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

Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for all other engagements.

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?

How must an auditor address fraud in the planning stage?

Which of the following is not one of management's responsibilities?

Which of the following statements is true concerning the fraud risk model?

The objective of financial reporting is to provide useful information to interested users.

Corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization.

Who is responsible for operating an enterprise?

PCAOB Independence Standards. What are four requirements of the Sarbanes-Oxley that seek to protect auditor independence?

According to the PCAOB, the detection of material fraud is a reasonable expectation of users of audited financial statements.

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

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?

Management may feel pressure to maintain debt covenants, which is a deterrent to fraud.

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

Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit?

Managers of organizations are hired by Boards of Directors to perform responsibilities such as the implementation of internal control.

According to the Sarbanes-Oxley Act, which of the following items is the independent auditor required to report to the audit committee ?

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

According to the Sarbanes-Oxley Act, the audit committee must have at least 3 independent members.

Which of the following is a NYSE mandated guideline for corporate governance?