Exam 5: Fraud in Financial Statements and Auditor Responsibilities

Which of the following summarizes the essence of general standards of GAAS?

If the financial statements are not materially misstated,the auditor should give a(an):

The auditors' determination of whether the financial statements "present fairly" is based on:

The primary issue in the Rooster,Hen,Footer and Burger case is:

Which of the following is the most likely reason for an auditor to issue an adverse opinion?

The purpose of the fraud triangle is to identify:

The framework of COSO's Enterprise Risk Management can best be characterized as:

Explain each of the three sides of the fraud triangle with respect to how it contributes toward the possibility that fraud in the financial statements may be present.Are there differences with respect to how each element might influence occupational fraud and fraudulent financial statements? Explain. One of the older and more basic concepts in fraud deterrence and detection is the "fraud triangle." While researching his doctoral thesis in the 1950s,famed criminologist Donald R.Cressey came up with this hypothesis to explain why people commit fraud. The three key elements in the fraud triangle are opportunity,motivation,and rationalization.Opportunity is the element over which business owners have the most control.Limiting opportunities for fraud is one way a company can reduce it. The opportunity to commit fraud is possible when employees have access to assets and information that allows them to both commit and conceal fraud typically because of weak internal controls including a lack of segregation of duties or oversight.Top management typically overrides the controls when committing financial statements fraud while employees may use the weaknesses to their advantage in perpetrating fraud. Motivation is a pressure or a "need" felt by the person who commits fraud.It might be a personal financial or other type of need,such as high medical bills or debts,or as a result of bad personal habits as occurred in ZZZZ Best and Tyco where CEOs misappropriated company resources for personal gain. Motivators can also be financial oriented that affects business results.Pressures may exist to meet or exceed financial analysts' earnings estimates or to qualify for high bonuses and/or to inflate share prices and make stock options more valuable. Lastly,employees may rationalize this behavior by determining that committing fraud is OK for a variety of reasons.For those who are generally dishonest,it's probably easier to rationalize a fraud.For those with higher moral standards,it's probably not so easy.They have to convince themselves that fraud is OK with "excuses" for their behavior. Common rationalizations include making up for being underpaid or replacing a bonus that was deserved but not received.A thief may convince himself that he is just "borrowing" money from the company and will pay it back one day.Some embezzlers tell themselves that the company doesn't need the money or won't miss the assets.Others believe that the company "deserves" to have money stolen because of bad acts against employees. Business owners and executives must take control of fraud by working on the portion of the fraud triangle over which they have the most control: the opportunity to commit fraud.It may be difficult for management to do anything about an employee's needs or rationalizations,but by limiting opportunities for fraud,the company can reduce it to some extent. This question provides an opportunity to review the GVV reasons and rationalizations framework. As you read the case,think about the following series of questions for the protagonist to address after identifying the right thing to do including: •How can they get it done effectively and efficiently? •What do they need to say,to whom,and in what sequence? •What will the objections or push-back be and,then, •What would they say next? What data and examples do they need?

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:

Because of the risk of material misstatement due to improper management representations,an audit of financial statements in accordance with GAAS should be performed with:

Which of the following is an element of ERM?

Explain the circumstances under which an auditor should give each of the following opinions: (a) Unmodified opinion (b) Unmodified opinion with an emphasis-of-matter paragraph (c) Qualified opinion (d) Adverse opinion

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

The auditor's responsibility with regard to illegal acts is greatest when:

What is the purpose of having required auditor communications between the external auditor and the audit committee?

Auditors are responsible to detect and correct errors when they are:

Campus Fast is a new audit client.Client Fast uses public WiFi to place and deliver restaurant take out for students at the Up and Coming State University.Campus Fast was founded by three highly ambitious MBA students at the university.The business plan is to find a buyer or place an IPO of the company by graduation in two years.The founders expect to pay off all student loans,take a tour around the world and then start another company.In order for the business plan to work on the timeline for graduation,the business must meet highly ambitious earnings numbers.Additionally,the company is dealing with two situations that the founders would like to keep from the auditors: 1) The company has been using free,unsecured public WiFi to take orders via the Internet.The customer may pay via the Internet.Several students,who all happen to be members of the same student organization on campus,are claiming that using Campus Fast has allowed their identity to be stolen.One student is claiming that she had $12,000 of charges on her credit card to the unsecured Internet site of Campus Fast.Management plans to pay off the complaining students and keep the true liability off the balance sheet.The reason is Campus Fast is concerned that an interested buyer may become concerned about the unsecured site and might get scared by the student complaints. 2) The company guarantees fast delivery.It has offered to pay any speeding or other moving violation tickets to its delivery drivers.Unfortunately,one of the drivers was involved in an accident due to running a red light.The passenger in the other car is in critical condition and the intensive care unit in the hospital.The driver has promised the family of the passenger that the company will make good on any expenses and admitted the company policy on repaying all traffic tickets.Attorneys for the injured party are threatening to sue and publicize the situation.The founders do not have enough cash to take care of this problem but are still trying to keep the situation from the auditors and potential buyer. Using the internal control framework assess the internal controls at Campus Fast and risk environment.

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

Bill Young's ethical dilemma was: