Question 1

Which of the following statements is correct with respect to the elements of the "fraud triangle"?

Accepted Answer

A)  Motive is a cause that pressures people into action. 
B)  Opportunity refers to a situation that allows someone with motive to carry out fraud. 
C)  A lack of integrity describes a person who does not stick to the social or organizational ethical code. 
D)  Fraud is most common when these three factors exist together. 
E)  All of these statements are correct. 
A)  Motive is a cause that pressures people into action. 
B)  Opportunity refers to a situation that allows someone with motive to carry out fraud. 
C)  A lack of integrity describes a person who does not stick to the social or organizational ethical code. 
D)  Fraud is most common when these three factors exist together. 
E)  All of these statements are correct.

Question 2

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using

Accepted Answer

A)  employee fidelity bonds. 
B)  independently prepared mailroom prelists. 
C)  daily check summaries. 
D)  a bank lockbox system. 
A)  employee fidelity bonds. 
B)  independently prepared mailroom prelists. 
C)  daily check summaries. 
D)  a bank lockbox system.

Question 3

Which of the following is not considered one of the three factors increasing the probability of fraud?

Accepted Answer

A)  Motive 
B)  Lack of training 
C)  Opportunity 
D)  Rationalization 
A)  Motive 
B)  Lack of training 
C)  Opportunity 
D)  Rationalization

Question 4

At the end of each business day,Safe Company sends its bank a listing of all checks written during the day including the check number,payee,and amount.When a check is sent to the bank for payment the bank compares the payee and the amount with the listing provided by Safe Company.This system is called

Accepted Answer

A)  PayChex. 
B)  Pay-As-You-Go. 
C)  Positive Pay. 
D)  Pay Master. 
A)  PayChex. 
B)  Pay-As-You-Go. 
C)  Positive Pay. 
D)  Pay Master.

Question 5

If the amount of a check is altered by an employee after it has cleared the bank,the change can be detected by

Accepted Answer

A)  comparing the amount written on the check face to the amount written in the cash disbursements journal. 
B)  comparing the magnetic imprint of the amount paid to the amount written on the check face. 
C)  examining the endorsement on the back of the check. 
D)  comparing the check number on the face of the check to the check number in the cash disbursements journal. 
A)  comparing the amount written on the check face to the amount written in the cash disbursements journal. 
B)  comparing the magnetic imprint of the amount paid to the amount written on the check face. 
C)  examining the endorsement on the back of the check. 
D)  comparing the check number on the face of the check to the check number in the cash disbursements journal.

Question 6

In order for auditors to be able to recognize potential fraud,they must be aware of the basic characteristics of fraud.Which of the following is not a characteristic of fraud?

Accepted Answer

A)  Intentional deception 
B)  Taking unfair or dishonest advantage of other people 
C)  Perpetration for the benefit or detriment of the organization 
D)  Negligence on the part of executive management 
A)  Intentional deception 
B)  Taking unfair or dishonest advantage of other people 
C)  Perpetration for the benefit or detriment of the organization 
D)  Negligence on the part of executive management

Question 7

In the audit of cash the auditor obtains a bank cutoff statement primarily to

Accepted Answer

A)  identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash. 
B)  obtain sufficient information to reconcile the client's bank account as of year-end. 
C)  obtain direct confirmation of the client's bank balances as of year-end. 
D)  test the propriety of items appearing on the client's year-end bank reconciliation. 
A)  identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash. 
B)  obtain sufficient information to reconcile the client's bank account as of year-end. 
C)  obtain direct confirmation of the client's bank balances as of year-end. 
D)  test the propriety of items appearing on the client's year-end bank reconciliation.

Question 8

When you examine canceled checks returned in the bank statement by a client's bank,how could you tell whether the amount on the check had been skillfully raised (increased,say,from $75.00 to $7,500 in the amount box,and altered in the written line from "Seventy-five dollars" to "Seventy-five hundred dollars")after the check was cleared by the bank? (An employee might do this to "support" a $7,500 cash disbursement journal entry.)

Accepted Answer

The bank imprints the check wi

Question 9

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if

Accepted Answer

A)  the illegal act is a violation of generally accepted accounting principles. 
B)  the client does not take the remedial action that the auditor considers necessary. 
C)  the illegal act was committed during a prior year that was not audited. 
D)  the auditor has already assessed control risk at the maximum level. 
A)  the illegal act is a violation of generally accepted accounting principles. 
B)  the client does not take the remedial action that the auditor considers necessary. 
C)  the illegal act was committed during a prior year that was not audited. 
D)  the auditor has already assessed control risk at the maximum level.

Question 10

Most fraud investigators utilize the fraud triangle theory.A new theory called the fraud diamond has been proposed.Which of the following is an element of the fraud diamond and is not an element of the fraud triangle?

Accepted Answer

A)  Motive 
B)  Opportunity 
C)  Capability 
D)  Liquidity 
A)  Motive 
B)  Opportunity 
C)  Capability 
D)  Liquidity

Question 11

The mail which includes payments should be opened by two people.This control is called

Accepted Answer

A)  separation of duties. 
B)  joint custody. 
C)  anti-collusion. 
D)  lapping. 
A)  separation of duties. 
B)  joint custody. 
C)  anti-collusion. 
D)  lapping.

Question 12

Describe how a lockbox works and indicate the advantages of such a system.

Accepted Answer

A lockbox is a post office box under the

Question 13

When auditing financial statements and finding indications of a possible misappropriation of assets,independent auditors should

Accepted Answer

A)  investigate fully to determine the total amount of the misappropriation. 
B)  determine which accounts are affected and the amount by which they are overstated or understated. 
C)  determine the methods by which the misappropriation was carried out. 
D)  identify a person(s) who are likely responsible for the misappropriation and obtain evidence about some other fraud indications in their work. 
E)  all of these. 
A)  investigate fully to determine the total amount of the misappropriation. 
B)  determine which accounts are affected and the amount by which they are overstated or understated. 
C)  determine the methods by which the misappropriation was carried out. 
D)  identify a person(s) who are likely responsible for the misappropriation and obtain evidence about some other fraud indications in their work. 
E)  all of these.

Question 14

As payments are received,one mailroom employee is assigned the responsibility of prelisting receipts and preparing the deposit slip prior to forwarding the receipts,deposit slip,and remittance advices to accounts receivable for posting.Accounts receivable personnel re-foot the deposit slip,stamp a restrictive endorsement on the back of each check,and then forward the receipts and deposit slip to the treasury department.Evaluate the internal control of the described process.Which of the following is a reasonable assessment of internal control in this process?

Accepted Answer

A)  Adequate internal control 
B)  Inadequate internal control because mailroom employees should not have access to cash 
C)  Inadequate internal control because treasury employees should prepare the deposit slip 
D)  Inadequate internal control because of a lack of separation of duties 
A)  Adequate internal control 
B)  Inadequate internal control because mailroom employees should not have access to cash 
C)  Inadequate internal control because treasury employees should prepare the deposit slip 
D)  Inadequate internal control because of a lack of separation of duties

Question 15

Your client is in the process of acquiring another company.You have been requested to verify that cash for the company being acquired is properly stated.The audit technique that will yield the most persuasive evidence is

Accepted Answer

A)  examination of the company's escrow account. 
B)  interview with the company's treasurer and cash manager. 
C)  preparation and review of standard bank confirmation inquiries. 
D)  analytical computations comparing current cash in the bank with previous accounting periods. 
A)  examination of the company's escrow account. 
B)  interview with the company's treasurer and cash manager. 
C)  preparation and review of standard bank confirmation inquiries. 
D)  analytical computations comparing current cash in the bank with previous accounting periods.

Question 16

Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit,regardless of the year-end balances.A purpose of this procedure is to

Accepted Answer

A)  provide the data necessary to prepare a proof of cash. 
B)  request that a cutoff bank statement and related checks be sent to the audit. 
C)  detect questionable bank activities that may otherwise not be discovered. 
D)  seek information about contingent liabilities and security agreements. 
A)  provide the data necessary to prepare a proof of cash. 
B)  request that a cutoff bank statement and related checks be sent to the audit. 
C)  detect questionable bank activities that may otherwise not be discovered. 
D)  seek information about contingent liabilities and security agreements.

Question 17

Which of the following management policies would increase the probability of fraud in a company?

Accepted Answer

A)  Diversifying authority throughout divisions and subsidiaries in the organization 
B)  Measuring performance and awarding bonuses based on short-term operating results 
C)  Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work 
D)  Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts 
A)  Diversifying authority throughout divisions and subsidiaries in the organization 
B)  Measuring performance and awarding bonuses based on short-term operating results 
C)  Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work 
D)  Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts

Question 18

Micro Chip Corporation (MCC)has a special PO Box for customer payments.Jane is responsible for:
• going to the post office every day,
• emptying the post office box,
• opening the mail,
• making a prelist,
• sending the remittance advices to accounts receivable,and
• sending the checks to the cashier's office.
Jane has opening a business account at her bank for Master Cleaning Company (MCC).Several of Micro Chips checks are made out with only the initials MCC.Jane selects certain checks made out only with the initials MCC and deposits them in her business account.She would destroy the remittance advice.
1.Name two controls that would prevent or detect this fraud.
2.Name two audit procedures that might detect this fraud.

Accepted Answer

Controls include:
1.A separate person co

Question 19

An auditor wishes to perform tests of controls on a client's cash disbursements procedures.If the control activities leave no audit trail of documentary evidence,the auditor most likely will test the activities by

Accepted Answer

A)  confirmation and observation. 
B)  observation and inquiry. 
C)  analytical procedures and confirmation. 
D)  inquiry and analytical procedures. 
A)  confirmation and observation. 
B)  observation and inquiry. 
C)  analytical procedures and confirmation. 
D)  inquiry and analytical procedures.

Question 20

Each of the following is a type of known misstatement,except

Accepted Answer

A)  an inaccuracy in processing data. 
B)  the misapplication of accounting principles. 
C)  differences between management and the auditor's judgment regarding estimates. 
D)  a difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles. 
A)  an inaccuracy in processing data. 
B)  the misapplication of accounting principles. 
C)  differences between management and the auditor's judgment regarding estimates. 
D)  a difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles.

Which of the following statements is correct with respect to the elements of the "fraud triangle"?

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using

Which of the following is not considered one of the three factors increasing the probability of fraud?

If the amount of a check is altered by an employee after it has cleared the bank,the change can be detected by

In order for auditors to be able to recognize potential fraud,they must be aware of the basic characteristics of fraud.Which of the following is not a characteristic of fraud?

In the audit of cash the auditor obtains a bank cutoff statement primarily to

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if

Most fraud investigators utilize the fraud triangle theory.A new theory called the fraud diamond has been proposed.Which of the following is an element of the fraud diamond and is not an element of the fraud triangle?

The mail which includes payments should be opened by two people.This control is called

Describe how a lockbox works and indicate the advantages of such a system.

When auditing financial statements and finding indications of a possible misappropriation of assets,independent auditors should

Your client is in the process of acquiring another company.You have been requested to verify that cash for the company being acquired is properly stated.The audit technique that will yield the most persuasive evidence is

Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit,regardless of the year-end balances.A purpose of this procedure is to

Which of the following management policies would increase the probability of fraud in a company?

An auditor wishes to perform tests of controls on a client's cash disbursements procedures.If the control activities leave no audit trail of documentary evidence,the auditor most likely will test the activities by

Each of the following is a type of known misstatement,except

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 6: Employee Fraud and the Audit of Cash

Which of the following statements is correct with respect to the elements of the "fraud triangle"?

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using

Which of the following is not considered one of the three factors increasing the probability of fraud?

If the amount of a check is altered by an employee after it has cleared the bank,the change can be detected by

In order for auditors to be able to recognize potential fraud,they must be aware of the basic characteristics of fraud.Which of the following is not a characteristic of fraud?

In the audit of cash the auditor obtains a bank cutoff statement primarily to

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if

Most fraud investigators utilize the fraud triangle theory.A new theory called the fraud diamond has been proposed.Which of the following is an element of the fraud diamond and is not an element of the fraud triangle?

The mail which includes payments should be opened by two people.This control is called

Describe how a lockbox works and indicate the advantages of such a system.

When auditing financial statements and finding indications of a possible misappropriation of assets,independent auditors should

Your client is in the process of acquiring another company.You have been requested to verify that cash for the company being acquired is properly stated.The audit technique that will yield the most persuasive evidence is

Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit,regardless of the year-end balances.A purpose of this procedure is to

Which of the following management policies would increase the probability of fraud in a company?

An auditor wishes to perform tests of controls on a client's cash disbursements procedures.If the control activities leave no audit trail of documentary evidence,the auditor most likely will test the activities by

Each of the following is a type of known misstatement,except

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters