Question 1

How should an auditor handle illegal acts by auditees?

Accepted Answer

CAS 250 acknowledges that illegal acts m

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A fraud detection tool that assesses a firm along the five dimensions of accrual quality,financial performance,nonfinancial measures,off-balance sheet activities,and market-based incentives is called the ________.

Accepted Answer

A) Fraud Detector 
B) Embezzlease 
C) F-Score 
D) Red Flagger 
A) Fraud Detector 
B) Embezzlease 
C) F-Score 
D) Red Flagger

Question 5

An economic motive for fraud is the need for money.

Accepted Answer

A) True 
 B)False

Question 6

An F-Score can predict 60% of misstatements in financial statements that eventually come to light as restatements.

Accepted Answer

A) True 
 B)False

Question 7

In the audit of financial statements,all internal controls of the entity are considered of equal importance.

Accepted Answer

A) True 
 B)False

Question 8

An audit client's decision to outsource its data processing function to an external service provider,would be of significant interest to the auditor,mostly because:

Accepted Answer

A) It would impact on the auditor's assessment of management integrity. 
B) It would impact on the design and effectiveness of the client's internal control system,which would in turn affect the assessed risk of material misstatement. 
C) It would result in a major increase to the audit fee. 
D) It results in a shift in responsibilities away from the auditee's management to that of the service provider. 
A) It would impact on the auditor's assessment of management integrity. 
B) It would impact on the design and effectiveness of the client's internal control system,which would in turn affect the assessed risk of material misstatement. 
C) It would result in a major increase to the audit fee. 
D) It results in a shift in responsibilities away from the auditee's management to that of the service provider.

Question 9

What is the connection between communication and internal control?

Accepted Answer

Communication involves providing an unde

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

What is employee fraud?

Accepted Answer

Fraudulently taking money or o

Question 12

A misstatement is an intentional act that injures investors or creditors.

Accepted Answer

A) True 
 B)False

Question 13

To whom should immaterial errors be reported?

Accepted Answer

A) No one. 
B) The audit committee. 
C) Senior management. 
D) The manager at least one level above the people involved. 
A) No one. 
B) The audit committee. 
C) Senior management. 
D) The manager at least one level above the people involved.

Question 14

All misstatements due to management fraud are considered material.

Accepted Answer

A) True 
 B)False

Question 15

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 16

A critical element of control is monitoring.What is most 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 17

Which of the following would be considered financial statement fraud (knowingly making 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)?

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 18

The possibility that fraud has resulted in intentional misstatement in the financial statements is known as ________.

Accepted Answer

A) audit risk 
B) control risk 
C) detection risk 
D) fraud risk 
A) audit risk 
B) control risk 
C) detection risk 
D) fraud risk

Question 19

Which of the following is not normally considered an accounting estimate?

Accepted Answer

A) Salvage value of a capital asset. 
B) Net realizable value of slow-moving inventory. 
C) Fair value of actively traded shares. 
D) Allowance for uncollectible receivables. 
A) Salvage value of a capital asset. 
B) Net realizable value of slow-moving inventory. 
C) Fair value of actively traded shares. 
D) Allowance for uncollectible receivables.

Question 20

Defalcation is another name for _______.

Accepted Answer

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

Exam 7: Internal Control Over Financial Reporting

How should an auditor handle illegal acts by auditees?

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

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

A fraud detection tool that assesses a firm along the five dimensions of accrual quality,financial performance,nonfinancial measures,off-balance sheet activities,and market-based incentives is called the ________.

An economic motive for fraud is the need for money.

An F-Score can predict 60% of misstatements in financial statements that eventually come to light as restatements.

In the audit of financial statements,all internal controls of the entity are considered of equal importance.

An audit client's decision to outsource its data processing function to an external service provider,would be of significant interest to the auditor,mostly because:

What is the connection between communication and internal control?

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

What is employee fraud?

A misstatement is an intentional act that injures investors or creditors.

To whom should immaterial errors be reported?

All misstatements due to management fraud are considered material.

Two broad groupings of controls are ________.

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

Which of the following would be considered financial statement fraud (knowingly making 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)?

The possibility that fraud has resulted in intentional misstatement in the financial statements is known as ________.

Which of the following is not normally considered an accounting estimate?

Defalcation is another name for _______.

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 the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

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