Question 1

Most audit committees have the authority to investigate any matters within the scope of their responsibility, including internal control deficiencies, concerns about the financial reporting process, suspected corruption, and alleged illegal acts.

Accepted Answer

A) True 
 B)False  True

Question 2

What are the main components of the fraud risk assessment process?

Accepted Answer

An overview of the fraud risk assessment process includes the following components:
•Evaluate the fraud risk factors
•Identify possible fraud schemes and scenarios
•Prioritize individual fraud risks
•Evaluate mitigating controls for those fraud schemes that are reasonably possible or probable of occurrence and are more than inconsequential or material.

Question 3

A fraudster, aided by the digital age, can easily minimize the amount of information captured concerning his nefarious activities.

Accepted Answer

A) True 
 B)False  False

Question 4

As related to operations, the internal auditors evaluate:

Accepted Answer

A)   division profitability.
B)   product line profitability.
C)   segment profitability.
D)   All of the choices are correct.

Question 5

Common tipsters for fraud are employees, co-workers, managers, and outside colleagues who interact with the fraudster daily, weekly, or monthly.

Accepted Answer

A) True 
 B)False

Question 6

The main deterrent for fraud in the corporate environment:

Accepted Answer

A)   remains the internal audit team.
B)   remains the external audit team.
C)   is the threat of getting caught.
D)   is the effectiveness of the SEC and FBI investigators.

Question 7

It is said the nonfinancial numbers are powerful tools for the fraud examiner. Explain why and provide examples of how.

Accepted Answer

The answer of It is said the nonfinancial numbers are...

Question 8

How is materiality determined?

Accepted Answer

The answer of How is materiality determined?...

Question 9

Provide at least five examples of typical internal control weaknesses.

Accepted Answer

The answer of Provide at least five examples of typical...

Question 10

Data mining software such as Access, ACL, or IDEA allow a large amount of data to be evaluated quickly for symptoms of fraud and provide evidence of the fraud act or concealment of the fraud..

Accepted Answer

A) True 
 B)False

Question 11

The fraud examiner categorizes schemes in three ways, Category 1, Category 2, and Category 3. Explain each category.

Accepted Answer

The answer of The fraud examiner categorizes schemes in three...

Question 12

As a result of its significant concern with financial statement fraud, the accounting profession responded in 2002 with:

Accepted Answer

A)   SAS No. 1 - Consideration of Fraud in a Financial Statement Audit.
B)   SAS No. 99 - Consideration of Fraud in a Financial Statement Audit.
C)   the creation of the Public Company Accounting Oversight Board PCAOB.
D)   guidance to overcome the "expectation gap" held by the public.

Question 13

The second step to develop an approach to fraud detection is to:

Accepted Answer

A)   develop an understanding of the control environment.
B)   develop a system of internal controls.
C)   define the authority of the audit committee.
D)   identify the members of internal audit and the audit committee.

Question 14

Anomalies are:

Accepted Answer

A)   most often red flags that indicate fraud is present.
B)   part of the day-to-day operations for most companies.
C)   seldom seen in companies with good internal controls and procedures.
D)   Both "A" and "C" are correct.

Question 15

A major difference between auditors and fraud examiners is that most auditors match documents to numbers to see whether support exists and is adequate, whereas fraud examiners determine whether the documents are real or fraudulent..

Accepted Answer

A) True 
 B)False

Question 16

Red flags, symptoms of fraud, often go unnoticed or are not vigorously pursued because:

Accepted Answer

A)   there is not supporting evidence of fraud.
B)   the red flags are not associated with financial statement preparation.
C)   there are many red flags in day-to-day operations that are not fraud indicators.
D)   the audit committee is involved in other investigations.

Question 17

CAATTS computer-aided auditing tools and techniques are used primarily to select samples and detect collusion .

Accepted Answer

A) True 
 B)False

Question 18

Earnings management may:

Accepted Answer

A)   increase current period net income.
B)   decrease current period net income.
C)   may involve "consuming" prior period reserves for current period performance.
D)   All of the choices are correct.

Question 19

What are the primary responsibilities of management?

Accepted Answer

The answer of What are the primary responsibilities of management?...

Question 20

Upon discovering fraud, internal auditors:

Accepted Answer

A)   must fully investigate it and determine perpetrators, value, damage, and recommend possible action.
B)   should only continue their investigation if the fraud is in the present or immediately previous period.
C)   have an obligation to notify management or the board of directors when the incidence of significant fraud has been established to a reasonable degree of certainty.
D)   must provide the audit committee and the board of directors with a preliminary written statement detailing the known facts and presenting reasonable suspicions as to perpetrators, values, methods, and time periods affected.

Exam 7: Fraud Detection: Red Flags and Targeted Risk Assessment

Most audit committees have the authority to investigate any matters within the scope of their responsibility, including internal control deficiencies, concerns about the financial reporting process, suspected corruption, and alleged illegal acts.

What are the main components of the fraud risk assessment process?

A fraudster, aided by the digital age, can easily minimize the amount of information captured concerning his nefarious activities.

As related to operations, the internal auditors evaluate:

Common tipsters for fraud are employees, co-workers, managers, and outside colleagues who interact with the fraudster daily, weekly, or monthly.

The main deterrent for fraud in the corporate environment:

It is said the nonfinancial numbers are powerful tools for the fraud examiner. Explain why and provide examples of how.

How is materiality determined?

Provide at least five examples of typical internal control weaknesses.

Data mining software such as Access, ACL, or IDEA allow a large amount of data to be evaluated quickly for symptoms of fraud and provide evidence of the fraud act or concealment of the fraud..

The fraud examiner categorizes schemes in three ways, Category 1, Category 2, and Category 3. Explain each category.

As a result of its significant concern with financial statement fraud, the accounting profession responded in 2002 with:

The second step to develop an approach to fraud detection is to:

Anomalies are:

A major difference between auditors and fraud examiners is that most auditors match documents to numbers to see whether support exists and is adequate, whereas fraud examiners determine whether the documents are real or fraudulent..

Red flags, symptoms of fraud, often go unnoticed or are not vigorously pursued because:

CAATTS computer-aided auditing tools and techniques are used primarily to select samples and detect collusion .

Earnings management may:

What are the primary responsibilities of management?

Upon discovering fraud, internal auditors: