Exam 4: Management Fraud and Audit Risk

_____________________________________ is the term used to refer to violations of laws and regulations that are _______________________________ from financial statement effects.

In the planning stage,analytical procedures are not used to

For each of the descriptions 1-4,match the correct word or words from A-L.

Frauds are unintentional misstatements or omissions of accounts or disclosures in financial statements.

The major emphasis in GAAS related to consideration of fraud in a financial statement audit (AU 240)is on:

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

In an overall sense,_________________________________ is the probability that a public accounting firm will give an inappropriate opinion on financial statements.

Auditing standards (specifically AU 240)require that auditors specifically assess the risk of _______________________________ due to fraud for each engagement.

Certain conditions and circumstances are often present when management fraud occurs.Which of the following is not such a condition or circumstance?

Auditors perform analytical procedures in the planning stage of an audit for the purpose of

Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the expectations (estimates)developed by the auditor.If management is unable to provide an acceptable explanation,the auditor should

Auditors are responsible for the quality of the work related to management and control of

The purpose of an audit strategy is

Auditing standards require that analytical procedures be applied in the beginning stages of each audit.

Analytical procedures are one type of evidence-gathering procedure.According to auditing standards,there are five general forms of analytical procedures.Auditing standards also provide examples of five sources of information for analytical procedures. Required: Describe three of the five general forms of analytical procedures.For each form,describe a typical source of the information for the form.For each source,include any questions or concerns an auditor would have about the reliability or relevancy of the source.

Post,CPA,accepted an engagement to audit the financial statements of General Co.,a new client.General is a publicly held retailing entity that recently replaced its operating management.In the course of applying audit procedures,Post discovered that General's financial statements might be materially misstated due to the existence of fraud. Required: A.Describe post's responsibilities in the circumstances described above. B.Describe post's responsibilities for reporting on general's financial statements and other communications if post is precluded from applying necessary procedures in searching for frauds. C.Describe post's responsibilities for reporting on general's financial statements and other communications if post concludes that general's financial statements are materially affected by frauds.(AICPA adapted)

Fraud consists of knowingly making material misrepresentation of fact with the intent of inducing someone to believe the falsehood and suffer a loss.

This question tests your ability to perceive the place(s)where various potential problems may exist and the type of problem (overstatement or understatement)that may exist.It asks that you supply the words or descriptions that complete the analyses begun by applying analytical procedures. Required: For each of the items below,identify the account or accounts that need to be audited carefully and the reason (i.e.,potential overstatement or understatement of ______). a.If the current-year accounts receivable are larger than last year but the allowance for doubtful accounts is the same. b.If the current-year inventory is larger than last year and the current-year gross margin (profit)is larger. c.If current-year long-term liabilities are larger than last year and the interest expense is the same. d.If current-year fixed assets are larger and current depreciation expense is the same as last year.

Analytical procedures can be used in which of the following ways?

The audit risk model assumes that elements of audit risk are independent and therefore multiplicative.