Question 1

The auditor's job is to believe statements made by management

Accepted Answer

A) as long as there is no contradictory evidence 
B) if the cost of obtaining the evidence to support the statement is too great 
C) only if the evidence supports the statement 
D) never believe statements made by management 
E) when they trust management

Question 2

In which ways can management prepare fraudulent financial statements?

Accepted Answer

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 3

Audit documentation

Accepted Answer

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 4

Maintaining an attitude of professional skepticism requires

Accepted Answer

A) a continuous questioning of the evidence gathered to determine if it suggests that a misstatement due to fraud exists 
B) never believing a statement from management without additional evidence to support management's statement 
C) believing that management is inherently dishonest 
D) believing that management will act in his or her self-interest when making decisions about the company

Question 5

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

Accepted Answer

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 6

The auditor uses the "recalculation" procedure when he

Accepted Answer

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 7

The auditor uses assertions to

Accepted Answer

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 8

Auditors are required to audit the revenue process

Accepted Answer

A) with the presumption that improper revenue recognition is a fraud 
B) with the presumption that revenue transactions give rise to the risk of material misstatement 
C) with the presumption that improper revenue recognition is a fraud risk 
D) with the presumption that revenue assertions give rise to the risk of material misstatement

Question 9

Discuss the following audit procedures,giving an example of each procedure using the revenue process.a.Analytical procedures
b.Inspection
c.Observation
d.Inquiry
e.External confirmation
f.Recalculation
g.Reperformance

Accepted Answer

The answer of Discuss the following audit procedures,giving an example...

Question 10

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

Accepted Answer

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 11

Professional skepticism involves

Accepted Answer

A) the persuasiveness of the evidence gathered 
B) the reliability of the evidence gathered 
C) the controls over the accuracy of the evidence 
D) the controls over the relevance of the evidence 
E) the controls over the preparation of the evidence
F)both A and B
G)both B and C
H)Both B and E

Question 12

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 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 13

Why did Arthur Andersen shred the Enron audit workpapers?

Accepted Answer

The answer of Why did Arthur Andersen shred the Enron...

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

The extent of audit evidence is related to

Accepted Answer

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 16

The timing of evidence collection is related to

Accepted Answer

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 17

The "sufficiency" of audit evidence is

Accepted Answer

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 18

Fraudulent journal entries often have unique characteristics.These include

Accepted Answer

A) the use of an unrelated,unusual,or seldom used method 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 round numbers or numbers with consistent ending digits
F)both A and C
G)both B and D
H)Both C and E

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

24 Karet Caramels is a new candy company specializing in flavored caramels.The company has advertised widely in catalogues and has received more orders than it can ship on a daily basis.Elizabeth Hutchinson,the president,has instructed the shipping department to work overtime the last two weeks in December to ship as many orders as possible by year-end.Elizabeth says: "It is important for the company to show a profit in the first year of operations to obtain a bank loan to expand.We can recognize revenue on each sale as soon as we ship the caramels to the customers." If we don't have enough inventory to ship all the orders by the end of the year we'll recognize revenue on some of the orders that we are unable to ship until January.We must keep the shareholders happy.a.Consider the environment where this decision is made: Identify the elements of the fraud triangle and evaluate how they are present in this decision.b.Assume that the accountant has four alternatives.Identify the type of fraud (if any)that would be committed with each alternative.1.To work overtime to ship as many orders as possible by the end of year
2.Not to work overtime and to ship only the orders that are possible in a normal work week
3.To recognize revenue on orders that are not shipped at year-end
4.Not to recognize revenue on orders that are not shipped at year-end
Assume that the president of the company plans to issue a press release to the local newspaper describing the success of the company during its first year in business.What advice would you give the president about what she can say in the press release?

Accepted Answer

The answer of 24 Karet Caramels is a new candy...

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

The auditor's job is to believe statements made by management

In which ways can management prepare fraudulent financial statements?

Audit documentation

Maintaining an attitude of professional skepticism requires

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

The auditor uses the "recalculation" procedure when he

The auditor uses assertions to

Auditors are required to audit the revenue process

Discuss the following audit procedures,giving an example of each procedure using the revenue process.a.Analytical procedures b.Inspection c.Observation d.Inquiry e.External confirmation f.Recalculation g.Reperformance

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

Professional skepticism involves

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

Why did Arthur Andersen shred the Enron audit workpapers?

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.

The extent of audit evidence is related to

The timing of evidence collection is related to

The "sufficiency" of audit evidence is

Fraudulent journal entries often have unique characteristics.These include

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.