Question 1

Factors that may influence the extent of fraud discussion among audit team members include

Accepted Answer

A) if there is an ongoing fraud investigation,the subject should be avoided 
B) any frauds reported by management should be excluded from the discussion 
C) the auditor may also consider whether the specialists assigned to the audit team should be included in the discussions 
D) if the audit involves the corporate headquarters,corporate counsel should be invited 
E) if the audit involves more than one location,there may be multiple fraud discussions
F)both A and B
G)both B and C
H)Both C and E

Question 2

The auditor uses the "reperformance" procedure when he

Accepted Answer

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 3

In which ways can management prepare fraudulent financial statements?

Accepted Answer

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 4

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

Accepted Answer

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

Question 5

Fraudulent journal entries often have unique characteristics.These include

Accepted Answer

A) the use of an unrelated,unusual,or seldom used account in the entry 
B) an entry made by an individual who normally makes ledger entries 
C) an entry recorded at the end of a time period or as a post closing entry with little or no explanation of the reason for the adjustment 
D) new account numbers are associated with the entry 
E) the journal entry contains no round numbers nor numbers with consistent ending digits
F)both A and C
G)both B and D
H)both D and E

Question 6

The condition,opportunity to commit fraud,is present when

Accepted Answer

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 7

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

Accepted Answer

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 8

John Haug,controller of Tenant Company,is reviewing the year-end financial statements with Tom Henry,the company president.The financial statements currently report a net income of $100,563,480.Tom is applying for a bank loan to build a new manufacturing facility and would like to report a net income of at least $125,000,000.Tom suggests accruing several sales based on orders received,even though the goods will not be shipped at year-end.He says,"If we record sales revenue for these two large orders,our net income should be more than $125,000,000.We will never notice the loss of these sales next year,because when we build the new manufacturing facility our sales revenue will dramatically increase."
a.Identify the type of fraud the president of the company wants to commit.Explain your answer.Who benefits by this fraud? Is anyone harmed?
b.Use the fraud triangle to identify conditions that the company is responding to in considering this action.c.What advice should John Haug,the controller,give the president about recording the revenue early?

Accepted Answer

The answer of John Haug,controller of Tenant Company,is reviewing the...

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Mary Larson,the director of public relations for St.John's Hospital,is preparing a news release related to the yearly audit.Mary notes that net income has increased by 20 percent and wants to highlight this increase as a measure of the hospital's success in controlling costs.Daren Anderson,the controller,knows that the increase in net income is related to a company decision to reduce the bad debt estimate related to uncollectible patient accounts and is unrelated to cost-control measures.Daren explains the increase to Mary,but she replies: "Readers of the news release will not take the time to review the annual report,so we can tell them that earnings have increased due to efficiency measures on our part and they will think we are trying to save them money.It is more interesting to say that our earnings have increased due to cost-control measures,rather than to say that we changed our method of estimating bad debts for patient accounts to generate the increase.Besides,it's my job to make the hospital look good."
Based on the information in the case,answer the following questions:
a.Identify the type of fraud that Mary and Daren are contemplating in this case.Explain your answer.Who is harmed by the fraud?
b.Give your opinion on the following statement,citing reasons for your opinion: "Because Mary Larson,the director of public relations,is most directly responsible for the media release,Daren Anderson,the accountant,has no real responsibility in this matter."

Accepted Answer

The answer of Mary Larson,the director of public relations for...

Question 13

The auditor uses the "inspection" procedure when he

Accepted Answer

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 14

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

Accepted Answer

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
H)Both D and E

Question 15

The auditor is expected to

Accepted Answer

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 16

The auditor is required to document his response to the assessed risk of material misstatement.This documentation should include

Accepted Answer

A) the results of audit procedures,including the procedures designed to address the risk of management override of internal controls 
B) the overall response to the assessed risk of material misstatement due to fraud at the financial statement level and the nature,timing,and extent of audit procedures at the assertion level and a linkage between the audit procedures and the assessed risk of material misstatement 
C) other conditions and analytical procedures that cause the auditor to believe that additional auditing procedures were appropriate to address the risk of misstatement 
D) the significant decisions during the discussion among management regarding the susceptibility of the company's financial statements to material misstatement due to fraud 
E) the identified and assessed risks of material misstatement at both the financial statement level,and the procedures performed to obtain the information
F)both A and B
G)both B and D
H)both C and E

Question 17

Management can override controls by

Accepted Answer

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
H)Both C and E

Question 18

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

Accepted Answer

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 19

The "reliability" of evidence

Accepted Answer

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 20

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.

Accepted Answer

A) True 
 B)False

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

Factors that may influence the extent of fraud discussion among audit team members include

The auditor uses the "reperformance" procedure when he

In which ways can management prepare fraudulent financial statements?

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

Fraudulent journal entries often have unique characteristics.These include

The condition,opportunity to commit fraud,is present when

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

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

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.

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

The auditor uses the "inspection" procedure when he

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

The auditor is expected to

The auditor is required to document his response to the assessed risk of material misstatement.This documentation should include

Management can override controls by

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

The "reliability" of evidence

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.