Exam 2: The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

According to professional auditing standards, which of the following best represents a type of fraudulent financial reporting?

The landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related, unconsolidated entities.

According to professional audit standards, the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" meeting in order to determine the types of fraud that may occur with the client.

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

Any major disagreement the auditor has with management should be discussed with the audit committee.

The fraud triangle requires the auditor to actively consider and assess the risk of fraud for clients and their financial statements.

Consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act.

Fraud detection procedures should only be performed for clients that have had fraud problems in the past.

Which of the following is not a specific responsibility of an audit committee as mandated by the NYSE?

Who is most often involved in perpetrating fraudulent financial reporting?

During the time period of 1998 to 2007, the median size of public company perpetrating fraud rose tenfold to $100 million (as compared to the previous ten years).

What is the best way an auditor can detect fraud in the financial statements?

Fraud consideration by auditors. John Beasley is interviewing with public audit firms to become an auditor. John does not believe that fraud is a "big deal" in client organizations and argues that most individuals in management of companies are "honest people". He believes that auditors are becoming too cynical. Describe your response to John's attitude and discuss the major types of fraud that occur in companies.

How frequently does the PCAOB inspect registered accounting firms that audit 100 or more issuers?

The PCAOB has how many board members?

The auditor should not consider that fraud is present in revenue accounts because revenue is not typically a very complex account.

Which of the following is a specific governance responsibility of the Board of Directors of a public corporation?

Audit procedures to detect fraud are generally an expansion of normal audit procedures.

The auditor can be satisfied with less than persuasive evidence in the audit process because of the belief that management is honest.

Which of the following represents the size of company that has historically committed fraudulent financial reporting or that has experienced asset misappropriation by its employees?