Question 1

In the fraud triangle, fraudulent financial reporting and misappropriation of assets share the same conditions and risk factors.

Accepted Answer

A) True 
 B)False  False

Question 2

Auditing standards state that the auditor should focus inquiries regarding fraud with the board of directors and management of their audit clients, and not spend time making inquiries of personnel outside of the normal financial reporting lines of responsibility.

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A)  weak internal controls 
B)  significant personal financial obligations 
C)  management's practice of making overly aggressive forecasts 
D)  anger and fear 
A)  weak internal controls 
B)  significant personal financial obligations 
C)  management's practice of making overly aggressive forecasts 
D)  anger and fear B

Question 4

List and briefly describe cases and examples of fraudulent financial reporting.

Accepted Answer

• Overstating income - either by oversta

Question 5

Ineffective oversight by the board of directors over financial reporting is an example of an incentives/pressures risk factor.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following are elements of the fraud triangle?

Accepted Answer

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

Question 7

Two of the most useful warning signals that can indicate that revenue fraud is occurring are

Accepted Answer

A)  analytical procedures and documentary discrepancies. 
B)  analytical procedures and misappropriation of assets. 
C)  documentary discrepancies and vague responses to inquiries. 
D)  missing audit evidence and vague responses to inquiries. 
A)  analytical procedures and documentary discrepancies. 
B)  analytical procedures and misappropriation of assets. 
C)  documentary discrepancies and vague responses to inquiries. 
D)  missing audit evidence and vague responses to inquiries.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.

Accepted Answer

A)  income smoothing 
B)  cookie jar reserves 
C)  cash 
D)  sales 
A)  income smoothing 
B)  cookie jar reserves 
C)  cash 
D)  sales

Question 10

Auditing standards require that auditors document

Accepted Answer

A)  specific risks of fraud identified at the financial statement level, but not at the assertion level. 
B)  all conversations with management. 
C)  results of the procedures performed to address the risk of management override of controls. 
D)  all of the above. 
A)  specific risks of fraud identified at the financial statement level, but not at the assertion level. 
B)  all conversations with management. 
C)  results of the procedures performed to address the risk of management override of controls. 
D)  all of the above.

Question 11

Fraudulent financial reporting may also involve inadequate disclosures in the financial statements.

Accepted Answer

A) True 
 B)False

Question 12

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.

Question 13

Public Company Accounting Oversight Board auditing standards require the auditor of a public company to evaluate the effectiveness of the board of directors and the audit committee.

Accepted Answer

A) True 
 B)False

Question 14

Fraud is more prevalent in large businesses than small businesses and not-for-profit organizations.

Accepted Answer

A) True 
 B)False

Question 15

Relating to opportunities, why do most people commit fraud?

Accepted Answer

A)  They need to fund an extravagant lifestyle. 
B)  They feel a sense of superiority. 
C)  There are weak internal controls. 
D)  They need to meet pre-specified business targets. 
A)  They need to fund an extravagant lifestyle. 
B)  They feel a sense of superiority. 
C)  There are weak internal controls. 
D)  They need to meet pre-specified business targets.

Question 16

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 17

Auditing standards require that the auditor presume that there is a risk of fraud in revenue recognition.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 20

Interrogative inquiry is often confrontational.

Accepted Answer

A) True 
 B)False

Exam 10: Fraud Auditing

In the fraud triangle, fraudulent financial reporting and misappropriation of assets share the same conditions and risk factors.

Auditing standards state that the auditor should focus inquiries regarding fraud with the board of directors and management of their audit clients, and not spend time making inquiries of personnel outside of the normal financial reporting lines of responsibility.

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

List and briefly describe cases and examples of fraudulent financial reporting.

Ineffective oversight by the board of directors over financial reporting is an example of an incentives/pressures risk factor.

Which of the following are elements of the fraud triangle?

Two of the most useful warning signals that can indicate that revenue fraud is occurring are

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

Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.

Auditing standards require that auditors document

Fraudulent financial reporting may also involve inadequate disclosures in the financial statements.

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

Public Company Accounting Oversight Board auditing standards require the auditor of a public company to evaluate the effectiveness of the board of directors and the audit committee.

Fraud is more prevalent in large businesses than small businesses and not-for-profit organizations.

Relating to opportunities, why do most people commit fraud?

Most cases of fraudulent reporting involve

Auditing standards require that the auditor presume that there is a risk of fraud in revenue recognition.

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

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

Interrogative inquiry is often confrontational.

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 Materiality

Assessing the Risk of Material Misstatement

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, 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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