Exam 10: Fraud Auditing

One technique to smooth income is to increase the value of inventory and other assets of an acquired company at the time of the acquisition, resulting in lower earnings when the assets are later sold.

When the allowance for doubtful accounts is understated, bad debt expense is understated and net income is also understated.

The two most common areas of fraud in payroll are the creation of fictitious employees and the overstatement of individual payroll hours.

Which of the following is a factor that relates to attitudes or rationalization to misappropriate assets?

Management, not the board of directors, is responsible for setting the "tone at the top" for ethical behavior in the company.

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

Which of the following best defines fraud in a financial statement auditing context?

________ inquiry is used to obtain information about facts and details that the auditor does not have, usually about past or current events or processes.

Misappropriation of assets is normally perpetrated at the lowest levels of the organization hierarchy.

Define fraud and distinguish between the two main categories of fraud.

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

Who is responsible for setting the "tone at the top"?

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

If employees have positive feelings about their employers, they are less likely to commit fraud.

When the auditor concludes there is a risk of material misstatement due to fraud, auditing standards do not require to automatically treat those risks as significant risks.

According to the Association of Certified Fraud Examiners (ACFE), the average company loses ________ percent of its revenues to fraud.

If the auditor discovers that a current year sale should be recorded in the following year, the auditor should determine if this situation was intentional by the client or fraud committed by the client.

Fraud awareness training should be

Collusion and false documentation make detection of fraud by management a challenge.

Management is responsible for