Question 1

When engaged in _____,the auditor simply considers his or her own incentives,such as audit fees,sampling costs,and penalties.

Accepted Answer

A) Higher-order reasoning 
B) Zero-order reasoning 
C) First-order reasoning 
D) Deductive reasoning 
A) Higher-order reasoning 
B) Zero-order reasoning 
C) First-order reasoning 
D) Deductive reasoning B

Question 2

______ are the backbone of capitalism and allow investors,lenders,and regulators to measure the performance of a business.

Accepted Answer

A) Government policies 
B) Financial statements 
C) Stock prices 
D) Credit reports 
A) Government policies 
B) Financial statements 
C) Stock prices 
D) Credit reports B

Question 3

Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?

Accepted Answer

A) Zero-order reasoning 
B) Deductive reasoning 
C) First-order reasoning 
D) Higher-order reasoning 
A) Zero-order reasoning 
B) Deductive reasoning 
C) First-order reasoning 
D) Higher-order reasoning A

Question 4

A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders.Which element of the fraud triangle is discussed here?

Accepted Answer

A) Perceived opportunity 
B) Trauma 
C) Rationalization 
D) Perceived pressure 
A) Perceived opportunity 
B) Trauma 
C) Rationalization 
D) Perceived pressure

Question 5

Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?

Accepted Answer

A) Stock splits 
B) Arbitrage 
C) Dividends 
D) Stock options 
A) Stock splits 
B) Arbitrage 
C) Dividends 
D) Stock options

Question 6

Company XYZ had a long-standing relationship with a leading law firm.In fact,the law firm's business with this company was one of its most profitable relationships.If the law firm decides that it no longer wants to conduct business with the company,this is:

Accepted Answer

A) indicative that the company might have a lot of customer law suits against it. 
B) not any sort of meaningful indicator of fraud activity. 
C) a large cause for concern that financial statement fraud may be occurring. 
D) an indication that the client has likely outgrown the law firm. 
A) indicative that the company might have a lot of customer law suits against it. 
B) not any sort of meaningful indicator of fraud activity. 
C) a large cause for concern that financial statement fraud may be occurring. 
D) an indication that the client has likely outgrown the law firm.

Question 7

_____ means that the auditor considers conditions that directly affect the auditee.

Accepted Answer

A) Low-order reasoning 
B) Zero-order reasoning 
C) Deductive reasoning 
D) First-order reasoning 
A) Low-order reasoning 
B) Zero-order reasoning 
C) Deductive reasoning 
D) First-order reasoning

Question 8

Which types of questions should be asked about a company's relationship with financial institutions?

Accepted Answer

A) Is a significant part of the company's income or revenues derived from one or two large transactions? 
B) Has management placed unreasonable demands on the auditor,including unreasonable time constraints? 
C) Has significant "short selling" of the company's stock occurred? If so,for what reasons? 
D) Is the organization highly leveraged through bank or other loans? 
A) Is a significant part of the company's income or revenues derived from one or two large transactions? 
B) Has management placed unreasonable demands on the auditor,including unreasonable time constraints? 
C) Has significant "short selling" of the company's stock occurred? If so,for what reasons? 
D) Is the organization highly leveraged through bank or other loans?

Question 9

There has been an auditor change at Company X.Which of the following situations may NOT signal a potential fraud problem?

Accepted Answer

A) Failure to pay an audit fee 
B) Auditee believing that the auditor's fees are too high 
C) Suspected fraud or other problems by the auditor 
D) Auditor-auditee disagreement 
A) Failure to pay an audit fee 
B) Auditee believing that the auditor's fees are too high 
C) Suspected fraud or other problems by the auditor 
D) Auditor-auditee disagreement

Question 10

Your firm has just acquired a new audit client.The new client is highly leveraged with borrowing from several institutions.It is planning to expand the business by obtaining additional debt finance in the near future.Based on these facts,which one of the following should be most carefully examined?

Accepted Answer

A) Transactions that result in healthy revenues 
B) Large market capitalization 
C) Loans and other financing transactions between related entities 
D) Dividend paid out in the previous year 
A) Transactions that result in healthy revenues 
B) Large market capitalization 
C) Loans and other financing transactions between related entities 
D) Dividend paid out in the previous year

Question 11

In addition to changes in financial statements,which of the following can indicate financial statement fraud has occurred?

Accepted Answer

A) Information in the footnotes to the financial statements 
B) Stable dividend payout ratio 
C) Increased hiring of qualified employees by the company 
D) Addition of an independent member on the board 
A) Information in the footnotes to the financial statements 
B) Stable dividend payout ratio 
C) Increased hiring of qualified employees by the company 
D) Addition of an independent member on the board

Question 12

Frauds are more likely to occur in:

Accepted Answer

A) large,historically profitable companies. 
B) companies with an active board of directors. 
C) smaller companies where one or two individuals have almost all control in decision making. 
D) any company,as the probability of a fraud does not change with the size of a company. 
A) large,historically profitable companies. 
B) companies with an active board of directors. 
C) smaller companies where one or two individuals have almost all control in decision making. 
D) any company,as the probability of a fraud does not change with the size of a company.

Question 13

Which of the following observations concerning backdating of options is true?

Accepted Answer

A) It will not result in restatement of financial statements. 
B) The extraordinary timing and frequency of occurrences defied statistical probability. 
C) There is no concrete evidence that managers gained because of this practice. 
D) It is a legal way of compensating managers who perform exceedingly well. 
A) It will not result in restatement of financial statements. 
B) The extraordinary timing and frequency of occurrences defied statistical probability. 
C) There is no concrete evidence that managers gained because of this practice. 
D) It is a legal way of compensating managers who perform exceedingly well.

Question 14

______ refers to the ability to anticipate a fraud perpetrator's likely method of concealing a fraud.

Accepted Answer

A) Zero-order reasoning 
B) Deductive reasoning 
C) Strategic reasoning 
D) Low-order reasoning 
A) Zero-order reasoning 
B) Deductive reasoning 
C) Strategic reasoning 
D) Low-order reasoning

Question 15

Which of the following related party transactions need to most carefully examined for fraud?

Accepted Answer

A) Transactions that generate operating income 
B) Transactions that appear realistic 
C) Absence of loans or other financing transactions between related entities 
D) Transactions that result in goodwill being recognized in the financial statements 
A) Transactions that generate operating income 
B) Transactions that appear realistic 
C) Absence of loans or other financing transactions between related entities 
D) Transactions that result in goodwill being recognized in the financial statements

Question 16

Which of the following is a finding of the Treadway Commission?

Accepted Answer

A) Financial statement frauds occur very often,the average fraud lasts about two years. 
B) The CEO perpetrates the fraud in 72% of the cases. 
C) While financial statement frauds occur infrequently,they are extremely costly. 
D) Financial statement fraud occurs mostly in companies that are listed. 
A) Financial statement frauds occur very often,the average fraud lasts about two years. 
B) The CEO perpetrates the fraud in 72% of the cases. 
C) While financial statement frauds occur infrequently,they are extremely costly. 
D) Financial statement fraud occurs mostly in companies that are listed.

Question 17

10-K forms refer to:

Accepted Answer

A) the corporate reports filed with the SEC. 
B) the tax returns filed with the IRS. 
C) the press releases to the newswires. 
D) the bankruptcy filing document. 
A) the corporate reports filed with the SEC. 
B) the tax returns filed with the IRS. 
C) the press releases to the newswires. 
D) the bankruptcy filing document.

Question 18

In this phase of the business cycle,most businesses appear to be highly profitable.

Accepted Answer

A) Trough 
B) Recession 
C) Recovery 
D) Boom 
A) Trough 
B) Recession 
C) Recovery 
D) Boom

Question 19

Which of the following statements is true?

Accepted Answer

A) Most financial statement frauds occur in large historically profitable companies. 
B) Most people who commit management fraud are first-time offenders. 
C) An active board of directors or audit committee does little to deter fraud. 
D) Perpetrating fraud is much easier in an organization with democratic leadership,where the decision making is spread among several individuals. 
A) Most financial statement frauds occur in large historically profitable companies. 
B) Most people who commit management fraud are first-time offenders. 
C) An active board of directors or audit committee does little to deter fraud. 
D) Perpetrating fraud is much easier in an organization with democratic leadership,where the decision making is spread among several individuals.

Question 20

Which of the following is NOT one of the components of the fraud exposure rectangle?

Accepted Answer

A) Accounting system controls 
B) Management and directors 
C) Financial results and operating characteristics 
D) Organization and its industry 
A) Accounting system controls 
B) Management and directors 
C) Financial results and operating characteristics 
D) Organization and its industry

When engaged in _____,the auditor simply considers his or her own incentives,such as audit fees,sampling costs,and penalties.

______ are the backbone of capitalism and allow investors,lenders,and regulators to measure the performance of a business.

Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?

A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders.Which element of the fraud triangle is discussed here?

Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?

Company XYZ had a long-standing relationship with a leading law firm.In fact,the law firm's business with this company was one of its most profitable relationships.If the law firm decides that it no longer wants to conduct business with the company,this is:

_____ means that the auditor considers conditions that directly affect the auditee.

Which types of questions should be asked about a company's relationship with financial institutions?

There has been an auditor change at Company X.Which of the following situations may NOT signal a potential fraud problem?

Your firm has just acquired a new audit client.The new client is highly leveraged with borrowing from several institutions.It is planning to expand the business by obtaining additional debt finance in the near future.Based on these facts,which one of the following should be most carefully examined?

In addition to changes in financial statements,which of the following can indicate financial statement fraud has occurred?

Frauds are more likely to occur in:

Which of the following observations concerning backdating of options is true?

______ refers to the ability to anticipate a fraud perpetrator's likely method of concealing a fraud.

Which of the following related party transactions need to most carefully examined for fraud?

Which of the following is a finding of the Treadway Commission?

10-K forms refer to:

In this phase of the business cycle,most businesses appear to be highly profitable.

Which of the following statements is true?

Which of the following is NOT one of the components of the fraud exposure rectangle?

The Nature of Fraud

Why People Commit Fraud

Fighting Fraud: an Overview

Preventing Fraud

Recognizing the Symptoms of Fraud

Data-Driven Fraud Detection

Investigating Theft Acts

Investigating Concealment

Conversion Investigation Methods

Inquiry Methods and Fraud Reports

Revenue- and Inventory-Related Financial Statement Frauds

Liability,asset,and Inadequate Disclosure Frauds

Fraud Against Organizations

Consumer Fraud

Bankruptcy, divorce, and Tax Fraud

Fraud in E-Commerce

Legal Follow-Up

Filters

Exam 11: Financial Statement Fraud

When engaged in _____,the auditor simply considers his or her own incentives,such as audit fees,sampling costs,and penalties.

______ are the backbone of capitalism and allow investors,lenders,and regulators to measure the performance of a business.

Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?

A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders.Which element of the fraud triangle is discussed here?

Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?

Company XYZ had a long-standing relationship with a leading law firm.In fact,the law firm's business with this company was one of its most profitable relationships.If the law firm decides that it no longer wants to conduct business with the company,this is:

_____ means that the auditor considers conditions that directly affect the auditee.

Which types of questions should be asked about a company's relationship with financial institutions?

There has been an auditor change at Company X.Which of the following situations may NOT signal a potential fraud problem?

Your firm has just acquired a new audit client.The new client is highly leveraged with borrowing from several institutions.It is planning to expand the business by obtaining additional debt finance in the near future.Based on these facts,which one of the following should be most carefully examined?

In addition to changes in financial statements,which of the following can indicate financial statement fraud has occurred?

Frauds are more likely to occur in:

Which of the following observations concerning backdating of options is true?

______ refers to the ability to anticipate a fraud perpetrator's likely method of concealing a fraud.

Which of the following related party transactions need to most carefully examined for fraud?

Which of the following is a finding of the Treadway Commission?

10-K forms refer to:

In this phase of the business cycle,most businesses appear to be highly profitable.

Which of the following statements is true?

Which of the following is NOT one of the components of the fraud exposure rectangle?

The Nature of Fraud

Why People Commit Fraud

Fighting Fraud: an Overview

Preventing Fraud

Recognizing the Symptoms of Fraud

Data-Driven Fraud Detection

Investigating Theft Acts

Investigating Concealment

Conversion Investigation Methods

Inquiry Methods and Fraud Reports

Revenue- and Inventory-Related Financial Statement Frauds

Liability,asset,and Inadequate Disclosure Frauds

Fraud Against Organizations

Consumer Fraud

Bankruptcy, divorce, and Tax Fraud

Fraud in E-Commerce

Legal Follow-Up

Filters