Question 1

According to the PCAOB,the detection of material fraud is a reasonable expectation of users of audited financial statements.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following best represents an example of fraud utilizing the lapping technique?

Accepted Answer

A) An employee transfers cash on the last day of the year in order to double record it in the bank accounts. 
B) An employee creates a fictional vendor and requests payment to a personal P.O.box. 
C) An employee opens the mail to cover up payroll fraud received on a fictional person. 
D) An employee covers up the stealing of receipts by posting to the wrong customer accounts.

Question 3

Successful corporate governance depends upon successful management of the company,as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.

Accepted Answer

A) True 
 B)False

Question 4

When fraud risk is great in the organization under audit,procedures applied are likely to be more extensive.

Accepted Answer

A) True 
 B)False

Question 5

Auditors need to consider fraud arising from misappropriation of assets and fraudulent financial reporting.

Accepted Answer

A) True 
 B)False

Question 6

The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following best describes how corporate governance influences an organization?

Accepted Answer

A) To exert control over management. 
B) To hold management accountable for its actions. 
C) To exert control over management and hold management accountable for its actions. 
D) To neither exert control over management or hold management accountable for its actions.

Question 8

The auditor can be satisfied with less than persuasive evidence in the audit process because of the belief that management is honest.

Accepted Answer

A) True 
 B)False

Question 9

Audit committees of publicly traded companies must establish whistleblowing mechanisms within the company.

Accepted Answer

A) True 
 B)False

Question 10

Who is responsible for operating an enterprise?

Accepted Answer

A) The auditor. 
B) The audit committee. 
C) Management. 
D) The board of directors.

Question 11

What type of fraud occurs when the deposits of current investors are used to pay returns on the deposits of previous investors with no real investment happening?

Accepted Answer

A) Skimming. 
B) Ponzi Scheme 
C) Channel Stuffing. 
D) Payroll Fraud.

Question 12

The auditor must perform a brainstorming session with client management in order to plan the procedures to be performed.

Accepted Answer

A) True 
 B)False

Question 13

The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about the Bernie Madoff ponzi scheme is false?

Accepted Answer

A) Madoff too advantage of his unique ties to the investment community (he was the former Chair of the NASDAQ)to create trust and encourage further investments. 
B) Madoff began perpetrating the fraud shortly before passage of the Sarbanes-Oxley Act,and the provisions of that Act ultimately led to discovery of the fraud. 
C) Madoff was sentenced to 150 years in prison. 
D) The estimated amount missing from client accounts,including fabricated gains,was almost $65 billion.

Question 15

Which of the following represents fraud procedures used by auditors?

Accepted Answer

A) The auditor must disregard complex transactions for reasons of economic substance. 
B) The auditor cannot allow the client to pressure the timing of the audit for early release of earnings. 
C) The auditor must put less emphasis on capital additions and more on payroll. 
D) The auditors must no longer use confirmations and move forward to internal verification.

Question 16

An example of fraudulent financial reporting is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following facts should be communicated by the auditor to the audit committee?

Accepted Answer

A) The auditor's responsibilities under GAAP. 
B) All significant audit adjustments. 
C) Significant accounting policies. 
D) All are required communications.

Question 18

According to professional audit standards,the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" session in order to determine the types of fraud that may occur with the client.

Accepted Answer

A) True 
 B)False

Question 19

Internal controls are implemented in order to give perpetrators the impression that the risk of being caught is low.

Accepted Answer

A) True 
 B)False

Question 20

Consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act.

Accepted Answer

A) True 
 B)False

Exam 2: The Risk of Fraud and Mechanisms to Address Fraud: Regulation,corporate Governance,and Audit Quality

According to the PCAOB,the detection of material fraud is a reasonable expectation of users of audited financial statements.

Which of the following best represents an example of fraud utilizing the lapping technique?

Successful corporate governance depends upon successful management of the company,as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.

When fraud risk is great in the organization under audit,procedures applied are likely to be more extensive.

Auditors need to consider fraud arising from misappropriation of assets and fraudulent financial reporting.

The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud.

Which of the following best describes how corporate governance influences an organization?

The auditor can be satisfied with less than persuasive evidence in the audit process because of the belief that management is honest.

Audit committees of publicly traded companies must establish whistleblowing mechanisms within the company.

Who is responsible for operating an enterprise?

What type of fraud occurs when the deposits of current investors are used to pay returns on the deposits of previous investors with no real investment happening?

The auditor must perform a brainstorming session with client management in order to plan the procedures to be performed.

The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist.

Which of the following statements about the Bernie Madoff ponzi scheme is false?

Which of the following represents fraud procedures used by auditors?

An example of fraudulent financial reporting is the treasurer's diversion of hundreds of thousands of dollars into a personal money market account.

Which of the following facts should be communicated by the auditor to the audit committee?

According to professional audit standards,the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" session in order to determine the types of fraud that may occur with the client.

Internal controls are implemented in order to give perpetrators the impression that the risk of being caught is low.

Consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act.