Deck 13: Fraud Risk Assessment

Question 1

Factors that influence the level of fraud risk faced by an organization include which of the following?

A) The nature of the business
B) The effectiveness of the organization's internal control
C) The ethics and values of the organization and the people in it
D) All of the above

Answer 1

D

Question 2

The objective of a fraud risk assessment is to help management recognize factors that make an organization most vulnerable to fraud so that management can address those factors to reduce the exposure.

Answer 2

True

Question 3

It is not important to consider reputation risk in performing a fraud risk assessment since this risk cannot easily be mitigated.

Answer 3

B

Question 4

The results of a fraud risk assessment can help auditors design programs and procedures in a way that enables the auditors to look for fraud in known areas of high risk.

Question 5

Which of the following is not a true statement regarding the fraud risk assessment process?

A) It is more of a science than an art
B) To be most effective, it should be an ongoing, continuous process
C) It should be influenced by the culture of an organization
D) It is aimed at proactively identifying an organization's vulnerabilities to fraud

Question 6

Management is not likely to have sufficient knowledge of controls to override them.

Question 7

In general, management should avoid sharing the fraud risk assessment process and results with employees.

Question 8

When assessing the potential incentives, pressures, and opportunities to commit fraud, the fraud risk assessment team should evaluate which of the following?

A) Incentive programs and how they may affect employees' behavior when conducting business or applying professional judgment
B) Highly complex business transactions and how they might be used to conceal fraudulent acts
C) Opportunities for collusion
D) All of the above

Question 9

Which of the following is not one of the three interrelated elements that enable someone to commit fraud?

A) Opportunity
B) Non-sharable financial need
C) Ability to rationalize
D) Fraud risk

Question 10

Fraudulent financial reporting risks include which of the following?

A) Payment of bribes or gratuities
B) Aiding and abetting of fraud by outside parties
C) Inappropriately reflected balance sheet amounts
D) Misappropriation of intangible assets

Question 11

_________ controls are designed to stop an undesirable event from occurring, whereas _________ controls are designed to identify an undesirable event that has already occurred.

A) Preventive; detective
B) Internal; external
C) Risk; discovery
D) Operating; review

Question 12

Which of the following is a type of detective control?

A) Segregating duties
B) Performing background checks
C) Performing surprise audits
D) Ensuring proper alignment between an individual's authority and level of responsibility

Question 13

The vulnerability of an organization to those capable of overcoming the three elements of the fraud triangle is known as which of the following?

A) Inherent risk
B) Fraud risk assessment
C) Fraud risk
D) Control risk

Question 14

Effective internal controls can eliminate the need for a fraud risk assessment.

Question 15

Which of the following factors should be considered when selecting a sponsor for the fraud risk assessment?

A) Seniority
B) Independence
C) Ability to elicit cooperation
D) All of the above

Question 16

Assessing an area as having a high fraud risk means that fraud is occurring there.

Question 17

Which of the following information-gathering techniques enables the fraud risk assessor to observe the interactions of employees as they discuss a question or issue?

A) Interviews
B) Surveys
C) Focus groups
D) Anonymous feedback mechanisms

Question 18

Which of the following factors should be considered in assessing the likelihood of occurrence of each fraud risk?

A) Financial statement and monetary significance
B) Internal control environment of the organization
C) Criminal, civil, and regulatory liabilities
D) Financial condition of the organization

Question 19

Risks resulting from ineffective or nonexistent controls are known as which of the following?

A) Residual risks
B) Inherent risks
C) Control risks
D) Audit risks

Question 20

In assessing the significance to the organization of identified fraud risks, the fraud risk assessment team should first consider them on an inherent basis.

Question 21

Which of the following is not a potential corruption risk?

A) Payment of bribes to public officials, companies, or private individuals
B) Inadequate disclosures pertaining to related-party transactions
C) Receipt of kickbacks, bribes, or gratuities
D) Aiding and abetting of fraud by customers or vendors

Question 22

Which of the following factors enhances a fraud risk assessment?

A) Collaboration between management and auditors
B) Independence and objectivity of those leading and conducting the work
C) Inclusion of people's perceptions at all levels of the organization
D) All of the above

Question 23

Both management and auditors have a responsibility for fraud risk management.

Question 24

Internal control is a process aimed at proactively identifying and addressing an organization's vulnerabilities to internal and external fraud.

Question 25

To maximize the effectiveness of the fraud risk assessment process, the fraud risk assessment team should include both facts and opinions in its report.

Question 26

One of the first steps in a fraud risk assessment involves identifying potential fraud risks inherent to the organization.

Question 27

Which of the following is not true regarding fraud risk?

A) It can be analyzed quantitatively
B) It results exclusively from sources internal to the organization
C) It can be analyzed qualitatively
D) It encompasses reputation risk

Question 28

Which of the following techniques can be used to evaluate the effectiveness and efficiency of internal controls?

A) Review of the accounting policies and procedures in place
B) Interviews with management and employees
C) Consideration of the risk of management's override of controls
D) All of the above

Question 29

Management should consider which of the following in establishing an acceptable level of fraud risk for the organization?

A) The organization's business objectives
B) The organization's risk tolerance level
C) Both A and B
D) Neither A nor B

Question 30

Which of the following actions might management take in order to transfer a residual fraud risk?

A) Eliminate the related asset
B) Exit the related activity
C) Purchase fidelity insurance
D) Implement countermeasures