Question 1

Profit smoothing involves shifting revenues and expenses between periods to reduce fluctuations in earnings.

Accepted Answer

A) True 
 B)False

Question 2

Premature revenue recognition is the recognition of revenue before accounting standard requirements for recording revenue have been met.An example of this is:

Accepted Answer

A)  a 'bill-and-hold' sale. 
B)  creating fictitious customers. 
C)  adjusting sales returns. 
D)  lapping. 
A)  a 'bill-and-hold' sale. 
B)  creating fictitious customers. 
C)  adjusting sales returns. 
D)  lapping.

Question 3

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is called fraudulent audit practice.

Accepted Answer

A) True 
 B)False

Question 4

Financial pressures are a common incentive for employees who misappropriate assets.Which of the following is NOT an example of the above?

Accepted Answer

A)  employees with excessive financial obligations 
B)  employees who have been passed over for promotion 
C)  employees with drug abuse problems 
D)  employees with gambling problems 
A)  employees with excessive financial obligations 
B)  employees who have been passed over for promotion 
C)  employees with drug abuse problems 
D)  employees with gambling problems

Question 5

How can companies reduce fraud risk?

Accepted Answer

A)  by implementing effective screening policies when hiring employees 
B)  by maintaining a culture of honesty and high ethics 
C)  by dealing fairly with employees 
D)  all of the above 
A)  by implementing effective screening policies when hiring employees 
B)  by maintaining a culture of honesty and high ethics 
C)  by dealing fairly with employees 
D)  all of the above

Question 6

When the auditor suspects that fraud may be present, he or she should:

Accepted Answer

A)  continue with the original planned audit procedures. 
B)  inform ASIC. 
C)  obtain additional evidence to determine whether material fraud has occurred. 
D)  immediately resign from the engagement. 
A)  continue with the original planned audit procedures. 
B)  inform ASIC. 
C)  obtain additional evidence to determine whether material fraud has occurred. 
D)  immediately resign from the engagement.

Question 7

The auditor has a responsibility to respond to fraud risk by planning and performing the audit to obtain reasonable assurance that material misstatements, whether due to error or fraud, are detected; therefore, the auditor should:

Accepted Answer

A)  maintain a level of professional scepticism. 
B)  always assume that management is dishonest. 
C)  always assume unquestioned honesty. 
D)  expect to find fraud on all audits. 
A)  maintain a level of professional scepticism. 
B)  always assume that management is dishonest. 
C)  always assume unquestioned honesty. 
D)  expect to find fraud on all audits.

Question 8

Professional scepticism means the auditor:

Accepted Answer

A)  makes a critical assessment of the audit evidence. 
B)  has a questioning mind. 
C)  both A and B 
D)  none of the above 
A)  makes a critical assessment of the audit evidence. 
B)  has a questioning mind. 
C)  both A and B 
D)  none of the above

Question 9

Which of the following elements is NOT a part of the fraud triangle?

Accepted Answer

A)  incentives to perpetrate fraud 
B)  attitude/rationalisation of fraudulent activity 
C)  opportunity to perpetrate fraud 
D)  ability to perpetrate fraud 
A)  incentives to perpetrate fraud 
B)  attitude/rationalisation of fraudulent activity 
C)  opportunity to perpetrate fraud 
D)  ability to perpetrate fraud

Question 10

How can profit smoothing can be achieved?

Accepted Answer

A)  understating allowance for doubtful accounts in periods of higher earnings 
B)  reducing the value of inventory of an acquired company at the time of acquisition resulting in higher earnings when the assets are later sold 
C)  understating inventory obsolescence reserves in periods of higher earnings 
D)  none of the above 
A)  understating allowance for doubtful accounts in periods of higher earnings 
B)  reducing the value of inventory of an acquired company at the time of acquisition resulting in higher earnings when the assets are later sold 
C)  understating inventory obsolescence reserves in periods of higher earnings 
D)  none of the above

Question 11

What is the most common area of employee payroll fraud?

Accepted Answer

A)  understatement of social club deductions 
B)  omission of employees from records 
C)  overstatement of individual payroll hours 
D)  understatement of hourly wage rate 
A)  understatement of social club deductions 
B)  omission of employees from records 
C)  overstatement of individual payroll hours 
D)  understatement of hourly wage rate

Question 12

'Earnings management' involves deliberate actions taken by management to meet earnings objectives.'Profit smoothing' is:

Accepted Answer

A)  an acceptable accounting policy, just like earnings management. 
B)  an acceptable accounting policy, unlike earnings management. 
C)  the reverse of earnings management. 
D)  a form of earnings management aimed at reducing periodic fluctuations in earnings. 
A)  an acceptable accounting policy, just like earnings management. 
B)  an acceptable accounting policy, unlike earnings management. 
C)  the reverse of earnings management. 
D)  a form of earnings management aimed at reducing periodic fluctuations in earnings.

Question 13

Which of the following factors is the most significant contributor to fraud risk?

Accepted Answer

A)  poor internal controls 
B)  poor physical security 
C)  poor ethical culture 
D)  poor hiring practices 
A)  poor internal controls 
B)  poor physical security 
C)  poor ethical culture 
D)  poor hiring practices

Question 14

Opportunities for misstatement are less if there is a turnover in accounting personnel.

Accepted Answer

A) True 
 B)False

Question 15

Fraud is difficult to detect due to:

Accepted Answer

A)  collusion. 
B)  the cost of detection. 
C)  the fraud triangle. 
D)  override of controls. 
A)  collusion. 
B)  the cost of detection. 
C)  the fraud triangle. 
D)  override of controls.

Question 16

The risk of management override of controls exists in almost all audits.How should the auditor deal with this?

Accepted Answer

Three procedures must be performed in ev

Question 17

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is known as:

Accepted Answer

A)  erroneous financial reporting. 
B)  fraudulent financial reporting. 
C)  negligent auditing practice. 
D)  fraudulent audit practice. 
A)  erroneous financial reporting. 
B)  fraudulent financial reporting. 
C)  negligent auditing practice. 
D)  fraudulent audit practice.

Question 18

What does a company hope to achieve by manipulating earnings?

Accepted Answer

A)  meet debt covenant restrictions 
B)  artificially inflate share prices 
C)  meet analysts' forecasts or benchmarks such as prior-year earnings 
D)  all of the above 
A)  meet debt covenant restrictions 
B)  artificially inflate share prices 
C)  meet analysts' forecasts or benchmarks such as prior-year earnings 
D)  all of the above

Question 19

Auditors AACSB used in using inquiry, evaluate verbal and nonverbal cues as they listen to the interviewee.Verbal cues include interviewee's reluctance to end an interview.

Accepted Answer

A) True 
 B)False

Question 20

To reduce fraud incidence, management should build a positive culture and work environment by implementing programs and initiatives to increase employee morale.Which of the following is NOT an example of the above? Employees should be encouraged

Accepted Answer

A)  to obtain advice internally when matters of conflict arise. 
B)  by linking their remuneration to the final profit figure. 
C)  to support the entity's values and code of conduct. 
D)  to contribute to their work environment. 
A)  to obtain advice internally when matters of conflict arise. 
B)  by linking their remuneration to the final profit figure. 
C)  to support the entity's values and code of conduct. 
D)  to contribute to their work environment.

Profit smoothing involves shifting revenues and expenses between periods to reduce fluctuations in earnings.

Premature revenue recognition is the recognition of revenue before accounting standard requirements for recording revenue have been met.An example of this is:

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is called fraudulent audit practice.

Financial pressures are a common incentive for employees who misappropriate assets.Which of the following is NOT an example of the above?

How can companies reduce fraud risk?

When the auditor suspects that fraud may be present, he or she should:

The auditor has a responsibility to respond to fraud risk by planning and performing the audit to obtain reasonable assurance that material misstatements, whether due to error or fraud, are detected; therefore, the auditor should:

Professional scepticism means the auditor:

Which of the following elements is NOT a part of the fraud triangle?

How can profit smoothing can be achieved?

What is the most common area of employee payroll fraud?

'Earnings management' involves deliberate actions taken by management to meet earnings objectives.'Profit smoothing' is:

Which of the following factors is the most significant contributor to fraud risk?

Opportunities for misstatement are less if there is a turnover in accounting personnel.

Fraud is difficult to detect due to:

The risk of management override of controls exists in almost all audits.How should the auditor deal with this?

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is known as:

What does a company hope to achieve by manipulating earnings?

Auditors AACSB used in using inquiry, evaluate verbal and nonverbal cues as they listen to the interviewee.Verbal cues include interviewee's reluctance to end an interview.

To reduce fraud incidence, management should build a positive culture and work environment by implementing programs and initiatives to increase employee morale.Which of the following is NOT an example of the above? Employees should be encouraged

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Internal control and control risk

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters

Exam 9: Fraud auditing

Profit smoothing involves shifting revenues and expenses between periods to reduce fluctuations in earnings.

Premature revenue recognition is the recognition of revenue before accounting standard requirements for recording revenue have been met.An example of this is:

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is called fraudulent audit practice.

Financial pressures are a common incentive for employees who misappropriate assets.Which of the following is NOT an example of the above?

How can companies reduce fraud risk?

When the auditor suspects that fraud may be present, he or she should:

The auditor has a responsibility to respond to fraud risk by planning and performing the audit to obtain reasonable assurance that material misstatements, whether due to error or fraud, are detected; therefore, the auditor should:

Professional scepticism means the auditor:

Which of the following elements is NOT a part of the fraud triangle?

How can profit smoothing can be achieved?

What is the most common area of employee payroll fraud?

'Earnings management' involves deliberate actions taken by management to meet earnings objectives.'Profit smoothing' is:

Which of the following factors is the most significant contributor to fraud risk?

Opportunities for misstatement are less if there is a turnover in accounting personnel.

Fraud is difficult to detect due to:

The risk of management override of controls exists in almost all audits.How should the auditor deal with this?

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users is known as:

What does a company hope to achieve by manipulating earnings?

Auditors AACSB used in using inquiry, evaluate verbal and nonverbal cues as they listen to the interviewee.Verbal cues include interviewee's reluctance to end an interview.

To reduce fraud incidence, management should build a positive culture and work environment by implementing programs and initiatives to increase employee morale.Which of the following is NOT an example of the above? Employees should be encouraged

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Internal control and control risk

The impact of information technology on the audit process

Overall audit plan and audit program

Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters