Question 1

The First Community Bank case contained each of the following deficiencies except for:

Accepted Answer

A)  The loan loss reserves of the bank were understated 
B)  The level of impairment of existing bank loans was material 
C)  The collateral for loans was insufficient 
D)  All of these 
A)  The loan loss reserves of the bank were understated 
B)  The level of impairment of existing bank loans was material 
C)  The collateral for loans was insufficient 
D)  All of these D

Question 2

In the Computer Associates case, each of the following allegations were made against the company except for the following:

Accepted Answer

A)  Backdating software contracts into the prior month 
B)  Executing contracts with preprinted dates from prior quarter 
C)  Misusing company resources by members of top management 
D)  Extending quarters by at least 3 business days 
A)  Backdating software contracts into the prior month 
B)  Executing contracts with preprinted dates from prior quarter 
C)  Misusing company resources by members of top management 
D)  Extending quarters by at least 3 business days C

Question 3

Deliberately underbidding for an audit engagement to obtain a client and secure more lucrative management advisory or consulting services is known as?

Accepted Answer

A)  Opinion shopping 
B)  High-balling 
C)  Low-balling 
D)  Client shopping 
A)  Opinion shopping 
B)  High-balling 
C)  Low-balling 
D)  Client shopping C

Question 4

Campus Fast is a new audit client. Client Fast uses public WiFi to place and deliver restaurant take out for students at the Up and Coming State University. Campus Fast was founded by three highly ambitious MBA students at the university. The business plan is to find a buyer or place an IPO of the company by graduation in two years. The founders expect to pay off all student loans, take a tour around the world and then start another company. In order for the business plan to work on the timeline for graduation, the business must meet highly ambitious earnings numbers. Additionally, the company is dealing with two situations that the founders would like to keep from the auditors:
1) The company has been using free, unsecured public WiFi to take orders via the Internet. The customer may pay via the Internet. Several students, who all happen to be members of the same student organization on campus, are claiming that using Campus Fast has allowed their identity to be stolen. One student is claiming that she had $12,000 of charges on her credit card to the unsecured Internet site of Campus Fast. Management plans to pay off the complaining students and keep the true liability off the balance sheet. The reason is Campus Fast is concerned that an interested buyer may become concerned about the unsecured site and might get scared by the student complaints.
2) The company guarantees fast delivery. It has offered to pay any speeding or other moving violation tickets to its delivery drivers. Unfortunately one of the drivers was involved in an accident due to running a red light. The passenger in the other car is in critical condition and the intensive care unit in the hospital. The driver has promised the family of the passenger that the company will make good on any expenses and admitted the company policy on repaying all traffic tickets. Attorneys for the injured party are threatening to sue and publicize the situation. The founders do not have enough cash to take care of this problem but are still trying to keep the situation from the auditors and potential buyer.
Using the internal control framework from SAS 55, 98, COSO and Enterprise Risk Management, assess the internal controls at Campus Fast and risk environment.

Accepted Answer

The students should discuss the control

Question 5

Each of the following represents a pressure that might lead to fraud except for:

Accepted Answer

A)  Desire to maximize the value of stock options 
B)  Budget pressures 
C)  Meet financial analysts' earnings expectations 
D)  Ability to carry out the fraud 
A)  Desire to maximize the value of stock options 
B)  Budget pressures 
C)  Meet financial analysts' earnings expectations 
D)  Ability to carry out the fraud

Question 6

In performing risk assessment the auditor should identify the following types of misstatements:

Accepted Answer

A)  Known and unknown misstatements 
B)  Likely and unknown misstatements 
C)  Known and likely misstatements 
D)  All material misstatements 
A)  Known and unknown misstatements 
B)  Likely and unknown misstatements 
C)  Known and likely misstatements 
D)  All material misstatements

Question 7

PCAOB Auditing Standard No.16 require the auditor to communicate with the audit committee all but?

Accepted Answer

A)  Significant accounting policies and practices 
B)  Critical accounting practices and policies 
C)  Significant unusual transactions 
D)  The procedures followed by the auditor in evaluating evidence 
A)  Significant accounting policies and practices 
B)  Critical accounting practices and policies 
C)  Significant unusual transactions 
D)  The procedures followed by the auditor in evaluating evidence

Question 8

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification?

Accepted Answer

A)  Inability to gather any sufficient relevant information to form the basis for the opinion 
B)  Misstatements that are material and pervasive 
C)  Going concern issue 
D)  Misstatements that are material but not pervasive 
A)  Inability to gather any sufficient relevant information to form the basis for the opinion 
B)  Misstatements that are material and pervasive 
C)  Going concern issue 
D)  Misstatements that are material but not pervasive

Question 9

Backdating options refers to:

Accepted Answer

A)  Crossing out the date of exercise on the option certificate and changing it to an earlier date when the stock price was lower 
B)  Changing the grant date of the options to lower the exercise price and reduce reported earnings 
C)  Granting options to employees working for the company in years prior to the granting of the options 
D)  Changing the future exercise price to correspond market increases in the stock price 
A)  Crossing out the date of exercise on the option certificate and changing it to an earlier date when the stock price was lower 
B)  Changing the grant date of the options to lower the exercise price and reduce reported earnings 
C)  Granting options to employees working for the company in years prior to the granting of the options 
D)  Changing the future exercise price to correspond market increases in the stock price

Question 10

The auditors' determination of whether the financial statements "present fairly" is based on:

Accepted Answer

A)  Whether the users are able to assess the reliability of the financial statements 
B)  Whether the statements have been prepared in accordance with the same GAAP used from one year to another 
C)  Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly 
D)  Whether the accounting principles used are appropriate in the circumstances 
A)  Whether the users are able to assess the reliability of the financial statements 
B)  Whether the statements have been prepared in accordance with the same GAAP used from one year to another 
C)  Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly 
D)  Whether the accounting principles used are appropriate in the circumstances

Question 11

In an audit, the auditor has a requirement to address risk assessment with respect to:

Accepted Answer

A)  The design and performance of audit procedures to respond to assessed risks 
B)  Whether the standards close the expectation gap 
C)  The role and responsibilities of the audit committee in preventing fraud 
D)  All of these 
A)  The design and performance of audit procedures to respond to assessed risks 
B)  Whether the standards close the expectation gap 
C)  The role and responsibilities of the audit committee in preventing fraud 
D)  All of these

Question 12

Because of the risk of material misstatement, an audit of financial statements in accordance with GAAS should be planned and performed with

Accepted Answer

A)  Objective judgment 
B)  Professional skepticism 
C)  Internal controls 
D)  Due care 
A)  Objective judgment 
B)  Professional skepticism 
C)  Internal controls 
D)  Due care

Question 13

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

Accepted Answer

A)  Communicate to the audit committee the existence of fraud but not the amount involved 
B)  Communicate to the audit committee both material and immaterial amounts of fraud that are detected 
C)  Communicate to the SEC the existence of fraud but not the amount involved 
D)  Communicate to the SEC both material and immaterial amounts of fraud that are detected 
A)  Communicate to the audit committee the existence of fraud but not the amount involved 
B)  Communicate to the audit committee both material and immaterial amounts of fraud that are detected 
C)  Communicate to the SEC the existence of fraud but not the amount involved 
D)  Communicate to the SEC both material and immaterial amounts of fraud that are detected

Question 14

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that:

Accepted Answer

A)  Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved 
B)  The most common fraud technique involved understating expenses 
C)  The audit committee always sanctioned the fraud 
D)  A minority of audit reports issued during the fraud period contained unqualified audit opinions 
A)  Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved 
B)  The most common fraud technique involved understating expenses 
C)  The audit committee always sanctioned the fraud 
D)  A minority of audit reports issued during the fraud period contained unqualified audit opinions

Question 15

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Accepted Answer

A)  The financial statements have followed GAAP. 
B)  Consistency in the application of GAAP. 
C)  Adequate disclosures exist in the statements. 
D)  Gathering sufficient audit evidence to warrant an opinion. 
A)  The financial statements have followed GAAP. 
B)  Consistency in the application of GAAP. 
C)  Adequate disclosures exist in the statements. 
D)  Gathering sufficient audit evidence to warrant an opinion.

Question 16

Members of the audit committee are responsible for each of the following except for:

Accepted Answer

A)  Considering risks identified by the external auditor 
B)  Assessing whether management has set the appropriate ethical tone for the organization 
C)  Discussing with the external auditors financial reporting matters of concern 
D)  Rendering an audit opinion after examining the entity's financial statements and internal controls 
A)  Considering risks identified by the external auditor 
B)  Assessing whether management has set the appropriate ethical tone for the organization 
C)  Discussing with the external auditors financial reporting matters of concern 
D)  Rendering an audit opinion after examining the entity's financial statements and internal controls

Question 17

Which of the following is not an element of the auditor's responsibility of the auditor's report?

Accepted Answer

A)  States the auditor's responsibility to express an opinion on the financial statements 
B)  States the audit provides reasonable assurance that the statements are free of material misstatement 
C)  States audit provides reasonable basis for the opinion 
D)  States the audit evaluates the overall financial statement presentation 
A)  States the auditor's responsibility to express an opinion on the financial statements 
B)  States the audit provides reasonable assurance that the statements are free of material misstatement 
C)  States audit provides reasonable basis for the opinion 
D)  States the audit evaluates the overall financial statement presentation

Question 18

The primary issue discussed in the Krispy Kreme case was:

Accepted Answer

A)  Use of special-purpose-entities to keep debt off the books 
B)  Use of "round trip" transactions to accelerate the recording of earnings 
C)  Internal controls over operating activities 
D)  Internal controls over the making of doughnuts 
A)  Use of special-purpose-entities to keep debt off the books 
B)  Use of "round trip" transactions to accelerate the recording of earnings 
C)  Internal controls over operating activities 
D)  Internal controls over the making of doughnuts

Question 19

One of the rules of professional conduct and repeated in GAAS, due care, requires a member to discharge professional responsibilities with _____________.

Accepted Answer

A)  Confidentiality and integrity 
B)  Objectivity and ethics 
C)  Standard morals and ethics 
D)  Competence and diligence 
A)  Confidentiality and integrity 
B)  Objectivity and ethics 
C)  Standard morals and ethics 
D)  Competence and diligence

Question 20

Differentiate between the auditors' responsibilities to detect errors, fraud, and illegal acts. How would you assess the ethics of a company that has experienced each event with respect to motivation and the integrity of those who go along with such events?

Accepted Answer

The answer of Differentiate between the auditors' responsibilities to detect...

The First Community Bank case contained each of the following deficiencies except for:

In the Computer Associates case, each of the following allegations were made against the company except for the following:

Deliberately underbidding for an audit engagement to obtain a client and secure more lucrative management advisory or consulting services is known as?

Each of the following represents a pressure that might lead to fraud except for:

In performing risk assessment the auditor should identify the following types of misstatements:

PCAOB Auditing Standard No.16 require the auditor to communicate with the audit committee all but?

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification?

Backdating options refers to:

The auditors' determination of whether the financial statements "present fairly" is based on:

In an audit, the auditor has a requirement to address risk assessment with respect to:

Because of the risk of material misstatement, an audit of financial statements in accordance with GAAS should be planned and performed with

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that:

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Members of the audit committee are responsible for each of the following except for:

Which of the following is not an element of the auditor's responsibility of the auditor's report?

The primary issue discussed in the Krispy Kreme case was:

One of the rules of professional conduct and repeated in GAAS, due care, requires a member to discharge professional responsibilities with _____________.

Differentiate between the auditors' responsibilities to detect errors, fraud, and illegal acts. How would you assess the ethics of a company that has experienced each event with respect to motivation and the integrity of those who go along with such events?

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Legal, Regulatory, and Professional Obligations of Auditors

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

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Exam 5: Fraud in Financial Statements and Auditor Responsibilities

The First Community Bank case contained each of the following deficiencies except for:

In the Computer Associates case, each of the following allegations were made against the company except for the following:

Deliberately underbidding for an audit engagement to obtain a client and secure more lucrative management advisory or consulting services is known as?

Each of the following represents a pressure that might lead to fraud except for:

In performing risk assessment the auditor should identify the following types of misstatements:

PCAOB Auditing Standard No.16 require the auditor to communicate with the audit committee all but?

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification?

Backdating options refers to:

The auditors' determination of whether the financial statements "present fairly" is based on:

In an audit, the auditor has a requirement to address risk assessment with respect to:

Because of the risk of material misstatement, an audit of financial statements in accordance with GAAS should be planned and performed with

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that:

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Members of the audit committee are responsible for each of the following except for:

Which of the following is not an element of the auditor's responsibility of the auditor's report?

The primary issue discussed in the Krispy Kreme case was:

One of the rules of professional conduct and repeated in GAAS, due care, requires a member to discharge professional responsibilities with _____________.

Differentiate between the auditors' responsibilities to detect errors, fraud, and illegal acts. How would you assess the ethics of a company that has experienced each event with respect to motivation and the integrity of those who go along with such events?

Ethical Reasoning: Implications for Accounting

Cognitive Processes and Ethical Decision Making in Accounting

Creating an Ethical Organization Environment and Effective Corporate Governance Systems

Aicpa Code of Professional Conduct

Legal, Regulatory, and Professional Obligations of Auditors

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

Filters