Question 1

Although the financial statements of all companies are potentially subject to manipulation,the risk is greater for companies that

Accepted Answer

A) are heavily regulated. 
B) have low amounts of debt. 
C) have to make significant judgments for accounting estimates. 
D) operate in stable economic environments. 
A) are heavily regulated. 
B) have low amounts of debt. 
C) have to make significant judgments for accounting estimates. 
D) operate in stable economic environments.

Question 2

Management is responsible for

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

If auditors determine that there is not a significant risk of material improper revenue recognition,no documentation of this decision is required.

Accepted Answer

A) True 
 B)False

Question 4

Interrogative inquiry is often confrontational.

Accepted Answer

A) True 
 B)False

Question 5

A company is concerned with the theft of cash after the sale has been recorded.One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping?

Accepted Answer

A) reduce the customer's account by recording a sales return 
B) write off the customer's account 
C) apply the payment from another customer to the customer's account 
D) reduce the customer's account by recording a sales allowance 
A) reduce the customer's account by recording a sales return 
B) write off the customer's account 
C) apply the payment from another customer to the customer's account 
D) reduce the customer's account by recording a sales allowance

Question 6

Most cases of fraudulent reporting involve

Accepted Answer

A) inadequate disclosures. 
B) an overstatement of income. 
C) an overstatement of liabilities. 
D) an overstatement of expenses. 
A) inadequate disclosures. 
B) an overstatement of income. 
C) an overstatement of liabilities. 
D) an overstatement of expenses.

Question 7

Management and the board of directors are responsible for setting the "tone at the top."

Accepted Answer

A) True 
 B)False

Question 8

Audit committee oversight also serves as a deterrent to fraud by senior management.

Accepted Answer

A) True 
 B)False

Question 9

A common incentive for companies to manipulate financial statements is a decline in the company's financial prospects.

Accepted Answer

A) True 
 B)False

Question 10

Management must recognize that almost any employee is capable of committing a dishonest act under the right circumstances.

Accepted Answer

A) True 
 B)False

Question 11

The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts.What procedures could the company take to prevent this type of fraud?

Accepted Answer

•Allowing payments to be made only to ap

Question 12

Fictitious revenues

Accepted Answer

A) increase accounts receivable turnover. 
B) understate the gross margin percentage. 
C) lower accounts receivable turnover. 
D) have no impact on the gross margin percentage. 
A) increase accounts receivable turnover. 
B) understate the gross margin percentage. 
C) lower accounts receivable turnover. 
D) have no impact on the gross margin percentage.

Question 13

________ is fraud that involves theft of an entity's assets.

Accepted Answer

A) Fraudulent financial reporting 
B) A "cookie jar" reserve 
C) Misappropriation of assets 
D) Income smoothing 
A) Fraudulent financial reporting 
B) A "cookie jar" reserve 
C) Misappropriation of assets 
D) Income smoothing

Question 14

Which of the following is a risk factor related to opportunities and financial statement fraud?

Accepted Answer

A) ineffective communication of company values 
B) promotions inconsistent with expectations 
C) significant related-party transactions 
D) adverse relationships between management and employees 
A) ineffective communication of company values 
B) promotions inconsistent with expectations 
C) significant related-party transactions 
D) adverse relationships between management and employees

Question 15

Research indicates that the most effective way to prevent and deter fraud is to

Accepted Answer

A) implement programs and controls that are based on core values embraced by the company. 
B) hire highly ethical employees. 
C) communicate expectations to all employees on an annual basis. 
D) terminate employees who are suspected of committing fraud. 
A) implement programs and controls that are based on core values embraced by the company. 
B) hire highly ethical employees. 
C) communicate expectations to all employees on an annual basis. 
D) terminate employees who are suspected of committing fraud.

Question 16

An auditor uses ________ inquiry to corroborate or contradict prior information.

Accepted Answer

A) assessment 
B) declarative 
C) interrogative 
D) informational 
A) assessment 
B) declarative 
C) interrogative 
D) informational

Question 17

Upon discovering information that indicates a material misstatement due to fraud,the auditor must assume that the misstatement is an isolated incident.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a correct statement regarding the misappropriation of receipts involving revenue?

Accepted Answer

A) One of the easiest frauds to detect is when a sale is not recorded and the cash from the sale is stolen. 
B) If a customer's payment is stolen,regular billing of unpaid accounts can uncover the fraud unless the fraud perpetrator does something to hide the theft. 
C) Misappropriation of cash receipts is generally as material as fraudulent reporting of revenues. 
D) Analytical procedures can detect relatively small thefts of sales and related cash receipts. 
A) One of the easiest frauds to detect is when a sale is not recorded and the cash from the sale is stolen. 
B) If a customer's payment is stolen,regular billing of unpaid accounts can uncover the fraud unless the fraud perpetrator does something to hide the theft. 
C) Misappropriation of cash receipts is generally as material as fraudulent reporting of revenues. 
D) Analytical procedures can detect relatively small thefts of sales and related cash receipts.

Question 19

What types of inquiry techniques might an auditor use when making inquiries of client personnel?
 What are the uses of each technique?

Accepted Answer

There are three main types of inquiry av

Question 20

Which of the following is not a factor that relates to opportunities to misappropriate assets?

Accepted Answer

A) inadequate internal controls over assets 
B) presence of large amounts of cash on hand 
C) inappropriate segregation of duties or independent checks on performance 
D) adverse relationships between management and employees 
A) inadequate internal controls over assets 
B) presence of large amounts of cash on hand 
C) inappropriate segregation of duties or independent checks on performance 
D) adverse relationships between management and employees

Exam 10: Fraud Auditing

Although the financial statements of all companies are potentially subject to manipulation,the risk is greater for companies that

Management is responsible for

If auditors determine that there is not a significant risk of material improper revenue recognition,no documentation of this decision is required.

Interrogative inquiry is often confrontational.

A company is concerned with the theft of cash after the sale has been recorded.One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping?

Most cases of fraudulent reporting involve

Management and the board of directors are responsible for setting the "tone at the top."

Audit committee oversight also serves as a deterrent to fraud by senior management.

A common incentive for companies to manipulate financial statements is a decline in the company's financial prospects.

Management must recognize that almost any employee is capable of committing a dishonest act under the right circumstances.

The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts.What procedures could the company take to prevent this type of fraud?

Fictitious revenues

________ is fraud that involves theft of an entity's assets.

Which of the following is a risk factor related to opportunities and financial statement fraud?

Research indicates that the most effective way to prevent and deter fraud is to

An auditor uses ________ inquiry to corroborate or contradict prior information.

Upon discovering information that indicates a material misstatement due to fraud,the auditor must assume that the misstatement is an isolated incident.

Which of the following is a correct statement regarding the misappropriation of receipts involving revenue?

What types of inquiry techniques might an auditor use when making inquiries of client personnel? What are the uses of each technique?

Which of the following is not a factor that relates to opportunities to misappropriate assets?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

Filters