Question 1

Which of the following is a factor that relates to incentives to misappropriate assets?

Accepted Answer

A) Significant accounting estimates involving subjective judgments 
B) Significant personal financial obligations 
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) Significant personal financial obligations 
C) Management's practice of making overly aggressive forecasts 
D) High turnover of accounting, internal audit and information technology staff

Question 2

Auditors may expand other substantive procedures to address the heightened risks of fraud.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following are elements of the fraud triangle?

Accepted Answer

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

Question 4

Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users.

Accepted Answer

A) True 
 B)False

Question 5

When analyzing accounts for fraud risk:

Accepted Answer

A) companies will generally attempt to overstate accounts payable and net income. 
B) the inventory account is generally not susceptible to fraud since the auditor must verify the existence of the inventory. 
C) payroll is rarely a significant risk for fraudulent financial reporting. 
D) fixed assets are rarely stolen because of their large size. 
A) companies will generally attempt to overstate accounts payable and net income. 
B) the inventory account is generally not susceptible to fraud since the auditor must verify the existence of the inventory. 
C) payroll is rarely a significant risk for fraudulent financial reporting. 
D) fixed assets are rarely stolen because of their large size.

Question 6

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 7

The presence of fraud risk factors increases the likelihood of fraud and may suggest that fraud is being perpetrated.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?

Accepted Answer

A) External auditors 
B) Audit committee members 
C) Management 
D) Committee of Sponsoring Organizations 
A) External auditors 
B) Audit committee members 
C) Management 
D) Committee of Sponsoring Organizations

Question 9

Fraudulent financial reporting usually involves manipulation of amounts rather than disclosures.

Accepted Answer

A) True 
 B)False

Question 10

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Accepted Answer

The three main types of revenue manipula

Question 11

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 12

In the fraud triangle, fraudulent financial reporting and misappropriation of assets:

Accepted Answer

A) share little in common. 
B) share most of the same risk factors. 
C) share the same three conditions. 
D) share most of the same conditions. 
A) share little in common. 
B) share most of the same risk factors. 
C) share the same three conditions. 
D) share most of the same conditions.

Question 13

Which of the following is not a likely source of information to assess fraud risks?

Accepted Answer

A) Communications among audit team members 
B) Inquiries of management 
C) Analytical procedures 
D) Consideration of fraud risks discovered during recent audits of other clients 
A) Communications among audit team members 
B) Inquiries of management 
C) Analytical procedures 
D) Consideration of fraud risks discovered during recent audits of other clients

Question 14

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets.

Accepted Answer

A) True 
 B)False

Question 15

As part of the brainstorming sessions, auditors are directed to emphasize:

Accepted Answer

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

Question 16

When dealing with revenue frauds:

Accepted Answer

A) the most egregious form of revenue fraud involves premature revenue recognition. 
B) premature revenue recognition involves recognizing the revenue after the accounting standards requirements have been met. 
C) premature revenue recognition is the same as cutoff errors. 
D) side agreements can modify the terms of the sales transaction and should be analyzed carefully. 
A) the most egregious form of revenue fraud involves premature revenue recognition. 
B) premature revenue recognition involves recognizing the revenue after the accounting standards requirements have been met. 
C) premature revenue recognition is the same as cutoff errors. 
D) side agreements can modify the terms of the sales transaction and should be analyzed carefully.

Question 17

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

Question 18

Auditors may identify conditions during fieldwork that change or support a judgment about the initial assessment of fraud risks.Which of the following is not a condition which should alert an auditor that the initial assessment should be changed?

Accepted Answer

A) The subsidiary ledger agrees to the general ledger. 
B) Discrepancies in the accounting records 
C) Unusual relationships between the auditor and management 
D) Missing or conflicting evidence 
A) The subsidiary ledger agrees to the general ledger. 
B) Discrepancies in the accounting records 
C) Unusual relationships between the auditor and management 
D) Missing or conflicting evidence

Question 19

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?

Accepted Answer

A) PCAOB 
B) Audit committee 
C) An appropriate level of management that is at least one level above those involved 
D) The internal auditors 
A) PCAOB 
B) Audit committee 
C) An appropriate level of management that is at least one level above those involved 
D) The internal auditors

Question 20

Explain professional skepticism and the need for maintaining professional skepticism during an audit.

Accepted Answer

Auditing standards state that, in exerci

Exam 11: Fraud Auditing

Which of the following is a factor that relates to incentives to misappropriate assets?

Auditors may expand other substantive procedures to address the heightened risks of fraud.

Which of the following are elements of the fraud triangle?

Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users.

When analyzing accounts for fraud risk:

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

The presence of fraud risk factors increases the likelihood of fraud and may suggest that fraud is being perpetrated.

Which of the following parties is responsible for implementing internal controls to minimize the likelihood of fraud?

Fraudulent financial reporting usually involves manipulation of amounts rather than disclosures.

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Most cases of fraudulent reporting involve:

In the fraud triangle, fraudulent financial reporting and misappropriation of assets:

Which of the following is not a likely source of information to assess fraud risks?

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets.

As part of the brainstorming sessions, auditors are directed to emphasize:

When dealing with revenue frauds:

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

Auditors may identify conditions during fieldwork that change or support a judgment about the initial assessment of fraud risks.Which of the following is not a condition which should alert an auditor that the initial assessment should be changed?

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?

Explain professional skepticism and the need for maintaining professional skepticism during an audit.

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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