Question 1

Auditor's fraud communication responsibilities
Discuss the auditor's responsibility to communicate fraud to the audit committee.When is the auditor required to communicate possible fraud to parties other than the audit committee and management?

Accepted Answer

The answer of Auditor's fraud communication responsibilities
Discuss the auditor's responsibility...

Question 2

The auditor should not presume that fraud is present in revenue recognition by management because the auditor must remain objective.

Accepted Answer

A) True 
 B)False

Question 3

What is the best method an auditor may use to detect fraud in the financial statements of clients?

Accepted Answer

A) Use professional skepticism. 
B) Understand and properly apply Generally Accepted Accounting Standards. 
C) Brainstorm with the client to find the types of fraud occurring. 
D) Actively search for all errors in the financial statements.

Question 4

Which of the following is most likely considered a material omission from the rules of financial statement reporting?

Accepted Answer

A) The company no longer discloses a previously settled contingency. 
B) The company does not present the fair value of all current assets on the balance sheet. 
C) A privately held company does not disclose earnings per share. 
D) A company with a net loss does not present a statement of cash flows.

Question 5

The fraud triangle consists of three components (pressure,opportunity,and rationalization).Which of the three components are present in most every fraud?

Accepted Answer

A) All three factors are usually present when fraud occurs. 
B) Pressure and opportunity 
C) Opportunity and rationalization 
D) Rationalization and pressure

Question 6

The landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related,unconsolidated entities.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following best represents financial statement fraud?

Accepted Answer

A) The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors. 
B) The controller of the company decreases a contingent liability by $3 million because the company will otherwise miss analysts' expectations this quarter. 
C) The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris. 
D) The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization.

Question 8

Auditor's response to fraud risk factors
The auditor assesses the identified fraud risks after taking into account an evaluation of the client's programs and controls.How might the auditor respond to the results of the assessment of higher fraud risk?

Accepted Answer

The answer of Auditor's response to fraud risk factors
The auditor...

Question 9

Consideration of fraud in financial statement audits is a relatively new concept derived originally from SAS 99.

Accepted Answer

A) True 
 B)False

Question 10

Relative to internal controls,what is a primary risk of fraud in the client company?

Accepted Answer

A) The risk that management overrides controls. 
B) The risk that management changes controls each year. 
C) The risk that management carefully enforces and monitors controls. 
D) The risk that the audit committee monitors controls.

Question 11

Fraud consideration by auditors
John Beasley is interviewing with public accounting firms to become an auditor.John does not believe that fraud is a "big deal" in client organizations and argues that most individuals in management of companies are "honest people".He believes that auditors are becoming too cynical.
Describe your response to John's attitude and discuss the major types of fraud that occur in companies.

Accepted Answer

The answer of Fraud consideration by auditors
John Beasley is interviewing...

Question 12

Channel stuffing is often a form of fraud by financial manipulation and can be noticed by the auditor by performing analytical procedures directed toward the discovery of fraud indicators.

Accepted Answer

A) True 
 B)False

Question 13

If the audit team discovers that fraud risk factors are present on an engagement,it should then:

Accepted Answer

A) resign from the client and inform the audit committee and regulatory authorities. 
B) modify procedures to actively search for the existence of fraud. 
C) reduce the amount of evidence required and resort to management inquiry. 
D) turn the audit over to forensic accountants.

Question 14

Audit tests do not relate to fraud testing because fraud testing will be performed in a different (forensic)engagement.

Accepted Answer

A) True 
 B)False

Question 15

Forensic accounting
Contrast the financial statement auditor's consideration of fraud to that of a forensic accountant.

Accepted Answer

The answer of Forensic accounting
Contrast the financial statement auditor's consideration...

Question 16

Fraud categories
Corporate fraud may take place through a variety of methods.Identify the major categories of fraud and give examples of each.

Accepted Answer

The answer of Fraud categories
Corporate fraud may take place through...

Question 17

Forensic accountants need to have superior interviewing and people skills.

Accepted Answer

A) True 
 B)False

Question 18

When preliminary fraud risk is high the auditor should pay close attention to areas of the audit that are highly subjective and increase the predictability of the audit procedures.

Accepted Answer

A) True 
 B)False

Question 19

Auditors are responsible to detect all illegal acts committed by the company and its employees.

Accepted Answer

A) True 
 B)False

Question 20

Professional skepticism is best described as:

Accepted Answer

A) an intent to deceive. 
B) an attitude of intrusion and obstinacy. 
C) a character that does not waver. 
D) a questioning mind.

Exam 9: Auditing for Fraud

Auditor's fraud communication responsibilities Discuss the auditor's responsibility to communicate fraud to the audit committee.When is the auditor required to communicate possible fraud to parties other than the audit committee and management?

The auditor should not presume that fraud is present in revenue recognition by management because the auditor must remain objective.

What is the best method an auditor may use to detect fraud in the financial statements of clients?

Which of the following is most likely considered a material omission from the rules of financial statement reporting?

The fraud triangle consists of three components (pressure,opportunity,and rationalization) .Which of the three components are present in most every fraud?

The landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related,unconsolidated entities.

Which of the following best represents financial statement fraud?

Auditor's response to fraud risk factors The auditor assesses the identified fraud risks after taking into account an evaluation of the client's programs and controls.How might the auditor respond to the results of the assessment of higher fraud risk?

Consideration of fraud in financial statement audits is a relatively new concept derived originally from SAS 99.

Relative to internal controls,what is a primary risk of fraud in the client company?

Channel stuffing is often a form of fraud by financial manipulation and can be noticed by the auditor by performing analytical procedures directed toward the discovery of fraud indicators.

If the audit team discovers that fraud risk factors are present on an engagement,it should then:

Audit tests do not relate to fraud testing because fraud testing will be performed in a different (forensic)engagement.

Forensic accounting Contrast the financial statement auditor's consideration of fraud to that of a forensic accountant.

Fraud categories Corporate fraud may take place through a variety of methods.Identify the major categories of fraud and give examples of each.

Forensic accountants need to have superior interviewing and people skills.

When preliminary fraud risk is high the auditor should pay close attention to areas of the audit that are highly subjective and increase the predictability of the audit procedures.

Auditors are responsible to detect all illegal acts committed by the company and its employees.

Professional skepticism is best described as: