Deck 5: Audit Evidence and the Auditors Responsibility for Fraud Detection

Question 1

Which of the following are audit procedures used by the auditor to gather evidence?

A)anecdotal procedures
B)inspection
C)analysis
D)investigation
E)confirmation
F)both A and C
G)both B and E

Answer 1

G

Question 2

During which stage(s)of the audit are auditors required to perform analytical procedures?

A)Planning stage
B)Testing stage
C)Evaluation stage
D)Final stage
E)Reporting stage
F)both A and D
G)both B and E

Answer 2

F

Question 3

In documenting the nature,timing,and extent of audit procedures,the auditor only has to indicate the date the work was reviewed and who performed the audit work.

Answer 3

False

Question 4

Which of the following is a type of analytical procedure?

A)scanning
B)observation
C)inquiry
D)reperformance

Question 5

The auditor's assessment of fraud is part of his or her assessment of the risk of material misstatement and has an impact on the evidence gathered by the audit.

Question 6

Which of the following are audit procedures used by the auditor to gather evidence?

A)anecdotal procedures
B)interpretation
C)observation
D)investigation
E)confirmation
F)both A and B
G)both C and D
Both C and E

Question 7

The auditing standards describe audit evidence as the "information used by the auditor in arriving at the conclusions on which the auditor's opinion is based."

Question 8

The auditor may consider withdrawing from the engagement if there is a significant risk of material misstatement in the financial statements.

Question 9

If the auditor's evidence fails to support an assertion,the auditor then proposes an adjusting entry or modifies the financial statement disclosures so that the financial statements are consistent with the assertion.

Question 10

The auditor is responsible for gathering evidence to determine that there are no material errors in the financial statements.

Question 11

The auditor performs analytical procedures to identify changes in the financial statements in the current year compared to the prior year that are

A)inconsistent with the expectations of management
B)inconsistent with other information known to the auditor
C)represent larger fluctuations than the auditor might expect
D)consistent with the prior year
E)inconsistent with the footnotes on subsequent events
F)both A and B
G)both B and C

Question 12

When the auditor performs analytical procedures

A)he evaluates the financial statements in the prior year by analyzing relationships between both financial and nonfinancial data.
B)he evaluates the financial statements in the current year by analyzing relationships between both financial and nonfinancial data.
C)he reviews the financial statements in the prior year by evaluating relationships between both financial and nonfinancial data.
D)he reviews the financial statements in the current year by evaluating relationships between both financial and nonfinancial data.

Question 13

Which of the following are audit procedures used by the auditor to gather evidence?

A)analytical procedures
B)interpretation
C)observation
D)investigation
E)communication
F)both A and C
G)both D and E

Question 14

Vouching is a relevant procedure for obtaining evidence about the completeness assertion.

Question 15

Which of the following are audit procedures used by the auditor to gather evidence?

A)anecdotal procedures
B)inspection
C)analysis
D)inquiry
E)communication
F)both A and C
G)both B and D

Question 16

The auditing standards require the auditor to control the risk of material misstatement due to fraud to an acceptably low level.

Question 17

The management of a company has a unique ability to perpetrate fraud because often internal controls only apply to transactions that occur frequently in a company,such as estimation transactions initiated by management.

Question 18

Which of the following are audit procedures used by the auditor to gather evidence?

A)analytical procedures
B)interpretation
C)analysis
D)inquiry
E)communication
F)both A and D
G)both B and C

Question 19

The nature of evidence refers to the purpose of the evidence (internal control test or substantive test)and the specific audit procedure used to gather the evidence (inspection,observation,inquiry,confirmation,recalculation,reperformance,or analytical procedure).

Question 20

Evidence is important to the audit because the only way the auditor can obtain reasonable assurance that the financial statements are prepared in accordance with the applicable financial reporting framework is

A)when the auditor has sufficient appropriate evidence to reduce the risk of material misstatement to an acceptably low level
B)when the auditor has sufficient appropriate evidence to provide reasonable assurance that the financial statements are fairly presented
C)when the auditor has sufficient appropriate evidence to reduce audit risk to an acceptably low level
D)when the auditor has sufficient appropriate evidence to reduce detection risk to an acceptably low level

Question 21

The nature of the evidence refers to

A)the amount of evidence gathered during internal control testing or the sample size necessary for substantive tests of balances and transactions
B)whether the evidence collection is gathered at an interim basis or at year end
C)the purpose of the evidence and the specific audit procedure used to gather the evidence
D)the relationship between the evidence gathered and the transaction being tested

Question 22

The higher the risk of material misstatement,the more likely the auditor is to

A)gather more relevant and reliable evidence of fraud
B)perform substantive tests at or near year end
C)increase the extent of control testing
D)keep the risk of misstatement to an acceptable low level

Question 23

The relationship between risk and the extent of testing is

A)As the risk of material misstatement increases,the auditor increases the extent of an audit procedure
B)As the risk of material misstatement decreases,the auditor decreases the extent of substantive audit procedures and increases internal control testing
C)As the risk of material misstatement increases,the auditor decreases internal control testing and increases the extent of substantive audit procedures
D)The auditor may use computer-assisted audit techniques to test an entire population rather than take a sample as the risk of material misstatement increases
E)The auditor is required to use computer-assisted audit techniques to test an entire population rather than take a sample as the risk of material misstatement increases
F)both A and B
G)both A and D

Question 24

The auditor uses the "inquiry" process when he

A)acquires information from records or documents in paper form
B)acquires information from records or documents in electronic form
C)acquires information from knowledgeable people within the company
D)acquires information from knowledgeable people outside the company
E)acquires information from analytical procedures in the risky accounts
F)both A and B
G)both C and D

Question 25

The auditor uses assertions to

A)structure internal control testing
B)structure analytical procedures
C)verify internal control testing
D)structure substantive testing
E)verify management representations
F)both A and D
G)both C and E

Question 26

The "relevance" of information

A)is related to the source and nature of the evidence and the circumstances under which the evidence is obtained
B)is related to the legality of the evidence and the circumstances under which the evidence is obtained
C)is related to the connection between the purpose of the audit evidence and the evidence gathered by the audit procedure
D)is related to the purpose of the audit evidence and the variety of evidence gathered by the audit procedure

Question 27

The auditor uses the "external confirmation" procedure when he

A)obtains a written response directly from a third party in electronic form
B)obtains a written response directly from a third party in paper form
C)considers the third party not to be independent of the client
D)has had experience to suggest that the replies are not reliable
E)wants to obtain evidence about internal processes in the company
F)both A and B
G)both C and D

Question 28

The auditor uses the "observation" procedure when he

A)looks at records or documents in paper form
B)looks at records or documents in electronic form
C)performs substantive testing on risky balances
D)looks at a process or procedure performed by the client
E)performs analytical procedures in the risky accounts

Question 29

The auditor uses the "inspection" procedure when he

A)examines records or documents in paper form
B)examines records or documents in electronic form
C)performs substantive testing on risky balances
D)performs substantive testing in the risky accounts
E)performs analytical procedures in the risky accounts
F)both A and B
G)both B and C

Question 30

The higher the risk of material misstatement,the more likely the auditor is to

A)gather more relevant and reliable evidence
B)perform substantive tests at an interim period
C)increase the extent of control testing
D)keep the risk of misstatement to an acceptable low level

Question 31

The higher the risk of material misstatement,the more likely the auditor is to

A)gather more relevant and reliable evidence of fraud
B)perform substantive tests at an interim time period
C)increase the extent of substantive testing
D)keep the risk of misstatement to an acceptable low level

Question 32

Which of the following is not a method the auditor can use to alter the evidence process related to risk?

A)the auditor can change the nature of evidence
B)the auditor can change the timing of the evidence
C)the auditor can change the extent of evidence gathered in response to the risk assessment
D)the auditor can change the reliability of evidence gathered in response to the risk assessment

Question 33

The extent of audit evidence is related to

A)the amount of evidence gathered during internal control testing or the sample size necessary for substantive tests of balances and transactions
B)whether the evidence collection is gathered at an interim basis or at year end
C)the purpose of the evidence and the specific audit procedure used to gather the evidence
D)the relationship between the evidence gathered and the transaction being tested

Question 34

The "reliability" of evidence

A)is related to the legality of the evidence and the circumstances under which the evidence is obtained
B)is related to the source and nature of the evidence and the circumstances under which the evidence is obtained
C)is related to the connection between the purpose of the audit evidence and the evidence gathered by the audit procedure
D)is related to the purpose of the audit evidence and the variety of evidence gathered by the audit procedure

Question 35

The "sufficiency" of audit evidence is

A)a measure of the quantity of evidence needed
B)a measure of the quality of audit evidence needed
C)a measure of the relevance of the evidence needed
D)a measure of the reliability of the evidence

Question 36

The auditor uses the "recalculation" procedure when he

A)examines the many schedules prepared by the client
B)examines invoices
C)performs substantive testing
D)checks the mathematical accuracy of documents or records electronically
E)checks the mathematical accuracy of documents or records manually
F)both A and B
G)both D and E

Question 37

The timing of evidence collection is related to

A)the amount of evidence gathered during internal control testing or the sample size necessary for substantive tests of balances and transactions
B)whether the evidence is gathered at an interim basis or at year end
C)the purpose of the evidence and the specific audit procedure used to gather the evidence
D)the relationship between the evidence gathered and the transaction being tested

Question 38

The auditor uses the "reperformance" procedure when he

A)reviews the design of the procedures or controls that were originally performed by the client as part of the company's internal controls.
B)analyzes the procedures or controls that were originally performed by the client as part of the company's internal controls.
C)executes the procedures or controls that were originally performed by the client as part of the company's internal controls.
D)reviews the procedures or controls that were originally performed by the client as part of the company's internal controls.

Question 39

The "appropriateness" of audit evidence is

A)a measure of the quantity of evidence needed
B)a measure of the quality of audit evidence needed
C)a measure of the relevance of the evidence needed
D)a measure of the reliability of the evidence

Question 40

Audit documentation

A)is referred to as an electronic file
B)includes a record of the audit procedures attempted
C)includes a record of the audit evidence obtained
D)includes a record of the conclusions reached by the auditor from a review of the evidence
E)may not be recorded on paper
F)both A and B
G)both C and D

Question 41

Significant findings are to be documented by the auditor,including actions taken to address them and the basis for the final conclusion reached.Findings that might be significant include

A)accounting for complex or unusual assertions or accounting predictions
B)results of audit procedures indicating that the financial statements or disclosure are not misstated or the need for an auditor to revise his previous assessment of the risk of misstatement
C)circumstances that made it difficult for the auditor to apply auditing procedures
D)findings that could result in modifications to the auditor's report
E)adjustments that the auditor has made to the financial statements
F)both A and B
G)both C and D

Question 42

Audit documentation

A)is referred to as working papers or workpapers
B)includes a record of the audit procedures attempted
C)includes a record of the audit file obtained
D)includes a record of the assumptions reached by the auditor from a review of the evidence
E)may be recorded on paper or in electronic form
F)both A and C
G)both A and E

Question 43

The auditor should complete the assembly of the final audit file within 45 days of the report release date (60 days for private companies).After the 45/60 day time period

A)the auditor should not delete or discard any information from the file
B)new information can be added if necessary if accompanied by an explanation for the addition
C)new information can be added if necessary if accompanied by management's approval for adding the information
D)new information can be added if necessary if accompanied by the reissuance of the audit report
E)new information can be added if necessary if the information was inadvertently omitted during the course of the audit
F)both A and B
G)both A and D

Question 44

Significant findings are to be documented by the auditor,including actions taken to address them and the basis for the final conclusion reached.Findings that might be significant include

A)accounting for complex or unusual transactions or accounting estimates or uncertainties
B)results of audit procedures indicating that the financial statements or disclosure could be materially misstated or the need for an auditor to revise his previous assessment of the risk of material misstatement
C)circumstances that made it relatively easy for the auditor to apply auditing procedures
D)findings that could result in modifications to management's report
E)adjustments that the auditor has made to the financial statements
F)both A and B
G)both C and D

Question 45

Significant findings are to be documented by the auditor,including actions taken to address them and the basis for the final conclusion reached.Findings that might be significant include

A)accounting for complex or unusual transactions or accounting estimates or uncertainties
B)results of audit procedures indicating that the financial statements or disclosure are not misstated or the need for an auditor to revise his previous assessment of the risk of misstatement
C)circumstances that made it relatively easy for the auditor to apply auditing procedures
D)findings that could result in modifications to management's report
E)adjustments that the auditor has proposed to the financial statements
F)both A and E
G)both B and D
H)both D and E

Question 46

In documenting the nature,timing,and extent of audit procedures,the auditor should indicate

A)who authorized the work
B)the date the work was completed
C)who reviewed the work
D)the results of the review
E)the results of the risk assessment
F)both A and D
G)both B and C

Question 47

The auditor should complete the assembly of the final audit file within 45 days of the report release date (60 days for private companies).After the 45/60 day time period

A)the auditor should not delete or discard any information from the file
B)new information can be added if necessary if accompanied by management's explanation for the addition
C)new information can be added if necessary if accompanied by the reissuance of the audit report
D)new information can be added if necessary if accompanied by the effect of the new information on the auditor's conclusions
E)new information can be added if necessary if the information was inadvertently omitted during the course of the audit
F)both A and B
G)both A and D

Question 48

Audit documentation

A)is referred to as working papers or workpapers
B)includes a record of the audit procedures the auditor might choose to perform
C)includes a record of the audit evidence obtained
D)includes a record of the assumptions reached by the auditor from a review of the evidence
E)may not be recorded on paper
F)Both A and B
G)Both A and C

Question 49

Audit documentation

A)is referred to as an electronic file
B)includes a record of the audit procedures performed
C)includes a record of the audit file obtained
D)includes a record of the conclusions reached by the auditor from a review of the evidence
E)may not be recorded on paper
F)both A and B
G)both B and D
H)both C and D

Question 50

The auditor should complete the assembly of the final audit file within 45 days of the report release date (60 days for private companies).After the 45/60 day time period

A)the auditor should not delete or discard any information from the file
B)new information can be added if necessary if accompanied by management's approval for the addition
C)new information can be added if necessary if accompanied by the name of the person adding the information
D)new information can be added if necessary if accompanied by the reissuance of the audit report
E)new information can be added if necessary if the information was inadvertently omitted during the course of the audit
F)both A and C
G)both A and E

Question 51

In documenting the nature,timing,and extent of audit procedures,the auditor should indicate

A)who performed the work
B)the date the work was started
C)who reviewed the work
D)the results of the review
E)the results of the risk assessment
F)both A and C
G)both B and D
H)both A and E

Question 52

Audit documentation

A)is referred to as an electronic file
B)includes a record of the audit procedures performed
C)includes a record of the audit file obtained
D)includes a record of the assumptions reached by the auditor from a review of the evidence
E)may be recorded on paper or in electronic form
F)both A and C
G)both B and E

Question 53

Significant findings are to be documented by the auditor,including actions taken to address them and the basis for the final conclusion reached.Findings that might be significant include

A)accounting for complex or unusual assertions or accounting predictions
B)results of audit procedures indicating that the financial statements or disclosure are not misstated or the need for an auditor to revise his previous assessment of the risk of misstatement
C)circumstances that made it relatively easy for the auditor to apply auditing procedures
D)findings that could result in modifications to the auditor's report
E)adjustments that the auditor has proposed to the financial statements
F)both A and C
G)both B and D
Both D and E

Question 54

In documenting the nature,timing,and extent of audit procedures,the auditor should indicate

A)who performed the work
B)the date the work was started
C)the results of the review of the work
D)the date of the review
E)the results of the risk assessment
F)both A and D
G)both B and D
H)both A and E

Question 55

Audit documentation

A)is the property of the client
B)is the property of the auditor
C)is the property of the AICPA
D)cannot be reviewed by a court of law hearing a case involving the client

Question 56

What are the types of fraud that might occur in a company?

A)misstatements might occur when unearned revenue is not properly recorded
B)misstatements might occur from fraudulent financial reporting
C)misstatements might occur when assets are misappropriated from the business
D)misstatements might occur when inventory is not properly counted
E)misstatements might occur when management adjustments are made at the end of the reporting period
F)Both B and C

Question 57

In documenting the nature,timing,and extent of audit procedures,the auditor should indicate

A)who authorized the work
B)the date the work was completed
C)the results of the review of the work
D)the date of the review
E)the results of the risk assessment
F)both A and C
G)both B and D
H)both A and E

Question 58

The auditor's responsibility for fraud detection is to:

A)plan the audit so sufficient appropriate evidence is gathered to determine whether the auditor has reasonable assurance that the financial statements are free of material misstatement from fraud or error
B)plan the audit so sufficient appropriate evidence is gathered to determine whether the financial statements are free of misstatement
C)plan the audit so sufficient appropriate evidence is gathered to determine whether the financial statements are free of material misstatement from fraud or error
D)plan the audit so sufficient evidence is gathered to determine whether the financial statements are free of misstatement

Question 59

The primary responsibility for fraud prevention and detection rests with

A)the law enforcement authorities
B)the auditor
C)the management of the company
D)the legal counsel of the company

Question 60

Significant findings are to be documented by the auditor,including actions taken to address them and the basis for the final conclusion reached.Findings that might be significant include

A)accounting for complex or unusual assertions or accounting predictions
B)results of audit procedures indicating that the financial statements or disclosure could be materially misstated or the need for an auditor to revise his previous assessment of the risk of material misstatement
C)circumstances that made it difficult for the auditor to apply auditing procedures
D)findings that could result in modifications to management's report
E)adjustments that the auditor has made to the financial statements
F)both A and D
G)both B and C

Question 61

The condition,opportunity to commit fraud,is present when

A)An individual believes that he is underpaid
B)An individual believes that the company has plenty of money
C)An individual believes that the company does not deal with customers fairly
D)An individual believes that internal controls can be overridden

Question 62

When misappropriation of assets occurs,

A)management failed to provide adequate employee procedures
B)improper authorization of duties has occurred
C)internal controls are often weak or not properly designed to prevent fraud
D)the misappropriation may cause the company to issue fraudulent financial statements
E)physical controls were not adequate to limit access to assets
F)both A and B
G)both C and D

Question 63

Management can override controls by

A)suggesting fictitious journal entries (particularly at year end)
B)inappropriately changing assumptions and methods used to estimate account balances
C)omitting,advancing,or delaying modification of events that occurred during the reporting period
D)failing to disclose facts that could affect the amounts recorded in the financial statements
E)engaging in complex transactions designed to represent the financial condition of the company
F)both A and C
G)both B and D
H)both C and E

Question 64

The auditor is expected to

A)modify the audit opinion when fraud occurs
B)gather evidence to prevent two types of fraud (fraudulent financial reporting and misappropriation of assets)to determine that the financial statements are free of material misstatements
C)gather evidence to evaluate two types of fraud (fraudulent financial reporting and misappropriation of assets)to determine that the financial statements are free of material misstatements
D)report all fraud in the audit report

Question 65

Some personal financial problems that put pressure on management to engage in fraudulent activities include

A)addictions (gambling,alcohol,drugs)
B)recent inheritance
C)family member taking a new job
D)promotion with relocation to another city
E)high medical expenses
F)both A and C
G)both A and E
H)both C and E

Question 66

An individual engaging in fraudulent activity

A)frequently has a complaint against the company
B)is usually under paid
C)is working for a company with excess cash
D)may rationalize that the action is justifiable

Question 67

Misappropriation of a company's assets can be done in the following ways:

A)embezzling revenues
B)using physical assets or intellectual property
C)making payment for goods and services not received
D)using the company's liabilities for personal reasons

Question 68

Misappropriation of a company's assets can be done in the following ways:

A)embezzling cash
B)using physical assets or intellectual property
C)making payment for goods and services not shipped
D)using the company's liabilities for personal reasons

Question 69

Misappropriation of a company's assets can be done in the following ways:

A)embezzling revenues
B)stealing physical assets or intellectual property
C)making payment for goods and services not shipped
D)using the company's liabilities for personal reasons

Question 70

In which ways can management prepare fraudulent financial statements?

A)they can manipulate,falsify,or alter accounting records used to prepare financial statements
B)they can intentionally include events,transactions,or other significant information
C)they can intentionally apply accounting principles
D)they can arrange for control activities to be improperly monitored

Question 71

Three conditions are present in a company when fraud occurs.They are

A)revenge,opportunity,and rationalization
B)pressure,revenge,and rationalization
C)pressure,opportunity,and rationalization
D)pressure,opportunity,and revenge

Question 72

In which ways can management prepare fraudulent financial statements?

A)they can steal cash
B)they can misrepresent or intentionally omit events,transactions,or other significant information
C)they can intentionally apply accounting principles
D)they can arrange for control activities to be improperly monitored

Question 73

In which ways can management prepare fraudulent financial statements?

A)they can steal cash
B)they can intentionally include events,transactions,or other significant information
C)they can intentionally misapply accounting principles
D)they can arrange for control activities to be improperly monitored

Question 74

Management can override controls by

A)recording fictitious journal entries (particularly at year end)
B)appropriately changing assumptions and methods used to estimate account balances
C)omitting,advancing,or delaying recognition of events that occurred during the reporting period
D)disclosing facts that could affect the amounts recorded in the financial statements
E)engaging in complex transactions designed to represent the financial condition of the company
F)both A and B
G)both A and C
H)both D and E

Question 75

Management can override controls by

A)suggesting fictitious journal entries (particularly at year end)
B)inappropriately changing assumptions and methods used to estimate account balances
C)omitting,advancing,or delaying modification of events that occurred during the reporting period
D)disclosing facts that could affect the amounts recorded in the financial statements
E)engaging in complex transactions designed to misrepresent the financial condition of the company
F)both A and D
G)both B and E
H)both C and E

Question 76

Management can override controls by

A)suggesting fictitious journal entries (particularly at year end)
B)appropriately changing assumptions and methods used to estimate account balances
C)omitting,advancing,or delaying recognition of events that occurred during the reporting period
D)disclosing facts that could affect the amounts recorded in the financial statements
E)engaging in complex transactions designed to misrepresent the financial condition of the company
F)both A and C
G)both B and D
Both C and E

Question 77

The term "earnings management" is often used to refer to management's efforts to

A)manipulate revenues so as to increase earnings
B)manage earnings in order to show less volatility in earnings from year to year
C)manipulate expenses so as to increase earnings
D)make the company as profitable as possible

Question 78

The management of a company has a unique ability to perpetrate fraud because

A)management has authority to develop internal controls
B)management has authority over employees
C)internal controls do not guarantee that a fraud will not occur
D)management often has the ability to override internal controls

Question 79

Management can override controls by

A)recording fictitious journal entries (particularly at year end)
B)appropriately changing assumptions and methods used to estimate account balances
C)omitting,advancing,or delaying modification of events that occurred during the reporting period
D)failing to disclose facts that could affect the amounts recorded in the financial statements
E)engaging in complex transactions designed to represent the financial condition of the company
F)both A and C
G)both A and D
H)both B and D

Question 80

Misappropriation of a company's assets can be done in the following ways:

A)embezzling revenues
B)using physical assets or intellectual property
C)making payment for goods and services not shipped
D)using the company's assets for personal reasons