is tied to profits may create incentives to commit fraud.

Accepted Answer

A) True 
 B)False

Question 10

The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.

Accepted Answer

A) True 
 B)False

Question 11

Fraud categories.
What are three common ways in which fraudulent financial reporting takes place?

Accepted Answer

1. Manipulation, falsification, or alter

Question 12

Rationalization is one element of the Fraud Triangle.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following best describes professional skepticism?

Accepted Answer

A)  An intent to deceive. 
B)  An attitude of intrusion and obstinacy. 
C)  A character that does not waver. 
D)  A questioning mind. 
A)  An intent to deceive. 
B)  An attitude of intrusion and obstinacy. 
C)  A character that does not waver. 
D)  A questioning mind.

Question 14

Which of the following best represents fraud related to financial reporting?

Accepted Answer

A)  The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors. 
B)  The controller of the company decreases warranty expense by $3 million because the company will otherwise miss analysts' expectations this quarter. 
C)  The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris. 
D)  The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization. 
A)  The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors. 
B)  The controller of the company decreases warranty expense by $3 million because the company will otherwise miss analysts' expectations this quarter. 
C)  The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris. 
D)  The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization.

Question 15

Which of the following creates an opportunity for fraud to be committed in an organization?

Accepted Answer

A)  Management demands financial success. 
B)  Poor internal control. 
C)  Commitments tied to debt covenants. 
D)  Management is aggressive in its application of accounting rules. 
A)  Management demands financial success. 
B)  Poor internal control. 
C)  Commitments tied to debt covenants. 
D)  Management is aggressive in its application of accounting rules.

Question 16

Which action was a key element in the WorldCom audit fraud case?

Accepted Answer

A)  Recording bartered exchange transactions as revenue. 
B)  Overstating cash by falsely recording cash held at major banks. 
C)  Recognizing revenue on the sale of impaired assets. 
D)  Concealing large losses related to securities investments. 
A)  Recording bartered exchange transactions as revenue. 
B)  Overstating cash by falsely recording cash held at major banks. 
C)  Recognizing revenue on the sale of impaired assets. 
D)  Concealing large losses related to securities investments.

Question 17

Which of the following frauds is most common?

Accepted Answer

A)  Chief financial officer misappropriation of funds. 
B)  Misapplication of revenue recognition principles. 
C)  Management's theft of cash held in reserve accounts. 
D)  Over-recording expenses related to stock options. 
A)  Chief financial officer misappropriation of funds. 
B)  Misapplication of revenue recognition principles. 
C)  Management's theft of cash held in reserve accounts. 
D)  Over-recording expenses related to stock options.

Question 18

If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly.

Accepted Answer

A) True 
 B)False

Question 19

The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist.

Accepted Answer

A) True 
 B)False

Question 20

The audit team should develop its own ideas about how fraud may be performed by the client and then covered up.

Accepted Answer

A) True 
 B)False

Which of the following is not an element of the Fraud Triangle?

Once the fraud assessment is complete in the planning stage, the auditor need not consider fraud further.

Complex transactions such as derivative instruments provide management certain opportunities to manipulate financial statements to its advantage.

Which of the following actions was a key element of the Enron audit fraud?

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

The audit committee should have the authority to hire and fire the external auditor.

An audit must be performed by persons who can make sound judgments relating to complex accounting issues.

Fraud is an intentional act involving the use of deception that results in a material misstatement of the financial statements.

Management compensation that is tied to profits may create incentives to commit fraud.

The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.

Fraud categories. What are three common ways in which fraudulent financial reporting takes place?

Rationalization is one element of the Fraud Triangle.

Which of the following best describes professional skepticism?

Which of the following best represents fraud related to financial reporting?

Which of the following creates an opportunity for fraud to be committed in an organization?

Which action was a key element in the WorldCom audit fraud case?

Which of the following frauds is most common?

If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly.

The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist.

The audit team should develop its own ideas about how fraud may be performed by the client and then covered up.

Auditing: Integral to the Economy

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

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 Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Which of the following is not an element of the Fraud Triangle?

Once the fraud assessment is complete in the planning stage, the auditor need not consider fraud further.

Complex transactions such as derivative instruments provide management certain opportunities to manipulate financial statements to its advantage.

Which of the following actions was a key element of the Enron audit fraud?

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

The audit committee should have the authority to hire and fire the external auditor.

An audit must be performed by persons who can make sound judgments relating to complex accounting issues.

Fraud is an intentional act involving the use of deception that results in a material misstatement of the financial statements.

Management compensation that is tied to profits may create incentives to commit fraud.

The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.

Fraud categories. What are three common ways in which fraudulent financial reporting takes place?

Rationalization is one element of the Fraud Triangle.

Which of the following best describes professional skepticism?

Which of the following best represents fraud related to financial reporting?

Which of the following creates an opportunity for fraud to be committed in an organization?

Which action was a key element in the WorldCom audit fraud case?

Which of the following frauds is most common?

If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly.

The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist.

The audit team should develop its own ideas about how fraud may be performed by the client and then covered up.

Auditing: Integral to the Economy

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

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