Exam 4: Management Fraud and Audit Risk

Which of the following is an acceptable response to fraud risks related to sales that were identified in an audit?

Which of the following accounts tends to be most predictable for purposes of analytical procedures?

Analytical procedures used in planning an audit should focus on

When an auditor increases the planned assessed level of control risk because certain control activities were determined to be ineffective,the auditor would most likely increase the

When determining the inherent risk related to an account balance,an auditor theoretically does not explicitly consider the

Which of the following information that comes to an auditor's attention most likely would raise a question about the occurrence of illegal acts?

Managing Business Risk is the responsibility of

Why is it important for auditors to understand their clients' business risks?

Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data.The primary purpose of analytical procedures conducted during the planning stages is to

Auditors would use the Enterprise Risk Model.

Horizontal analysis refers to

Items 1 through 6 represent an auditor's observed changes in certain financial statement ratios or amounts from the prior year's ratios or amounts.For each observed change,select the most likely explanation or explanations from the list of explanations provided.Answers on the list may be selected once,more than once,or not at all. Auditor's observed changes (considered independent of each other). 1.Inventory turnover increased substantially from the prior year.(Select 3 explanations) 2.Accounts receivable turnover decreased substantially from the prior year.(Select 3 explanations) 3.Allowance for doubtful accounts increased from the prior year,but allowance for doubtful accounts as a percentage of accounts receivable decreased from the prior year.(Select 3 explanations) 4.Long term debt increased from the prior year,but interest expense increased a larger than proportionate amount than long term debt.(Select 1 explanation) 5.Operating income increased from the prior year although the entity was less profitable than in the prior year.(Select 2 explanations) 6.Gross margin percentage was unchanged from the prior year although gross margin increased from the prior year.(Select 1 explanation) Explanations A.Items shipped on consignment during the last month of the year were recorded as sales. B.A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded. C.Year end purchases of inventory were overstated by incorrectly including items received in the first month of the subsequent year. D.Year end purchases of inventory were understated by incorrectly excluding items received before the year-end. E.A larger percentage of sales occurred during the last month of the year,as compared to the prior year. F.A smaller percentage of sales occurred during the last month of the year,as compared to the prior year. G.The same percentage of sales occurred during the last month of the year,as compared to the prior year. H.Sales increased at the same percentage as cost of goods sold,as compared to the prior year. I.Sales increased at a greater percentage than cost of goods sold increased,as compared to the prior year. J.Sales increased at a lower percentage than cost of goods sold increased,as compared to the Prior year. K.Interest expense decreased,as compared to the prior year. L.The effective income tax rate increased,as compared to the prior year. M.The effective income tax rate decreased,as compared to the prior year. N.Short term borrowing was refinanced on a long-term basis at the same interest rate. O.Short term borrowing was refinanced on a long-term basis at lower interest rates. P.Short term borrowing was refinanced on a long-term basis at higher interest rates.

Sources of financial and nonfinancial data in do not include

Inherent risk is the

While performing an audit of the financial statements of a company for the year ended December 31,year 1,the auditor notes that the company's sales increased substantially in December,year 1,with a corresponding decrease in January,year 2.In assessing the risk of fraudulent financial reporting or misappropriation of assets,what should be the auditor's initial indication about the potential for fraud in sales revenue?

For audits of financial statements made in accordance with generally accepted auditing standards,the use of analytical procedures is required to some extent.

Which of the following would not be considered an analytical procedure?

Jones,CPA,is auditing the financial statements of XYZ Retailing Inc.What assurance does Jones provide that direct effect noncompliance that is material to XYZ's financial statements,and noncompliance that has a material,but indirect effect on the financial statements will be detected?

While performing interim audit procedures of accounts receivable,numerous unexpected errors are found resulting in a change of risk assessment.Which of the following audit responses would be most appropriate?

The probability that an audit team will give an inappropriate opinion on financial statements best describes