Deck 10: Auditing for Fraud

Question 1

An example of a fraud is the Chief Financial Officer (CFO) intentionally overstating the accounts receivable and sales to boost profits.

Answer 1

False

Question 2

The KPMG 2010 fraud survey reports that larger organisations are more likely to experience fraud than smaller ones.

Answer 2

True

Question 3

Bangalow Ltd has accounted for the revenue of one of its suppliers, Jiffy Mac Pty Ltd, as though it were its subsidiary. Bangalow Ltd only owns 2 per cent of Jiffy and does not exercise any influence or control, nor is it considered a minority interest. Bangalow Ltd has probably committed fraud because of its blatant misapplication of consolidation principles.

Answer 3

True

Question 4

Consideration of fraud in financial report audits is a relatively new concept.

Question 5

ASA 240 requires the auditor to more actively consider and assess the risk of fraud for clients and their financial reports than has been required in the past.

Question 6

ASA 240 procedures must only be performed for clients that have had fraud concerns in the past.

Question 7

If an auditor discovers risk of fraud in the application of ASA 240 procedures, the audit procedures should be adjusted accordingly.

Question 8

Rules-based accounting sometimes contributes to the rationalisation of fraudulent financial reporting.

Question 9

Management rarely uses journal entries to commit fraud because they are easily noticed by the auditor.

Question 10

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.

Question 11

Management fraud must be immediately reported by the auditor to ASIC rather than wasting time reporting it to the audit committee or board of directors.

Question 12

In actively considering fraud in the financial statement audit, the audit team will most likely realise which of the following when performing substantive procedures?

A) Accounting journal entries may have been used to perpetrate a fraud.
B) Most fraud is not material enough to consider.
C) Journal entries do not supply enough evidence to detect fraud.
D) New technology prevents fraud more thoroughly than manual systems.

Question 13

Brainstorming for fraud
You are a staff auditor with Zepplin and Frank, public accountants. Your audit team is in the planning stage for Leppard Sullivan Ltd, a beauty supply wholesaler. Describe the brainstorming process and types of issues that may be brought to the surface regarding your client.