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

The Statement of Auditing Standards SAS No 1 states select the most correct answer: A. management is responsible for adopting sound accounting policies and for establishing and maintaining internal control consistent with management's assertions embodied in the financial statements. B. management is responsible for adopting sound accounting policies which will result in adequate protection of entrusted assets. C. management is responsible for adopting sound accounting principles which will result in accurate and proper financial statements. D. management is responsible for adopting sound internal control policies which will protect entity assets from reasonable loss and damage.

Overall, management must design, implement, and maintain:

Define the terms fraud prevention, fraud deterrence, and fraud detection and identify issues of timing.

In very few cases will a company fall under the purview of more than one set of regulations or taxing authorities influences.

Management need not develop a methodology to measure their performance since this is done with the released annual financial statements.

Earnings management below a threshold value may be judged immaterial.

The public perception of independent auditors, particularly with regard to asset misappropriation, corruption, and misstated financial statements, is that:

The Sarbanes-Oxley Act of 2002, in particular section 404:

An auditor's opinion of:

What is the "expectations gap"?

FASB 2 defines materiality as the "magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement."