Deck 16: Topics Beyond the Integrated Audit

Question 1

The ACFE is one of the premier organizations for forensic accountants.

Answer 1

True

Question 2

The Institute of Internal Auditors is not the most notable professional organization for internal auditors.

Answer 2

False

Question 3

A forensic accountant performs a fraud investigation with the same mind-set as an accountant working on an audit.

Answer 3

False

Question 4

The ACFE reported that frauds are never detected as a result of tips from whistleblowers.

Question 5

An example of an unrestricted source of information is the Financial Crimes Enforcement Network.

Question 6

The concept of independence from the Institute of Internal Auditors standpoint is different from its meaning in the context of an AICPA or PCAOB audit.

Question 7

Many people misunderstand forensic accounting and believe it is limited to fraud investigations.

Question 8

Evidence outside the company's financial records can be helpful in identifying events that motivate fraud.

Question 9

Forensic accounting's unique aspects allow it to stand apart from other career tracks available to accounting and auditing professionals.

Question 10

Forensic accountants use investigative methods that are similar to audit procedures.

Question 11

The last component of the of the fraud triangle is that the person must be capable of rationalizing or personally justifying his or her illegal behavior.

Question 12

Forensic accountants and auditors approach client interviews the same.

Question 13

Under PCAOB and AICPA audit standards, audits must be planned and designed to provide reasonable assurance that financial statements are free of material misstatements from any source.

Question 14

The scope of a forensic accountant's work is limited to financial statement issues and financial statement fraud.

Question 15

A forensic accountant is often likened to Sherlock Holmes, a sleuth out to solve a crime. Like Sherlock Holmes, forensic accountants are investigators.

Question 16

The term forensic accounting usually refers to fraud investigations and accounting work to support legal actions.

Question 17

In the course of an investigation, forensic accountants may look at evidence from the same perspective as traditional auditors.

Question 18

Forensic accountants rely on the fraud triangle theory.

Question 19

The internal auditor's goal is to help improve the organization's operations, risk management, external controls, and organization management.

Question 20

A forensic accountant, searching for illegal acts and fraud, usually investigates them with a lack of intensity.

Question 21

When a governmental entity meets the $500,000 expenditure threshold, it is subject to a single audit of both its financial statements and its compliance with the provisions of any federal awards it received.

Question 22

Financial statement audits of state and local governments are normally performed by internal auditors.

Question 23

Part 3 of the Circular 133 Compliance Supplement identifies four types of compliance requirements and the related audit objectives for every audit conducted under Circular A-133.

Question 24

The Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 increased the audit burdens on state and local governments.

Question 25

Currently, the Government Accountability Office workforce consists of about 300 employees.

Question 26

Among other responsibilities, the Government Accountability Office conducts and reports on reviews every three months on how the stimulus funds are used by states and localities.

Question 27

As a result of the requirement for accountability, auditors must determine whether government units are in compliance with the provisions of any federal awards received.

Question 28

The SOX Act has not affected the workload of internal auditors.

Question 29

Whether conducted by public accounting firms or accountants working within special state offices, audits of state and local governments involve some activities not required in the financial statement audits of for-profit corporations.

Question 30

When state and local governments receive funds from the United States government, they are held accountable for the expenditures they make using those funds.

Question 31

The principles of the Institute of Internal Auditors Code of Ethics are integrity, objectivity, confidentiality, and competency.

Question 32

A common title for the head of the internal audit function is the Chief Audit Executive.

Question 33

The internal audit function should play an even more vital role within organizations in the years ahead.

Question 34

The Government Accountability Office (GAO) does little more than issue generally accepted government auditing standards (GAGAS).

Question 35

A specific example of the Government Accountability Office's important contribution is its assigned work related to the American Recovery and Reinvestment Act.

Question 36

Because of the need for objectivity in internal audit activities, the Institute of Internal Auditors recommends that the Chief Audit Executive report directly to the corporate controller.

Question 37

The Government Accountability Office operates as an independent, nonpartisan body and is headed by the Comptroller General.

Question 38

Internal auditors do not need to follow a code of ethics.

Question 39

The schedule of audit findings summarizes the results of the audit.

Question 40

External auditors are organizationally independent because they work for a different entity.

Question 41

One of the premier organizations for forensic accountants is the:

A) Association of Investigative Forensic Services.
B) Association of Certified Fraud Examiners.
C) Association of Ligation Support.
D) Association of Legal Investigators.
E) Association of Fraud Investigators.

Question 42

Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company?

A) An audit engagement to render an opinion on the entity's internal control structure.
B) An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure
C) A compilation engagement to render an opinion on the entity's internal control structure.
D) A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control structure.
E) A consulting engagement to provide constructive advice to the entity on its internal control structure.

Question 43

Entities hire public accounting firms to provide financial statement services other than audits.

Question 44

Before compiling financial statements, an accountant must be knowledgeable about the accounting principles and practices of the industry in which the entity operates.

Question 45

Certified public accountants follow the AICPA Statements on Standards for Accounting and Review Services when performing reviews and compilations.

Question 46

Compiled financial statements of a nonpublic entity should be accompanied by a report stating that:

A) the accountant does not express an opinion or any other form of assurance on the financial statements.
B) the scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management.
C) the accountant assessed the accounting principles used and significant estimates made by management.
D) a compilation consists primarily of inquiries of entity personnel and analytical procedures applied to financial data.
E) the financial statements were not audited.

Question 47

Compilations and reviews are two types of engagements commonly desired by nonpublic companies.

Question 48

The accountant has to perform steps to verify the accuracy or integrity of the information provided by management for a compilation engagement.

Question 49

In a compilation engagement, an accountant drafts financial statements of an entity based on information provided by the audit committee.

Question 50

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonpublic entity?

A) Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles
B) Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit
C) Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors
D) Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components
E) The preparation of a cutoff bank reconciliation

Question 51

Which of the following procedures should an accountant perform during an engagement to review the financial statements of a nonpublic entity?

A) Communicate reportable conditions discovered during the assessment of control risk.
B) Send bank confirmation letters to the entity's financial institutions.
C) Obtain a client representation letter from members of management.
D) Examine cash disbursements in the subsequent period for unrecorded liabilities.
E) Prepare the end-of-the-year bank reconciliation.

Question 52

The accountant needs to establish an understanding with the client about the terms of the engagement, any limitations on the use of the financial statements, and the understanding through a written communication with management.

Question 53

When providing limited assurance that the reviewed financial statements of a nonpublic entity require no material modifications to be in accordance with generally accepted accounting principles, the accountant should

A) assess the risk that a material misstatement could occur in a financial statement assertion.
B) confirm with the entity's lawyer that material loss contingencies are disclosed.
C) understand the accounting principles of the industry in which the entity operates.
D) develop audit plans to determine whether the entity's financial statements are fairly presented.

Question 54

Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a publicly held entity?

A) Verify changes in key account balances.
B) Inspect the open purchase order file.
C) Perform cut-off tests for cash receipts and disbursements.
D) Recalculate important estimates.
E) Read the minutes of the board of directors' meetings.

Question 55

Statements on Standards for Accounting and Review Services (SSARS) are codified in the AP section of the AICPA Professional Standards.

Question 56

Many people mistakenly believe forensic accounting is limited to:

A) client interviews.
B) fraud detection.
C) fraud investigations.
D) reward systems.
E) the fraud triangle theory.

Question 57

Fraud investigations and accounting work to support legal actions refers to:

A) forensic accounting.
B) internal auditing.
C) vendor fraud.
D) customer fraud.
E) identity theft.

Question 58

The GAO issues an annual Performance and Accountability Report that summarizes the results of its work and provides audited financial statements.

Question 59

When an accountant is engaged to compile a nonpublic entity's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are:

A) prepared in conformity with a comprehensive basis of accounting other than GAAP.
B) not compiled in accordance with Statements on Standards for Accounting and Review Services.
C) special-purpose financial statements that are not comparable to those of prior periods.
D) not designed for those who are uniformed about the omitted disclosures.
E) prepared on an interim basis.

Question 60

The financial statements prepared in a compilation engagement may be for management use only or management and third-party use.

Question 61

Forensic accountants rely on the:

A) identify theft theory.
B) tax evasion theory.
C) vendor fraud theory.
D) fraud triangle theory.
E) customer fraud theory.

Question 62

In regard to a review of a of a nonpublic company's financial statements, the level of assurance provided by the accountant's report falls between an audit and a(n):

A) forecast.
B) projection.
C) examination.
D) compilation.
E) agreed upon procedures engagement.

Question 63

The GAO is headed by the:

A) Comptroller General.
B) U.S. Congress.
C) Acquisition General.
D) Applied Research General.
E) Investigating General.

Question 64

The schedule of audit findings summarizes the:

A) objectives of the GAO.
B) objectives of the Yellow Book.
C) results of the audit.
D) objectives of field work.
E) objectives of integrity.

Question 65

In addition to ethical guidance, the Yellow Book contains the following standards:

A) compliance standards.
B) recovery standards.
C) reinvestment standards.
D) retention standards.
E) field work standards.

Question 66

The GAO issues an annual:

A) Financial Statement Compliance Report.
B) Performance and Accountability Report.
C) Acquisition and Sourcing Report.
D) Applied Research Report.
E) Defense Capabilities Report.

Question 67

Financial statement audits of state and local governments are performed by:

A) internal auditors.
B) external auditors.
C) governmental auditors.
D) GAO auditors.
E) IRS auditors.

Question 68

Letters for underwriters are commonly called:

A) general use letters.
B) target letters.
C) comfort letters.
D) due diligence letters.
E) financial letters.

Question 69

The Yellow Book identifies the following ethical principles except:

A) integrity.
B) objectivity.
C) professional behavior.
D) the private interest.
E) proper use of government information, resources, and position.

Question 70

Forensic accounting stands apart from other career tracks in accounting and auditing because of its:

A) current enthusiasm.
B) unique aspects.
C) head start.
D) places to go.
E) evidence evaluation.

Question 71

A review of a public company consists primarily of inquiry and:

A) dual purpose tests.
B) scanning.
C) tracing.
D) calculation reperformance.
E) analytical procedures.

Question 72

The following are all principles of the Institute of Internal Auditors Code of Ethics except:

A) integrity.
B) objectivity.
C) confidentiality.
D) reliability.
E) competency.

Question 73

Companies are required to have an auditor complete a review of interim financial information before filing which form with the SEC?

A) 10Q
B) 8Q
C) 12Q
D) 6Q
E) 4Q

Question 74

A common title for the head of the internal audit function is the:

A) Head Audit Honcho.
B) Internal Audit Leader.
C) Chief Audit Executive.
D) Chief Audit Officer.
E) Independent Internal Auditor.

Question 75

In a compilation engagement, an accountant drafts financial statements of an entity based on information provided by the:

A) shareholders.
B) audit committee.
C) management or owners.
D) board of directors.
E) company.

Question 76

The forensic accountant's mind-set is that all cases may involve:

A) materiality thresholds.
B) attitudes of employees.
C) management's values.
D) reward systems.
E) illegal acts.

Question 77

Internal auditors are guided by professional standards known as:

A) the SOX Act.
B) the Attribute Standards for the Professional Practice of Internal Auditing.
C) the Consulting Standards for the Professional Practice of Internal Auditing.
D) the Attribute Performance Standards for the Professional Practice of Internal Auditing.
E) the International Standards for the Professional Practice of Internal Auditing.

Question 78

The procedures in a review of interim financial information of a public company are similar to those in a SSARS review of financial statements for a:

A) not-for-profit company.
B) private company.
C) governmental entity.
D) nonpublic company.
E) service entity.

Question 79

The audit burdens on state and local governments were reduced by the:

A) Office of Management and Budget.
B) Single Audit Act of 1984 and the Single Audit Amendments of 1996.
C) Multiple Audit Act.
D) Yellow Book.
E) Government Accountability Office.

Question 80

Which one of the following can be helpful in identifying events that motivate fraud?

A) Evidence outside the company's financial records.
B) Employees living beyond their means.
C) Corporate and partnership records.
D) Restricted databases.
E) Large business receipts.