Question 1

Briefly describe the three factors that increase the probability of fraud.

Accepted Answer

Motive, opportunity, and lack of integrity are the three factors that increase the probability of fraud.Motive is some kind of pressure, like a need or a desire, which causes a person to act.Economic motives are common in business fraud.Opportunity is a favourable set of circumstances that allows someone with a motive to carry out a fraud.For example, the lapse of a control or group of controls in an organization provides opportunity to a person who has a motive to commit fraud.A lack of integrity is a deficiency in the character of a person.It signifies the lack of a moral or ethical model of appropriate behaviour.People lacking
integrity may rationalize their actions to defend themselves.Fraud is most common when these three factors coexist.

Question 2

An auditor who discovers that client employees have committed an illegal act with material consequences on the financial statements is most likely to seek legal advice and consider withdrawing from the engagement if

Accepted Answer

A) The illegal act is a violation of generally accepted accounting principles. 
B) The client does not take appropriate action after being informed about the illegal act. 
C) The illegal act was committed during a prior year that was not audited. 
D) The auditor has already assessed control risk at the maximum level. 
A) The illegal act is a violation of generally accepted accounting principles. 
B) The client does not take appropriate action after being informed about the illegal act. 
C) The illegal act was committed during a prior year that was not audited. 
D) The auditor has already assessed control risk at the maximum level. B

Question 3

The key to integrity in business is:

Accepted Answer

A) Good financial controls. 
B) Good hiring procedures. 
C) Accountability. 
D) Training. 
A) Good financial controls. 
B) Good hiring procedures. 
C) Accountability. 
D) Training. C

Question 4

Which of the following auditors is least interested in materiality?

Accepted Answer

A) External auditors. 
B) Internal auditors. 
C) OAG auditors. 
D) Fraud examiners. 
A) External auditors. 
B) Internal auditors. 
C) OAG auditors. 
D) Fraud examiners.

Question 5

The term "irregularities" generally refers to

Accepted Answer

A) Unintentional errors. 
B) Illegal acts. 
C) Intentional misstatements in financial statements. 
D) Violations of GAAS. 
A) Unintentional errors. 
B) Illegal acts. 
C) Intentional misstatements in financial statements. 
D) Violations of GAAS.

Question 6

Designing tight control systems is likely the best long term solution to preventing fraud.

Accepted Answer

A) True 
 B)False

Question 7

Statistics on fraud show that:

Accepted Answer

A) Senior executives commit the highest number of frauds and the senior executives cause the highest losses due to fraud. 
B) Employees below the level of senior executives commit the highest number of frauds and cause the highest losses due to fraud. 
C) Senior executives commit the highest number of frauds and employees below the level of the senior executives cause the highest losses due to fraud. 
D) Employees below the level of senior executives commit the highest number of frauds but the senior executives commit the highest value frauds. 
A) Senior executives commit the highest number of frauds and the senior executives cause the highest losses due to fraud. 
B) Employees below the level of senior executives commit the highest number of frauds and cause the highest losses due to fraud. 
C) Senior executives commit the highest number of frauds and employees below the level of the senior executives cause the highest losses due to fraud. 
D) Employees below the level of senior executives commit the highest number of frauds but the senior executives commit the highest value frauds.

Question 8

An economic motive for fraud is the need for money.

Accepted Answer

A) True 
 B)False

Question 9

CAS 240 (5135) requires auditors to ignore the traditional assumption of management's honesty.

Accepted Answer

A) True 
 B)False

Question 10

Post CA accepted an engagement to audit the financial statements of General Ltd., a new client.General is a publicly held retailing company that recently replaced its operating managers.In the course of applying auditing procedures, Post suspected that the financial statements were materially misstated due to the existence of irregularities.
Required:
A) Describe Post's responsibilities in the circumstances described above.
B) Describe Post's responsibilities for reporting on General's financial statements and other communications if Post is precluded from applying additional procedures in searching for irregularities.
C) Describe Post's responsibilities for reporting on General's financial statements and other communications if Post concludes that General's financial statements are materially affected by irregularities.

Accepted Answer

A) If Post suspects that General's finan

Question 11

All errors and irregularities, including trivial ones, should be reported to the audit committee.

Accepted Answer

A) True 
 B)False

Question 12

Certain conditions are often present when a manager prepares deliberately misstated financial statements.Which of the following is not such a condition?

Accepted Answer

A) Unfavourable industry conditions. 
B) Lack of working capital. 
C) Low debt. 
D) Slow customer collections. 
A) Unfavourable industry conditions. 
B) Lack of working capital. 
C) Low debt. 
D) Slow customer collections.

Question 13

Which of the following is not a characteristic of fraud?

Accepted Answer

A) Intent to deceive. 
B) Misrepresentation or intentional omission of significant information. 
C) Taking unfair or dishonest advantage of others for personal gain. 
D) Negligence on the part of executive management. 
A) Intent to deceive. 
B) Misrepresentation or intentional omission of significant information. 
C) Taking unfair or dishonest advantage of others for personal gain. 
D) Negligence on the part of executive management.

Question 14

Irregularities are unintentional misstatements or omissions in financial statements.

Accepted Answer

A) True 
 B)False

Question 15

Horizontal analysis can be used in fraud detection by:

Accepted Answer

A) Checking the trend in earnings from year to year of persons suspected of fraud. 
B) Looking for significant changes in financial statement amounts and ratios across several fiscal periods. 
C) Looking for odd relations of one account to a base such as sales. 
D) Looking for the change in net worth of a suspect from the beginning to the end of a period. 
A) Checking the trend in earnings from year to year of persons suspected of fraud. 
B) Looking for significant changes in financial statement amounts and ratios across several fiscal periods. 
C) Looking for odd relations of one account to a base such as sales. 
D) Looking for the change in net worth of a suspect from the beginning to the end of a period.

Question 16

Fraudulent financial reporting is an intentional act that results in materially misleading financial statements.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not considered one of the three factors that increase the probability of fraud?

Accepted Answer

A) Motive. 
B) Lack of training. 
C) Opportunity. 
D) Lack of integrity. 
A) Motive. 
B) Lack of training. 
C) Opportunity. 
D) Lack of integrity.

Question 18

The most effective long run prevention of employee fraud is the practice of management caring for their employees.What can managers do to aid in fraud prevention?

Accepted Answer

Show genuine concern for the personal an

Question 19

External auditors are required to report illegal acts to the appropriate governmental agency within 30 days of finding them.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements about illegal acts committed by clients is correct?

Accepted Answer

A) An auditor has no responsibility to detect illegal acts that have an indirect effect on the financial statements. 
B) An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements. 
C) An auditor considers illegal acts from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions. 
D) An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and irregularities. 
A) An auditor has no responsibility to detect illegal acts that have an indirect effect on the financial statements. 
B) An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements. 
C) An auditor considers illegal acts from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions. 
D) An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and irregularities.

Briefly describe the three factors that increase the probability of fraud.

An auditor who discovers that client employees have committed an illegal act with material consequences on the financial statements is most likely to seek legal advice and consider withdrawing from the engagement if

The key to integrity in business is:

Which of the following auditors is least interested in materiality?

The term "irregularities" generally refers to

Designing tight control systems is likely the best long term solution to preventing fraud.

Statistics on fraud show that:

An economic motive for fraud is the need for money.

CAS 240 (5135) requires auditors to ignore the traditional assumption of management's honesty.

All errors and irregularities, including trivial ones, should be reported to the audit committee.

Certain conditions are often present when a manager prepares deliberately misstated financial statements.Which of the following is not such a condition?

Which of the following is not a characteristic of fraud?

Irregularities are unintentional misstatements or omissions in financial statements.

Horizontal analysis can be used in fraud detection by:

Fraudulent financial reporting is an intentional act that results in materially misleading financial statements.

Which of the following is not considered one of the three factors that increase the probability of fraud?

The most effective long run prevention of employee fraud is the practice of management caring for their employees.What can managers do to aid in fraud prevention?

External auditors are required to report illegal acts to the appropriate governmental agency within 30 days of finding them.

Which of the following statements about illegal acts committed by clients is correct?

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Legal Liability

Preliminary Audit Planning: Understanding the Auditee

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Filters

Exam 17: Fraud Awareness Auditing

Briefly describe the three factors that increase the probability of fraud.

An auditor who discovers that client employees have committed an illegal act with material consequences on the financial statements is most likely to seek legal advice and consider withdrawing from the engagement if

The key to integrity in business is:

Which of the following auditors is least interested in materiality?

The term "irregularities" generally refers to

Designing tight control systems is likely the best long term solution to preventing fraud.

Statistics on fraud show that:

An economic motive for fraud is the need for money.

CAS 240 (5135) requires auditors to ignore the traditional assumption of management's honesty.

All errors and irregularities, including trivial ones, should be reported to the audit committee.

Certain conditions are often present when a manager prepares deliberately misstated financial statements.Which of the following is not such a condition?

Which of the following is not a characteristic of fraud?

Irregularities are unintentional misstatements or omissions in financial statements.

Horizontal analysis can be used in fraud detection by:

Fraudulent financial reporting is an intentional act that results in materially misleading financial statements.

Which of the following is not considered one of the three factors that increase the probability of fraud?

The most effective long run prevention of employee fraud is the practice of management caring for their employees.What can managers do to aid in fraud prevention?

External auditors are required to report illegal acts to the appropriate governmental agency within 30 days of finding them.

Which of the following statements about illegal acts committed by clients is correct?

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Legal Liability

Preliminary Audit Planning: Understanding the Auditee

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Filters