Question 1

An effective code of conduct should contain the company's policies regarding

Accepted Answer

A)  conflicts of interests. 
B)  kickbacks. 
C)  gifts and entertainment. 
D)  all of the above. 
A)  conflicts of interests. 
B)  kickbacks. 
C)  gifts and entertainment. 
D)  all of the above.

Question 2

The risk of management override of controls exists in just about every audit. Therefore, auditors must perform certain features in every audit, including examining journal entries and other adjustments, for evidence of possible misstatements due to fraud.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a true statement regarding professional skepticism?

Accepted Answer

A)  Auditors reject most potential clients perceived as lacking honesty and integrity. 
B)  If the auditor has past experience with a client, they can assume the client is honest. 
C)  Material frauds occur in most of the audits of financial statements. 
D)  Professional skepticism is required only during the planning phase. 
A)  Auditors reject most potential clients perceived as lacking honesty and integrity. 
B)  If the auditor has past experience with a client, they can assume the client is honest. 
C)  Material frauds occur in most of the audits of financial statements. 
D)  Professional skepticism is required only during the planning phase.

Question 4

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 with 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 with the general ledger. 
B)  discrepancies in the accounting records 
C)  unusual relationships between the auditor and management 
D)  missing or conflicting evidence

Question 5

________ 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 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

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

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 9

A lack of controls over payments to vendors can cause revenue fraud.

Accepted Answer

A) True 
 B)False

Question 10

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 11

List and briefly describe examples of risk factors for each condition of fraud for fraudulent financial reporting.

Accepted Answer

Incentives/Pressures:
1. Financial stabi

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

Describe the five sources of information gathered to assess fraud risks.

Accepted Answer

The five sources of information to asses

Question 15

Explain at least three of the roles which the Human Resource function can play in reducing the fraud risk within a company.

Accepted Answer

Effective screening policies - help redu

Question 16

Which of the following is an accurate statement regarding assets and fraud risk?

Accepted Answer

A)  Companies will often capitalize repairs as fixed assets. 
B)  Since fixed assets are often large, there is little theft of fixed assets. 
C)  Intangible assets are recorded at cost and valuation issues therefore are not a fraud risk. 
D)  Since companies have few fixed assets, there is no need for them to be periodically inventoried. 
A)  Companies will often capitalize repairs as fixed assets. 
B)  Since fixed assets are often large, there is little theft of fixed assets. 
C)  Intangible assets are recorded at cost and valuation issues therefore are not a fraud risk. 
D)  Since companies have few fixed assets, there is no need for them to be periodically inventoried.

Question 17

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 18

If the risk of misstatement due to fraud is increased, the auditor is required to assign a fraud specialist to the audit team.

Accepted Answer

A) True 
 B)False

Question 19

List and briefly describe the three conditions for fraud.

Accepted Answer

• Incentives/pressures - Management or o

Question 20

Misappropriation of assets is normally perpetrated by

Accepted Answer

A)  members of the board of directors. 
B)  employees at lower levels of the organization. 
C)  management of the company. 
D)  the internal auditors. 
A)  members of the board of directors. 
B)  employees at lower levels of the organization. 
C)  management of the company. 
D)  the internal auditors.

Exam 10: Fraud Auditing

An effective code of conduct should contain the company's policies regarding

The risk of management override of controls exists in just about every audit. Therefore, auditors must perform certain features in every audit, including examining journal entries and other adjustments, for evidence of possible misstatements due to fraud.

Which of the following is a true statement regarding professional skepticism?

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?

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

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.

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

A lack of controls over payments to vendors can cause revenue fraud.

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

List and briefly describe examples of risk factors for each condition of fraud for fraudulent financial reporting.

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

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?

Describe the five sources of information gathered to assess fraud risks.

Explain at least three of the roles which the Human Resource function can play in reducing the fraud risk within a company.

Which of the following is an accurate statement regarding assets and fraud risk?

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

If the risk of misstatement due to fraud is increased, the auditor is required to assign a fraud specialist to the audit team.

List and briefly describe the three conditions for fraud.

Misappropriation of assets is normally perpetrated by

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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