Question 1

Which of the following is the best reason for management to emphasize fraud prevention and deterrence?

Accepted Answer

A)  It is often more effective and economical for companies to focus on fraud prevention and deterrence rather than on fraud detection. 
B)  Collusion is impossible to detect. 
C)  The AICPA requires management to implement a fraud prevention program. 
D)  All of the above are equally valid reasons. 
A)  It is often more effective and economical for companies to focus on fraud prevention and deterrence rather than on fraud detection. 
B)  Collusion is impossible to detect. 
C)  The AICPA requires management to implement a fraud prevention program. 
D)  All of the above are equally valid reasons.

Question 2

When assessing the risk for fraud,the auditor must be cognizant of the fact that:

Accepted Answer

A)  the existence of fraud risk factors means fraud exists. 
B)  analytical procedures must be performed on revenue accounts. 
C)  horizontal analysis is not useful in helping to determine unusual financial statement relationships. 
D)  the auditor cannot make inquiries about fraud to company personnel who have no financial statement responsibilities. 
A)  the existence of fraud risk factors means fraud exists. 
B)  analytical procedures must be performed on revenue accounts. 
C)  horizontal analysis is not useful in helping to determine unusual financial statement relationships. 
D)  the auditor cannot make inquiries about fraud to company personnel who have no financial statement responsibilities.

Question 3

The "tone at the top" provides a foundation upon which a more detailed code of conduct can be developed to provide specific guidance for the organization and its employees.Components of a code of conduct may include sections on 1)general employee conduct,2)relationships with clients and suppliers and 3)conflicts of interest.Give a narrative description of what might be included in each of the above components of a code of conduct.

Accepted Answer

(may vary)
Employee conduct-Employees sh

Question 4

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present,even if the matter might be considered inconsequential?

Accepted Answer

A)  PCAOB 
B)  Audit committee 
C)  An appropriate level of management that is at least one level above those involved 
D)  The internal auditors 
A)  PCAOB 
B)  Audit committee 
C)  An appropriate level of management that is at least one level above those involved 
D)  The internal auditors

Question 5

Because fraud perpetrators are often knowledgeable about audit procedures,auditors should incorporate unpredictability into the audit plan.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following best defines fraud in a financial statement auditing context?

Accepted Answer

A)  Fraud is an unintentional misstatement of the financial statements. 
B)  Fraud is an intentional misstatement of the financial statements. 
C)  Fraud is either an intentional or unintentional misstatement of the financial statements, depending on materiality. 
D)  Fraud is either an intentional or unintentional misstatement of the financial statements, depending on consistency. 
A)  Fraud is an unintentional misstatement of the financial statements. 
B)  Fraud is an intentional misstatement of the financial statements. 
C)  Fraud is either an intentional or unintentional misstatement of the financial statements, depending on materiality. 
D)  Fraud is either an intentional or unintentional misstatement of the financial statements, depending on consistency.

Question 7

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets.

Accepted Answer

A) True 
 B)False

Question 8

A company is concerned with the theft of cash after the sale has been recorded.One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping?

Accepted Answer

A)  Reduce the customer's account by recording a sales return 
B)  Write off the customer's account 
C)  Apply the payment from another customer to the customer's account 
D)  Reduce the customer's account by recording a sales allowance 
A)  Reduce the customer's account by recording a sales return 
B)  Write off the customer's account 
C)  Apply the payment from another customer to the customer's account 
D)  Reduce the customer's account by recording a sales allowance

Question 9

Which of the following is not a likely source of information to assess fraud risks?

Accepted Answer

A)  Communications among audit team members 
B)  Inquiries of management 
C)  Analytical procedures 
D)  Consideration of fraud risks discovered during recent audits of other clients 
A)  Communications among audit team members 
B)  Inquiries of management 
C)  Analytical procedures 
D)  Consideration of fraud risks discovered during recent audits of other clients

Question 10

Which of the following is not a factor that relates to opportunities to misappropriate assets?

Accepted Answer

A)  Inadequate internal controls over assets 
B)  Presence of large amounts of cash on hand 
C)  Inappropriate segregation of duties or independent checks on performance 
D)  Adverse relationships between management and employees 
A)  Inadequate internal controls over assets 
B)  Presence of large amounts of cash on hand 
C)  Inappropriate segregation of duties or independent checks on performance 
D)  Adverse relationships between management and employees

Question 11

When the auditor suspects that fraud may be present,auditing standards require the auditor to:

Accepted Answer

A)  terminate the engagement with sufficient notice given to the client. 
B)  issue an adverse opinion or a disclaimer of opinion. 
C)  obtain additional evidence to determine whether material fraud has occurred. 
D)  re-issue the engagement letter. 
A)  terminate the engagement with sufficient notice given to the client. 
B)  issue an adverse opinion or a disclaimer of opinion. 
C)  obtain additional evidence to determine whether material fraud has occurred. 
D)  re-issue the engagement letter.

Question 12

A common incentive for companies to manipulate financial statements is a decline in the company's financial prospects.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

Accepted Answer

A)  Lack of controls related to the calculation and approval of accounting estimates 
B)  Ineffective oversight of financial reporting by the board of directors 
C)  Management's practice of making overly aggressive forecasts 
D)  High turnover of accounting, internal audit, and information technology staff 
A)  Lack of controls related to the calculation and approval of accounting estimates 
B)  Ineffective oversight of financial reporting by the board of directors 
C)  Management's practice of making overly aggressive forecasts 
D)  High turnover of accounting, internal audit, and information technology staff

Question 14

Fraud is more prevalent in smaller businesses and not-for-profit organizations because it is more difficult for them to maintain:

Accepted Answer

A)  adequate separation of duties. 
B)  adequate compensation. 
C)  adequate financial reporting standards. 
D)  adequate supervisory boards. 
A)  adequate separation of duties. 
B)  adequate compensation. 
C)  adequate financial reporting standards. 
D)  adequate supervisory boards.

Question 15

Senior management is responsible for promoting a culture of honesty and ethics.Describe what that implies for the organization.

Accepted Answer

Management cannot act one way and expect

Question 16

Describe the sources of information gathered to assess fraud risks.

Accepted Answer

When the auditor is assessing fraud risk

Question 17

Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?

Accepted Answer

A)  External auditors 
B)  Audit committee members 
C)  Management 
D)  Committee of Sponsoring Organizations 
A)  External auditors 
B)  Audit committee members 
C)  Management 
D)  Committee of Sponsoring Organizations

Question 18

Which of the following questions is the auditor not required to ask company management when assessing fraud risk?

Accepted Answer

A)  Does management have knowledge of any fraud or suspected fraud within the company? 
B)  What are the nature of the fraud risks identified by management? 
C)  Is management using all assets effectively? 
D)  What internal controls have been implemented to address the fraud risks? 
A)  Does management have knowledge of any fraud or suspected fraud within the company? 
B)  What are the nature of the fraud risks identified by management? 
C)  Is management using all assets effectively? 
D)  What internal controls have been implemented to address the fraud risks?

Question 19

________ inquiry is used to obtain information about facts and details that the auditor does not have,usually about past or current events or processes.

Accepted Answer

A)  Assessment 
B)  Declarative 
C)  Interrogative 
D)  Informational 
A)  Assessment 
B)  Declarative 
C)  Interrogative 
D)  Informational

Question 20

The two most common areas of fraud in payroll are the creation of fictitious employees and the overstatement of individual payroll hours.

Accepted Answer

A) True 
 B)False

Exam 11: Considering the Risk of Fraud

Which of the following is the best reason for management to emphasize fraud prevention and deterrence?

When assessing the risk for fraud,the auditor must be cognizant of the fact that:

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present,even if the matter might be considered inconsequential?

Because fraud perpetrators are often knowledgeable about audit procedures,auditors should incorporate unpredictability into the audit plan.

Which of the following best defines fraud in a financial statement auditing context?

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets.

A company is concerned with the theft of cash after the sale has been recorded.One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping?

Which of the following is not a likely source of information to assess fraud risks?

Which of the following is not a factor that relates to opportunities to misappropriate assets?

When the auditor suspects that fraud may be present,auditing standards require the auditor to:

A common incentive for companies to manipulate financial statements is a decline in the company's financial prospects.

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

Fraud is more prevalent in smaller businesses and not-for-profit organizations because it is more difficult for them to maintain:

Senior management is responsible for promoting a culture of honesty and ethics.Describe what that implies for the organization.

Describe the sources of information gathered to assess fraud risks.

Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?

Which of the following questions is the auditor not required to ask company management when assessing fraud risk?

________ inquiry is used to obtain information about facts and details that the auditor does not have,usually about past or current events or processes.

The two most common areas of fraud in payroll are the creation of fictitious employees and the overstatement of individual payroll hours.

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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