Question 1

________ 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 C

Question 2

When assessing the risk for fraud, the auditor must be cognizant of the fact that:

Accepted Answer

A) the existence of fraud risk factors means fraud exists. 
B) analytical procedures must be performed on revenue accounts. 
C) horizontal analysis is not useful in helping to determine unusual financial statement relationships. 
D) the auditor cannot make inquiries about fraud to company personnel who have no financial statement responsibilities. 
A) the existence of fraud risk factors means fraud exists. 
B) analytical procedures must be performed on revenue accounts. 
C) horizontal analysis is not useful in helping to determine unusual financial statement relationships. 
D) the auditor cannot make inquiries about fraud to company personnel who have no financial statement responsibilities. B

Question 3

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 available for use by auditors.These are information inquiry, assessment inquiry, and interrogative inquiry.Information inquiry is used to obtain information about facts and details that the auditor does not have.Assessment inquiry is used to corroborate or contradict prior information.Interrogative inquiry is often used when the auditor seeks responses from an individual about his or her knowledge of an event or circumstances.

Question 4

Because fraud perpetrators are often knowledgeable about audit procedures, auditors should incorporate unpredictability into the audit plan.

Accepted Answer

A) True 
 B)False

Question 5

Fictitious revenue transactions have the same level of documentary evidence as legitimate transactions.

Accepted Answer

A) True 
 B)False

Question 6

Incentives and opportunities are two conditions that are generally present when financial statement fraud occurs.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Which of the following is not a category of inquiry used by auditors?

Accepted Answer

A) Assessment inquiry 
B) Declarative inquiry 
C) Interrogative inquiry 
D) Informational inquiry 
A) Assessment inquiry 
B) Declarative inquiry 
C) Interrogative inquiry 
D) Informational inquiry

Question 9

Senior management is responsible for promoting a culture of honesty and ethics.Describe what that implies for the organization.

Accepted Answer

Management cannot act one way and expect

Question 10

Auditor's need to exhibit professional skepticism when auditing a client.This auditing standard is best expressed by which of the following?

Accepted Answer

A) The auditor neither assumes dishonesty or honesty of management. 
B) The auditor assumes dishonesty of management. 
C) The auditor assumes honesty of management. 
D) The auditor assumes management lacks integrity. 
A) The auditor neither assumes dishonesty or honesty of management. 
B) The auditor assumes dishonesty of management. 
C) The auditor assumes honesty of management. 
D) The auditor assumes management lacks integrity.

Question 11

When the auditor suspects that fraud may be present, auditing standards require the auditor to:

Accepted Answer

A) terminate the engagement with sufficient notice given to the client. 
B) issue an adverse opinion or a disclaimer of opinion. 
C) obtain additional evidence to determine whether material fraud has occurred. 
D) re-issue the engagement letter. 
A) terminate the engagement with sufficient notice given to the client. 
B) issue an adverse opinion or a disclaimer of opinion. 
C) obtain additional evidence to determine whether material fraud has occurred. 
D) re-issue the engagement letter.

Question 12

The two main categories of fraud are fraudulent financial reporting and misappropriation of assets.

Accepted Answer

A) True 
 B)False

Question 13

When the auditor receives inconsistent responses from management and others within the organization, the auditor should obtain additional audit evidence to resolve the inconsistency.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a factor that relates to attitudes or rationalization to commit fraudulent financial reporting?

Accepted Answer

A) Significant accounting estimates involving subjective judgments 
B) Excessive pressure for management to meet debt repayment requirements 
C) Management's practice of making overly aggressive forecasts to third parties 
D) High turnover of accounting, internal audit and information technology staff 
A) Significant accounting estimates involving subjective judgments 
B) Excessive pressure for management to meet debt repayment requirements 
C) Management's practice of making overly aggressive forecasts to third parties 
D) High turnover of accounting, internal audit and information technology staff

Question 15

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

Accepted Answer

A) Lack of controls related to the calculation and approval of accounting estimates 
B) Ineffective oversight of financial reporting by the board of directors 
C) Management's practice of making overly aggressive forecasts 
D) High turnover of accounting, internal audit, and information technology staff 
A) Lack of controls related to the calculation and approval of accounting estimates 
B) Ineffective oversight of financial reporting by the board of directors 
C) Management's practice of making overly aggressive forecasts 
D) High turnover of accounting, internal audit, and information technology staff

Question 16

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Accepted Answer

A) Fraudulent financial reporting 
B) Expense smoothing 
C) Income smoothing 
D) Each of the above is correct. 
A) Fraudulent financial reporting 
B) Expense smoothing 
C) Income smoothing 
D) Each of the above is correct.

Question 17

Auditors should rely on original, rather than duplicate, copies of documents.

Accepted Answer

A) True 
 B)False

Question 18

The auditors should pay careful attention to accounting principles that involve subjective measurements or complex transactions.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial reporting?

Accepted Answer

A) Significant accounting estimates involving subjective judgments 
B) Excessive pressure for management to meet debt repayment requirements 
C) Management's practice of making overly aggressive forecasts 
D) High turnover of accounting, internal audit, and information technology staff 
A) Significant accounting estimates involving subjective judgments 
B) Excessive pressure for management to meet debt repayment requirements 
C) Management's practice of making overly aggressive forecasts 
D) High turnover of accounting, internal audit, and information technology staff

Exam 11: Fraud Auditing

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

When assessing the risk for fraud, the auditor must be cognizant of the fact that:

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

Because fraud perpetrators are often knowledgeable about audit procedures, auditors should incorporate unpredictability into the audit plan.

Fictitious revenue transactions have the same level of documentary evidence as legitimate transactions.

Incentives and opportunities are two conditions that are generally present when financial statement fraud occurs.

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

Which of the following is not a category of inquiry used by auditors?

Senior management is responsible for promoting a culture of honesty and ethics.Describe what that implies for the organization.

Auditor's need to exhibit professional skepticism when auditing a client.This auditing standard is best expressed by which of the following?

When the auditor suspects that fraud may be present, auditing standards require the auditor to:

The two main categories of fraud are fraudulent financial reporting and misappropriation of assets.

When the auditor receives inconsistent responses from management and others within the organization, the auditor should obtain additional audit evidence to resolve the inconsistency.

Which of the following is a factor that relates to attitudes or rationalization to commit fraudulent financial reporting?

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Auditors should rely on original, rather than duplicate, copies of documents.

The auditors should pay careful attention to accounting principles that involve subjective measurements or complex transactions.

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 factor that relates to incentives or pressures to commit fraudulent financial reporting?

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, Control Risk, and Section 404 Audits

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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

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