Question 1

What are the typical conditions or circumstances that often accompany fraudulent financial reporting by management?

Accepted Answer

High debt, unfavourable industry conditi

Question 2

Internal control includes ________.

Accepted Answer

A)  control activities and inherent risks 
B)  information systems and external influences 
C)  the control environment and risk assessment processes 
D)  financial reporting and control activities 
A)  control activities and inherent risks 
B)  information systems and external influences 
C)  the control environment and risk assessment processes 
D)  financial reporting and control activities

Question 3

Two broad groupings of controls are ________.

Accepted Answer

A)  internal controls and segregation of duties 
B)  physical access controls and password controls 
C)  validity checks and completeness checks 
D)  general controls and application controls 
A)  internal controls and segregation of duties 
B)  physical access controls and password controls 
C)  validity checks and completeness checks 
D)  general controls and application controls

Question 4

All errors and irregularities, including trivial ones, should be reported to the audit committee.

Accepted Answer

A) True 
 B)False

Question 5

Financial statement fraud is considered when someone knowingly makes material misrepresentations of fact with the intent of making someone believe the falsehood and suffer a loss as a result of acting upon that falsehood. Which of the following would be considered fraud?

Accepted Answer

A)  Increasing the returns allowance as a result of unusually high sales near year end. 
B)  Transferring non-performing assets at historical values to a non-consolidated subsidiary. 
C)  Employee theft from petty cash. 
D)  Purchasing several months' supply of office supplies in order to qualify for a large volume discount. 
A)  Increasing the returns allowance as a result of unusually high sales near year end. 
B)  Transferring non-performing assets at historical values to a non-consolidated subsidiary. 
C)  Employee theft from petty cash. 
D)  Purchasing several months' supply of office supplies in order to qualify for a large volume discount.

Question 6

A critical element of control is monitoring. What is likely to happen if management fails to monitor an internal control?

Accepted Answer

A)  Necessary improvements will not be identified. 
B)  Personnel are likely to stop observing the control. 
C)  The inherent risk of an error will increase. 
D)  The auditor is likely to assume the control is working when it might not be. 
A)  Necessary improvements will not be identified. 
B)  Personnel are likely to stop observing the control. 
C)  The inherent risk of an error will increase. 
D)  The auditor is likely to assume the control is working when it might not be.

Question 7

Misstating financial information in one period to prevent a loan being called for violating debt to equity covenants is okay as long as the violation is reversed in the next period.

Accepted Answer

A) True 
 B)False

Question 8

Certain conditions are often present when a manager prepares deliberately misstated financial statements. Which of the following is NOT such a condition?

Accepted Answer

A)  Unfavourable industry conditions. 
B)  Lack of working capital. 
C)  Low debt. 
D)  Slow customer collections. 
A)  Unfavourable industry conditions. 
B)  Lack of working capital. 
C)  Low debt. 
D)  Slow customer collections.

Question 9

Which of the following is not considered one of the three factors that increase the probability of fraud?

Accepted Answer

A)  Motive. 
B)  Lack of training. 
C)  Opportunity. 
D)  Lack of integrity. 
A)  Motive. 
B)  Lack of training. 
C)  Opportunity. 
D)  Lack of integrity.

Question 10

A materiality standard does not exist for frauds.

Accepted Answer

A) True 
 B)False

Question 11

Management fraud is an intentional act that injures investors or creditors.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a characteristic of fraud?

Accepted Answer

A)  Intent to deceive. 
B)  Misrepresentation or intentional omission of significant information. 
C)  Taking unfair or dishonest advantage of others for personal gain. 
D)  Negligence on the part of executive management. 
A)  Intent to deceive. 
B)  Misrepresentation or intentional omission of significant information. 
C)  Taking unfair or dishonest advantage of others for personal gain. 
D)  Negligence on the part of executive management.

Question 13

What are four of the elements of the internal control environment?

Accepted Answer

The following are elements of the intern

Question 14

The primary responsibility for the prevention and detection of fraud rests with ________.

Accepted Answer

A)  external auditors 
B)  internal auditors 
C)  management 
D)  the Audit Committee 
A)  external auditors 
B)  internal auditors 
C)  management 
D)  the Audit Committee

Question 15

Defalcation is another name for _______.

Accepted Answer

A)  fraud 
B)  white-collar crime 
C)  embezzlement 
D)  irregularities 
A)  fraud 
B)  white-collar crime 
C)  embezzlement 
D)  irregularities

Question 16

Errors can be either intentional or unintentional misstatements in financial statements.

Accepted Answer

A) True 
 B)False

Question 17

Most frauds are committed by people below the top executive levels.

Accepted Answer

A) True 
 B)False

Question 18

Management's philosophy and operating style have to do with how the business is operated and are not part of the internal control environment.

Accepted Answer

A) True 
 B)False

Question 19

Riley embezzled a large sum of money from his company and gave it to his friend who recently lost his job and was in danger of losing his home. This is an example of what type of motivation?

Accepted Answer

A)  Psychotic. 
B)  Egocentric. 
C)  Ideological. 
D)  Economic. 
A)  Psychotic. 
B)  Egocentric. 
C)  Ideological. 
D)  Economic.

Question 20

Auditors are responsible for making reasonable accounting estimates on behalf of management.

Accepted Answer

A) True 
 B)False

Exam 7: Internal Control Over Financial Reporting

What are the typical conditions or circumstances that often accompany fraudulent financial reporting by management?

Internal control includes ________.

Two broad groupings of controls are ________.

All errors and irregularities, including trivial ones, should be reported to the audit committee.

Financial statement fraud is considered when someone knowingly makes material misrepresentations of fact with the intent of making someone believe the falsehood and suffer a loss as a result of acting upon that falsehood. Which of the following would be considered fraud?

A critical element of control is monitoring. What is likely to happen if management fails to monitor an internal control?

Misstating financial information in one period to prevent a loan being called for violating debt to equity covenants is okay as long as the violation is reversed in the next period.

Certain conditions are often present when a manager prepares deliberately misstated financial statements. Which of the following is NOT such a condition?

Which of the following is not considered one of the three factors that increase the probability of fraud?

A materiality standard does not exist for frauds.

Management fraud is an intentional act that injures investors or creditors.

Which of the following is not a characteristic of fraud?

What are four of the elements of the internal control environment?

The primary responsibility for the prevention and detection of fraud rests with ________.

Defalcation is another name for _______.

Errors can be either intentional or unintentional misstatements in financial statements.

Most frauds are committed by people below the top executive levels.

Management's philosophy and operating style have to do with how the business is operated and are not part of the internal control environment.

Riley embezzled a large sum of money from his company and gave it to his friend who recently lost his job and was in danger of losing his home. This is an example of what type of motivation?

Auditors are responsible for making reasonable accounting estimates on behalf of management.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, Receivables, and Receipts Process and Cash Account Balance

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

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