Question 1

An example of financial statement manipulation is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account.

Accepted Answer

A) True 
 B)False  False

Question 2

Audits of financial statements are valuable to the detection of fraud because:

Accepted Answer

A) Auditors are not required to seek out and find all fraud. 
B) Auditors expect that management will make them aware of any fraud in the financial statements. 
C) Society expects that the auditor will ensure that financial statements have not been materially misstated due to fraud. 
D) Society realizes that some fraud is not capable of being discovered by auditors. 
A) Auditors are not required to seek out and find all fraud. 
B) Auditors expect that management will make them aware of any fraud in the financial statements. 
C) Society expects that the auditor will ensure that financial statements have not been materially misstated due to fraud. 
D) Society realizes that some fraud is not capable of being discovered by auditors. C

Question 3

Wafflemart Corporation is a leader in its industry.It commands suppliers and is the envy of its competitors with its ability to name its price to customers.Management is compensated with a relatively high level of stock options.The Company has consistently met analysts expectations for stock price performance for each of the last 32 quarters.What are the typical motivators of Wafflemart's situation noted above?

Accepted Answer

A) Wafflemart has pressure to commit fraud. 
B) Wafflemart has incentive to commit fraud. 
C) Wafflemart has opportunity to commit fraud. 
D) Wafflemart has rationalization to commit fraud. 
A) Wafflemart has pressure to commit fraud. 
B) Wafflemart has incentive to commit fraud. 
C) Wafflemart has opportunity to commit fraud. 
D) Wafflemart has rationalization to commit fraud. B

Question 4

Since management can collude to perpetrate a fraud,the auditor has limited responsibility for detecting fraud in the financial statements.

Accepted Answer

A) True 
 B)False

Question 5

Types of fraud should be hypothesized by the auditor after performing analytical procedures for the discovery of fraud factors.

Accepted Answer

A) True 
 B)False

Question 6

If an auditor discovers risk of fraud in the application of SAS 99 procedures,the audit procedures should be adjusted accordingly.

Accepted Answer

A) True 
 B)False

Question 7

The audit team should develop its own idea about how fraud may be perpetrated and hidden by the client.

Accepted Answer

A) True 
 B)False

Question 8

How will the results of the auditor's assessment of fraud risk factors further affect the planned audit procedures?

Accepted Answer

A) Audit procedures and fraud assessment do not relate. 
B) The assessment may require a re-audit of previous periods. 
C) By the assignment of qualified audit staff to risky areas of the engagement. 
D) Management will be called upon to assist in coordinating audit procedures. 
A) Audit procedures and fraud assessment do not relate. 
B) The assessment may require a re-audit of previous periods. 
C) By the assignment of qualified audit staff to risky areas of the engagement. 
D) Management will be called upon to assist in coordinating audit procedures.

Question 9

Management of Premium Discovery Company is compensated through large salaries,stock options and bonuses tied to the company's working capital growth.The CEO is constantly holding meetings to ensure that management is on target for increased operating income each month.Based upon the above information only,what type of probable motivation is there to commit fraud at the Premium Discovery Company?

Accepted Answer

A) Pressure. 
B) Opportunity. 
C) Rationalization. 
D) Expectation. 
A) Pressure. 
B) Opportunity. 
C) Rationalization. 
D) Expectation.

Question 10

Rules based accounting sometimes contributes to the rationalization of financial reporting fraud.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following computerized audit procedures best assists the engagement team in detecting asset misappropriations?

Accepted Answer

A) Creation of bank confirmations. 
B) Tracing of recorded assets to source documents. 
C) Search for duplicate payments. 
D) Determination of obsolete inventory. 
A) Creation of bank confirmations. 
B) Tracing of recorded assets to source documents. 
C) Search for duplicate payments. 
D) Determination of obsolete inventory.

Question 12

Management compensation that is tied to profits may contribute to incentives to commit fraud.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not an example of a type of defalcation?

Accepted Answer

A) A warehouse employee takes home two units of electronic entertainment inventory each week without authorization. 
B) The president of the company utilizes the organization's cash to add a floor to her 15,000 square foot house. 
C) The chief financial officer of the company falsely adds $20 million to the accounts receivable and revenue accounts. 
D) The treasurer of the company makes an unauthorized wire transfer from the organization's bank to a personal account in Grand Cayman. 
A) A warehouse employee takes home two units of electronic entertainment inventory each week without authorization. 
B) The president of the company utilizes the organization's cash to add a floor to her 15,000 square foot house. 
C) The chief financial officer of the company falsely adds $20 million to the accounts receivable and revenue accounts. 
D) The treasurer of the company makes an unauthorized wire transfer from the organization's bank to a personal account in Grand Cayman.

Question 14

Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit?

Accepted Answer

A) The company's management negotiates deals with vendors in such a manner as to pay lower prices. 
B) The company's management drives luxury vehicles and takes personal vacations to exotic places. 
C) The company's management takes an overly aggressive approach to revenue recognition. 
D) The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales. 
A) The company's management negotiates deals with vendors in such a manner as to pay lower prices. 
B) The company's management drives luxury vehicles and takes personal vacations to exotic places. 
C) The company's management takes an overly aggressive approach to revenue recognition. 
D) The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales.

Question 15

BruceCo.has accounted for the revenue of Jiffy Mac,Inc. ,one of its suppliers as though it were its subsidiary.BruceCo only owns 2% of Jiffy and does not exercise any influence or control,nor is it considered a Variable Interest Entity.BruceCo.has probably committed fraud because of its blatant misapplication of consolidation principles.

Accepted Answer

A) True 
 B)False

Question 16

Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for audit engagements with low risk of fraud.

Accepted Answer

A) True 
 B)False

Question 17

For illegal acts that have a direct effect on the financial statements,the auditor has a responsibility to design the audit to provide reasonable assurance of detecting material misstatements.

Accepted Answer

A) True 
 B)False

Question 18

According to professional auditing standards,which of the following best represents a type of financial reporting fraud that might occur?

Accepted Answer

A) Management accrues a liability and discloses the possible outcome of a lawsuit prior to settling the matter. 
B) Management reclassifies a negative cash balance by increasing cash and also increasing a current liability. 
C) Management discloses its failure to meet loan covenants but states that a waiver has been received. 
D) Management intentionally excludes a material subsidiary from its consolidated results that it controls significantly. 
A) Management accrues a liability and discloses the possible outcome of a lawsuit prior to settling the matter. 
B) Management reclassifies a negative cash balance by increasing cash and also increasing a current liability. 
C) Management discloses its failure to meet loan covenants but states that a waiver has been received. 
D) Management intentionally excludes a material subsidiary from its consolidated results that it controls significantly.

Question 19

The auditor must perform a brainstorming meeting with client management in order to plan the procedures to be performed and the inventory locations to be visited.

Accepted Answer

A) True 
 B)False

Question 20

The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.

Accepted Answer

A) True 
 B)False

An example of financial statement manipulation is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account.

Audits of financial statements are valuable to the detection of fraud because:

Since management can collude to perpetrate a fraud,the auditor has limited responsibility for detecting fraud in the financial statements.

Types of fraud should be hypothesized by the auditor after performing analytical procedures for the discovery of fraud factors.

If an auditor discovers risk of fraud in the application of SAS 99 procedures,the audit procedures should be adjusted accordingly.

The audit team should develop its own idea about how fraud may be perpetrated and hidden by the client.

How will the results of the auditor's assessment of fraud risk factors further affect the planned audit procedures?

Rules based accounting sometimes contributes to the rationalization of financial reporting fraud.

Which of the following computerized audit procedures best assists the engagement team in detecting asset misappropriations?

Management compensation that is tied to profits may contribute to incentives to commit fraud.

Which of the following is not an example of a type of defalcation?

Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit?

Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for audit engagements with low risk of fraud.

For illegal acts that have a direct effect on the financial statements,the auditor has a responsibility to design the audit to provide reasonable assurance of detecting material misstatements.

According to professional auditing standards,which of the following best represents a type of financial reporting fraud that might occur?

The auditor must perform a brainstorming meeting with client management in order to plan the procedures to be performed and the inventory locations to be visited.

The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing Revenue and Related Accounts

Audit of Acquisition and Payment Cycle and Inventory

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

Filters

Exam 9: Auditing for Fraud

An example of financial statement manipulation is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account.

Audits of financial statements are valuable to the detection of fraud because:

Since management can collude to perpetrate a fraud,the auditor has limited responsibility for detecting fraud in the financial statements.

Types of fraud should be hypothesized by the auditor after performing analytical procedures for the discovery of fraud factors.

If an auditor discovers risk of fraud in the application of SAS 99 procedures,the audit procedures should be adjusted accordingly.

The audit team should develop its own idea about how fraud may be perpetrated and hidden by the client.

How will the results of the auditor's assessment of fraud risk factors further affect the planned audit procedures?

Rules based accounting sometimes contributes to the rationalization of financial reporting fraud.

Which of the following computerized audit procedures best assists the engagement team in detecting asset misappropriations?

Management compensation that is tied to profits may contribute to incentives to commit fraud.

Which of the following is not an example of a type of defalcation?

Which of the following best represents actions that may indicate fraud is pervasive throughout the company under audit?

Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for audit engagements with low risk of fraud.

For illegal acts that have a direct effect on the financial statements,the auditor has a responsibility to design the audit to provide reasonable assurance of detecting material misstatements.

According to professional auditing standards,which of the following best represents a type of financial reporting fraud that might occur?

The auditor must perform a brainstorming meeting with client management in order to plan the procedures to be performed and the inventory locations to be visited.

The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing Revenue and Related Accounts

Audit of Acquisition and Payment Cycle and Inventory

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

Filters