Question 1

Which of the following is not a category of inquiry used by auditors?

Accepted Answer

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

Question 2

Which of the following does not represent an increased opportunity to commit fraud?

Accepted Answer

A)  Related party transactions 
B)  The company founder is the CEO and Chairman of the Board. 
C)  The financial statements involve accounting estimates. 
D)  The company is a new audit client for the CPA firm. 
A)  Related party transactions 
B)  The company founder is the CEO and Chairman of the Board. 
C)  The financial statements involve accounting estimates. 
D)  The company is a new audit client for the CPA firm.

Question 3

List and briefly describe the three conditions for fraud.

Accepted Answer

•Incentives/pressures - Management or ot

Question 4

________ is fraud that involves theft of an entity's assets.

Accepted Answer

A)  Fraudulent financial reporting 
B)  A "cookie jar" reserve 
C)  Misappropriation of assets 
D)  Income smoothing 
A)  Fraudulent financial reporting 
B)  A "cookie jar" reserve 
C)  Misappropriation of assets 
D)  Income smoothing

Question 5

Analytical procedures can be very effective in detecting inventory fraud.Which of the following analytical procedures would not be useful in detecting fraud?

Accepted Answer

A)  Gross margin percentage 
B)  Inventory Turnover 
C)  Cost of sales percentage 
D)  Accounts receivable turnover 
A)  Gross margin percentage 
B)  Inventory Turnover 
C)  Cost of sales percentage 
D)  Accounts receivable turnover

Question 6

As part of the brainstorming sessions,auditors are directed to emphasize:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 7

Which of the following is a correct statement regarding the misappropriation of receipts involving revenue?

Accepted Answer

A)  One of the easiest frauds to detect is when a sale is not recorded and the cash from the sale is stolen. 
B)  If a customer's payment is stolen, regular billing of unpaid accounts can uncover the fraud unless the fraud perpetrator does something to hide the theft. 
C)  Misappropriation of cash receipts is generally as material as fraudulent reporting of revenues. 
D)  Analytical procedures can detect relatively small thefts of sales and related cash receipts. 
A)  One of the easiest frauds to detect is when a sale is not recorded and the cash from the sale is stolen. 
B)  If a customer's payment is stolen, regular billing of unpaid accounts can uncover the fraud unless the fraud perpetrator does something to hide the theft. 
C)  Misappropriation of cash receipts is generally as material as fraudulent reporting of revenues. 
D)  Analytical procedures can detect relatively small thefts of sales and related cash receipts.

Question 8

Management and the board of directors are responsible for setting the "tone at the top."

Accepted Answer

A) True 
 B)False

Question 9

Fraudulent financial reporting usually involves manipulation of amounts rather than disclosures.

Accepted Answer

A) True 
 B)False

Question 10

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Accepted Answer

The three main types of revenue manipula

Question 11

Which of the following is least likely to uncover fraud?

Accepted Answer

A)  External auditors 
B)  Internal auditors 
C)  Internal controls 
D)  Management 
A)  External auditors 
B)  Internal auditors 
C)  Internal controls 
D)  Management

Question 12

Who is most likely to perpetrate fraudulent financial reporting?

Accepted Answer

A)  Members of the board of directors 
B)  Production employees 
C)  Management of the company 
D)  The internal auditors 
A)  Members of the board of directors 
B)  Production employees 
C)  Management of the company 
D)  The internal auditors

Question 13

Interrogative inquiry is often confrontational.

Accepted Answer

A) True 
 B)False

Question 14

The auditors should pay careful attention to accounting principles that involve subjective measurements or complex transactions.

Accepted Answer

A) True 
 B)False

Question 15

When dealing with revenue frauds:

Accepted Answer

A)  the most egregious form of revenue fraud involves premature revenue recognition. 
B)  premature revenue recognition involves recognizing the revenue after the accounting standards requirements have been met. 
C)  premature revenue recognition is the same as cutoff errors. 
D)  side agreements can modify the terms of the sales transaction and should be analyzed carefully. 
A)  the most egregious form of revenue fraud involves premature revenue recognition. 
B)  premature revenue recognition involves recognizing the revenue after the accounting standards requirements have been met. 
C)  premature revenue recognition is the same as cutoff errors. 
D)  side agreements can modify the terms of the sales transaction and should be analyzed carefully.

Question 16

To address heightened risks of fraud,the auditor can do all of the following except:

Accepted Answer

A)  use specialists to assist in evaluating the accuracy and reasonableness of management's key estimates. 
B)  decrease the amount of substantive tests. 
C)  use CL or IDEA to search for fictitious revenue transactions. 
D)  use EXCEL to perform analytical procedures at the disaggregated level. 
A)  use specialists to assist in evaluating the accuracy and reasonableness of management's key estimates. 
B)  decrease the amount of substantive tests. 
C)  use CL or IDEA to search for fictitious revenue transactions. 
D)  use EXCEL to perform analytical procedures at the disaggregated level.

Question 17

The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts.What procedures could the company take to prevent this type of fraud?

Accepted Answer

Allowing payments to be made only to app

Question 18

Two of the most useful warning signals that can indicate that revenue fraud is occurring are:

Accepted Answer

A)  analytical procedures and documentary discrepancies. 
B)  analytical procedures and misappropriation of assets. 
C)  documentary discrepancies and vague responses to inquiries. 
D)  missing audit evidence and vague responses to inquiries. 
A)  analytical procedures and documentary discrepancies. 
B)  analytical procedures and misappropriation of assets. 
C)  documentary discrepancies and vague responses to inquiries. 
D)  missing audit evidence and vague responses to inquiries.

Question 19

Fictitious revenues:

Accepted Answer

A)  increase accounts receivable turnover. 
B)  understate the gross margin percentage. 
C)  lower accounts receivable turnover. 
D)  have no impact on the gross margin percentage. 
A)  increase accounts receivable turnover. 
B)  understate the gross margin percentage. 
C)  lower accounts receivable turnover. 
D)  have no impact on the gross margin percentage.

Question 20

Which of the following is a factor that relates to attitudes or rationalization to commit fraudulent financial reporting?

Accepted Answer

A)  Significant accounting estimates involving subjective judgments 
B)  Excessive pressure for management to meet debt repayment requirements 
C)  Management's practice of making overly aggressive forecasts to third parties 
D)  High turnover of accounting, internal audit and information technology staff 
A)  Significant accounting estimates involving subjective judgments 
B)  Excessive pressure for management to meet debt repayment requirements 
C)  Management's practice of making overly aggressive forecasts to third parties 
D)  High turnover of accounting, internal audit and information technology staff

Exam 11: Considering the Risk of Fraud

Which of the following is not a category of inquiry used by auditors?

Which of the following does not represent an increased opportunity to commit fraud?

List and briefly describe the three conditions for fraud.

________ is fraud that involves theft of an entity's assets.

Analytical procedures can be very effective in detecting inventory fraud.Which of the following analytical procedures would not be useful in detecting fraud?

As part of the brainstorming sessions,auditors are directed to emphasize:

Which of the following is a correct statement regarding the misappropriation of receipts involving revenue?

Management and the board of directors are responsible for setting the "tone at the top."

Fraudulent financial reporting usually involves manipulation of amounts rather than disclosures.

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Which of the following is least likely to uncover fraud?

Who is most likely to perpetrate fraudulent financial reporting?

Interrogative inquiry is often confrontational.

The auditors should pay careful attention to accounting principles that involve subjective measurements or complex transactions.

When dealing with revenue frauds:

To address heightened risks of fraud,the auditor can do all of the following except:

The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts.What procedures could the company take to prevent this type of fraud?

Two of the most useful warning signals that can indicate that revenue fraud is occurring are:

Fictitious revenues:

Which of the following is a factor that relates to attitudes or rationalization to commit fraudulent financial reporting?

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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