Question 1

According to the Association of Certified Fraud Examiners, losses from misappropriation schemes are higher than losses from financial statement frauds.

Accepted Answer

A) True 
 B)False

Question 2

Most auditors will encounter a material fraud during their auditing careers.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Due to auditor-client confidentiality, auditing standards do not require the auditor to document the nature of communications about fraud made to management, the audit committee, or with others.

Accepted Answer

A) True 
 B)False

Question 5

The Securities and Exchange Commissions will set up the Office of the Whistleblower sometime in the near future in an effort to combat fraud and offer monetary rewards for being a whistleblower.

Accepted Answer

A) True 
 B)False

Question 6

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 7

If the fraud perpetrated by senior management is a material weakness, the auditor's report on internal control over financial reporting will contain a qualified opinion.

Accepted Answer

A) True 
 B)False

Question 8

For significant risks, including fraud risks, the auditor should obtain an understanding of the internal controls related to the risks.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an accurate statement regarding the misappropriation of assets?

Accepted Answer

A)  In most cases, the amounts involved are material to the financial statements. 
B)  Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm. 
C)  Management should not be concerned about minor misappropriations. 
D)  Asset misappropriation schemes are less common than fraudulent financial statement schemes. 
A)  In most cases, the amounts involved are material to the financial statements. 
B)  Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm. 
C)  Management should not be concerned about minor misappropriations. 
D)  Asset misappropriation schemes are less common than fraudulent financial statement schemes.

Question 10

When sales returns are understated, net sales is overstated and net income is also understated.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Most frauds are detected by

Accepted Answer

A)  a confession by the fraudster. 
B)  IT controls. 
C)  law enforcement. 
D)  a tip. 
A)  a confession by the fraudster. 
B)  IT controls. 
C)  law enforcement. 
D)  a tip.

Question 13

Which of the following questions is the auditor not required to ask company management when assessing fraud risk?

Accepted Answer

A)  Does management have knowledge of any fraud or suspected fraud within the company? 
B)  What is the nature of the fraud risks identified by management? 
C)  Is management using all assets effectively? 
D)  What internal controls have been implemented to address the fraud risks? 
A)  Does management have knowledge of any fraud or suspected fraud within the company? 
B)  What is the nature of the fraud risks identified by management? 
C)  Is management using all assets effectively? 
D)  What internal controls have been implemented to address the fraud risks?

Question 14

The auditor has a responsibility to notify law enforcement when fraud is suspected.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is least likely to uncover fraud?

Accepted Answer

A)  external auditors 
B)  internal auditors 
C)  internal controls 
D)  management 
A)  external auditors 
B)  internal auditors 
C)  internal controls 
D)  management

Question 16

Material frauds are frequent compared to the number of financial statement audit conducted annually in the U.S.

Accepted Answer

A) True 
 B)False

Question 17

The pressure to do "whatever it takes" to meet goals is one of the main reasons why financial statement fraud occurs.

Accepted Answer

A) True 
 B)False

Question 18

In vertical analysis, the account balance is compared to the previous period, and the percentage change for the period is calculated.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Information and idea exchange sessions by the audit team are required by current auditing standards.

Accepted Answer

A) True 
 B)False

Exam 10: Fraud Auditing

According to the Association of Certified Fraud Examiners, losses from misappropriation schemes are higher than losses from financial statement frauds.

Most auditors will encounter a material fraud during their auditing careers.

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

Due to auditor-client confidentiality, auditing standards do not require the auditor to document the nature of communications about fraud made to management, the audit committee, or with others.

The Securities and Exchange Commissions will set up the Office of the Whistleblower sometime in the near future in an effort to combat fraud and offer monetary rewards for being a whistleblower.

When analyzing accounts for fraud risk,

If the fraud perpetrated by senior management is a material weakness, the auditor's report on internal control over financial reporting will contain a qualified opinion.

For significant risks, including fraud risks, the auditor should obtain an understanding of the internal controls related to the risks.

Which of the following is an accurate statement regarding the misappropriation of assets?

When sales returns are understated, net sales is overstated and net income is also understated.

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

Most frauds are detected by

Which of the following questions is the auditor not required to ask company management when assessing fraud risk?

The auditor has a responsibility to notify law enforcement when fraud is suspected.

Which of the following is least likely to uncover fraud?

Material frauds are frequent compared to the number of financial statement audit conducted annually in the U.S.

The pressure to do "whatever it takes" to meet goals is one of the main reasons why financial statement fraud occurs.

In vertical analysis, the account balance is compared to the previous period, and the percentage change for the period is calculated.

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

Information and idea exchange sessions by the audit team are required by current auditing standards.

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

Filters