Question 1

With regard to the review of accounting estimates:

Accepted Answer

A)  prior years' estimates should be examined for consistency. 
B)  significant changes in estimating procedures are prohibited. 
C)  the concealment of fraud through estimates is hard since all estimates can be directly tied to the individual responsible for them. 
D)  All of the choices are correct. 
A)  prior years' estimates should be examined for consistency. 
B)  significant changes in estimating procedures are prohibited. 
C)  the concealment of fraud through estimates is hard since all estimates can be directly tied to the individual responsible for them. 
D)  All of the choices are correct.

Question 2

SAS No. 99 lists several steps in considering the risk of fraud in a financial statement audit. All of the following are correctly stated except:

Accepted Answer

A)  Auditors must brainstorm with the key personnel of both the internal and independent audit teams to plan a strategy to detect fraud. 
B)  Auditors must evaluate the audit evidence throughout the audit and respond to any identified misstatements. 
C)  Auditors must determine the types of fraud risks that exist. 
D)  Auditors are required to report all fraud to an appropriate level of management. 
A)  Auditors must brainstorm with the key personnel of both the internal and independent audit teams to plan a strategy to detect fraud. 
B)  Auditors must evaluate the audit evidence throughout the audit and respond to any identified misstatements. 
C)  Auditors must determine the types of fraud risks that exist. 
D)  Auditors are required to report all fraud to an appropriate level of management.

Question 3

The primary responsibility to oversee management and direct the internal audit and the external auditor with regard to the organization's internal controls over financial reporting and the company's internal control processes rests with the:

Accepted Answer

A)  external audit committee. 
B)  independent auditors. 
C)  president/CEO. 
D)  board of directors and/or the audit committee if one exists. 
A)  external audit committee. 
B)  independent auditors. 
C)  president/CEO. 
D)  board of directors and/or the audit committee if one exists.

Question 4

What is the role of the external auditor in the financial reporting process?

Accepted Answer

The auditor's role is to attest to the f

Question 5

Audit committees generally have the right to all of the following except:

Accepted Answer

A)  retain legal counsel, investigators, and forensic accountants. 
B)  take testimony of employees under oath. 
C)  retain nonauditor accountants. 
D)  retain other professional advisors as necessary to carry out their duties. 
A)  retain legal counsel, investigators, and forensic accountants. 
B)  take testimony of employees under oath. 
C)  retain nonauditor accountants. 
D)  retain other professional advisors as necessary to carry out their duties.

Question 6

A scientist has an unlimited water supply and two buckets; one holds four gallons and the other holds nine gallons. By using nothing but the buckets and water, how can she accurately measure seven gallons of water?

Accepted Answer

Use the 4 gallon bucket to fill the 9 ga

Question 7

Even though independent auditors are "independent," management is still responsible for cooperation in order for them to complete their work.

Accepted Answer

A) True 
 B)False

Question 8

When using red flags as a basis for further investigation:

Accepted Answer

A)  each fraud will have some unique attributes. 
B)  each fraud has common elements making identification easier. 
C)  red flags prove of very limited value due to their massive number in day-to-day operations. 
D)  All of the choices are correct. 
A)  each fraud will have some unique attributes. 
B)  each fraud has common elements making identification easier. 
C)  red flags prove of very limited value due to their massive number in day-to-day operations. 
D)  All of the choices are correct.

Question 9

Targeted fraud risk assessment is consistent with the PCAOB's Auditing Standard No. 5 AS5 which:

Accepted Answer

A)  requires a top down approach. 
B)  requires the audit team to hold a brainstorming session at the beginning of each investigation to determine who has the ability to commit the potential fraud. 
C)  requires the board of directors to review the internal controls of the entity when fraud of a material amount is detected. 
D)  requires the audit committee report directly to the independent auditor. 
A)  requires a top down approach. 
B)  requires the audit team to hold a brainstorming session at the beginning of each investigation to determine who has the ability to commit the potential fraud. 
C)  requires the board of directors to review the internal controls of the entity when fraud of a material amount is detected. 
D)  requires the audit committee report directly to the independent auditor.

Question 10

The major approaches to fraud detection are through: 
I. Red flags that ultimately point to problems underlying the foundation upon which transactions are recorded.
II. Whistleblowers.
III. Targeted risk assessment.

Accepted Answer

A)  I and II. 
B)  II and III. 
C)  I and III. 
D)  I, II, and III. 
A)  I and II. 
B)  II and III. 
C)  I and III. 
D)  I, II, and III.

Question 11

The first step to detecting fraud is to:

Accepted Answer

A)  build an internal control system. 
B)  establish an audit committee and identify its authority. 
C)  seek out red flag transactions and possible anomalies. 
D)  build an understanding of the organization and the environment in which it operates. 
A)  build an internal control system. 
B)  establish an audit committee and identify its authority. 
C)  seek out red flag transactions and possible anomalies. 
D)  build an understanding of the organization and the environment in which it operates.

Question 12

Unusual behaviors such as irritability or the inability to relax are examples of analytical anomalies..

Accepted Answer

A) True 
 B)False

Question 13

Illegal acts have materiality thresholds and require that auditors pay close attention to their nature and corresponding consequences to the company.

Accepted Answer

A) True 
 B)False

Question 14

Accounting principles and policies:

Accepted Answer

A)  were designed to provide some degree of choice to management. 
B)  are"one-size-fits-all" to ensure comparability between companies. 
C)  preclude using GAAP compliant alternatives to manage income. 
D)  None of the choices are correct. 
A)  were designed to provide some degree of choice to management. 
B)  are"one-size-fits-all" to ensure comparability between companies. 
C)  preclude using GAAP compliant alternatives to manage income. 
D)  None of the choices are correct.

Question 15

What are some red flags that may indicate that fraud is occurring?

Accepted Answer

The red flags that can lead to a formal

Question 16

The company should communicate its expectations and commitment to honest and ethical behavior to vendors, suppliers, customers, contractors, and others who do business with the organization.

Accepted Answer

A) True 
 B)False

Question 17

Journal entries of concern include:

Accepted Answer

A)  entries made by accounting personnel. 
B)  entries made by members of senior management. 
C)  routine accrual entries prepared at year-end. 
D)  All of the choices are correct. 
A)  entries made by accounting personnel. 
B)  entries made by members of senior management. 
C)  routine accrual entries prepared at year-end. 
D)  All of the choices are correct.

Question 18

The foundation behind the use of nonfinancial information for fraud detection is that:

Accepted Answer

A)  prenumbered forms function as fraud deterrents. 
B)  the more data available, the harder it is to conceal fraud. 
C)  every accounting event has a quantity of units associated with it. 
D)  the world revolves around quantities and prices. 
A)  prenumbered forms function as fraud deterrents. 
B)  the more data available, the harder it is to conceal fraud. 
C)  every accounting event has a quantity of units associated with it. 
D)  the world revolves around quantities and prices.

Question 19

An independent auditor's "adverse" opinion on financial statements indicates the auditors have completed their work and are concerned with the "going concern" aspects of the audited entity.

Accepted Answer

A) True 
 B)False

Question 20

Most of a company's information systems feed directly into the general ledger and other aspects of the accounting system.

Accepted Answer

A) True 
 B)False

With regard to the review of accounting estimates:

SAS No. 99 lists several steps in considering the risk of fraud in a financial statement audit. All of the following are correctly stated except:

The primary responsibility to oversee management and direct the internal audit and the external auditor with regard to the organization's internal controls over financial reporting and the company's internal control processes rests with the:

What is the role of the external auditor in the financial reporting process?

Audit committees generally have the right to all of the following except:

A scientist has an unlimited water supply and two buckets; one holds four gallons and the other holds nine gallons. By using nothing but the buckets and water, how can she accurately measure seven gallons of water?

Even though independent auditors are "independent," management is still responsible for cooperation in order for them to complete their work.

When using red flags as a basis for further investigation:

Targeted fraud risk assessment is consistent with the PCAOB's Auditing Standard No. 5 AS5 which:

The major approaches to fraud detection are through: I. Red flags that ultimately point to problems underlying the foundation upon which transactions are recorded. II. Whistleblowers. III. Targeted risk assessment.

The first step to detecting fraud is to:

Unusual behaviors such as irritability or the inability to relax are examples of analytical anomalies..

Illegal acts have materiality thresholds and require that auditors pay close attention to their nature and corresponding consequences to the company.

Accounting principles and policies:

What are some red flags that may indicate that fraud is occurring?

The company should communicate its expectations and commitment to honest and ethical behavior to vendors, suppliers, customers, contractors, and others who do business with the organization.

Journal entries of concern include:

The foundation behind the use of nonfinancial information for fraud detection is that:

An independent auditor's "adverse" opinion on financial statements indicates the auditors have completed their work and are concerned with the "going concern" aspects of the audited entity.

Most of a company's information systems feed directly into the general ledger and other aspects of the accounting system.

Core Foundation Related to Fraud Examination and Financial Forensics

Careers in Fraud Examination and Financial Forensics

Who Commits Fraud and Why: Criminology and Ethics

Complex Frauds and Financial Crimes

Cybercrime: Computer and Internet Fraud

Legal, Regulatory, and Professional Environment

Detection and Investigations

Effective Interviewing and Interrogation

Using Information Technology for Fraud Examination and Financial Forensics

Cash Receipt Schemes and Other Asset Misappropriations

Cash Disbursement Schemes

Corruption and the Human Factor

Financial Statement Fraud

Consulting, Litigation Support, and Expert Witnesses: Damages, Valuations, and Other Engagements

Remediation and Litigation Advisory Services

Filters

Exam 7: Fraud Detection: Red Flags and Targeted Risk Assessment

With regard to the review of accounting estimates:

SAS No. 99 lists several steps in considering the risk of fraud in a financial statement audit. All of the following are correctly stated except:

The primary responsibility to oversee management and direct the internal audit and the external auditor with regard to the organization's internal controls over financial reporting and the company's internal control processes rests with the:

What is the role of the external auditor in the financial reporting process?

Audit committees generally have the right to all of the following except:

A scientist has an unlimited water supply and two buckets; one holds four gallons and the other holds nine gallons. By using nothing but the buckets and water, how can she accurately measure seven gallons of water?

Even though independent auditors are "independent," management is still responsible for cooperation in order for them to complete their work.

When using red flags as a basis for further investigation:

Targeted fraud risk assessment is consistent with the PCAOB's Auditing Standard No. 5 AS5 which:

The major approaches to fraud detection are through: I. Red flags that ultimately point to problems underlying the foundation upon which transactions are recorded. II. Whistleblowers. III. Targeted risk assessment.

The first step to detecting fraud is to:

Unusual behaviors such as irritability or the inability to relax are examples of analytical anomalies..

Illegal acts have materiality thresholds and require that auditors pay close attention to their nature and corresponding consequences to the company.

Accounting principles and policies:

What are some red flags that may indicate that fraud is occurring?

The company should communicate its expectations and commitment to honest and ethical behavior to vendors, suppliers, customers, contractors, and others who do business with the organization.

Journal entries of concern include:

The foundation behind the use of nonfinancial information for fraud detection is that:

An independent auditor's "adverse" opinion on financial statements indicates the auditors have completed their work and are concerned with the "going concern" aspects of the audited entity.

Most of a company's information systems feed directly into the general ledger and other aspects of the accounting system.

Core Foundation Related to Fraud Examination and Financial Forensics

Careers in Fraud Examination and Financial Forensics

Who Commits Fraud and Why: Criminology and Ethics

Complex Frauds and Financial Crimes

Cybercrime: Computer and Internet Fraud

Legal, Regulatory, and Professional Environment

Detection and Investigations

Effective Interviewing and Interrogation

Using Information Technology for Fraud Examination and Financial Forensics

Cash Receipt Schemes and Other Asset Misappropriations

Cash Disbursement Schemes

Corruption and the Human Factor

Financial Statement Fraud

Consulting, Litigation Support, and Expert Witnesses: Damages, Valuations, and Other Engagements

Remediation and Litigation Advisory Services

Filters