Question 1

When assessing fraud risk,

Accepted Answer

A)  fraud risk is assessed only at the overall financial statement level. 
B)  the auditor's assessment of fraud risk should be ongoing throughout the audit. 
C)  if the auditor concludes that there is a risk of material misstatement due to fraud, auditing standards require that the risks be treated as pervasive. 
D)  auditing standards require that the auditor presume there is a risk of fraud in the inventory account. 
A)  fraud risk is assessed only at the overall financial statement level. 
B)  the auditor's assessment of fraud risk should be ongoing throughout the audit. 
C)  if the auditor concludes that there is a risk of material misstatement due to fraud, auditing standards require that the risks be treated as pervasive. 
D)  auditing standards require that the auditor presume there is a risk of fraud in the inventory account.

Question 2

Although the financial statements of all companies are potentially subject to manipulation, the risk is greater for companies that

Accepted Answer

A)  are heavily regulated. 
B)  have low amounts of debt. 
C)  have to make significant judgments for accounting estimates. 
D)  operate in stable economic environments. 
A)  are heavily regulated. 
B)  have low amounts of debt. 
C)  have to make significant judgments for accounting estimates. 
D)  operate in stable economic environments.

Question 3

The risk of management override of controls exists in just about every audit. Therefore, auditors must perform certain features in every audit, including examining management's estimates, judgments, and assumptions that may indicate a potential for bias.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not one of the elements to prevent, deter, and detect fraud according to the AICPA?

Accepted Answer

A)  performing analytical procedures 
B)  culture of honesty and high ethics 
C)  management's responsibility to evaluate risks of fraud 
D)  audit committee oversight 
A)  performing analytical procedures 
B)  culture of honesty and high ethics 
C)  management's responsibility to evaluate risks of fraud 
D)  audit committee oversight

Question 5

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 6

According to a KPMG survey, most fraud perpetrators

Accepted Answer

A)  are over the age of 65. 
B)  work on the assembly line. 
C)  have worked for the company for over ten years. 
D)  are female. 
A)  are over the age of 65. 
B)  work on the assembly line. 
C)  have worked for the company for over ten years. 
D)  are female.

Question 7

The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts. What procedures could the company take to prevent this type of fraud?

Accepted Answer

• Allowing payments to be made only to a

Question 8

Company management is often under pressure to increase revenue and/or net income. One approach is to use a "bill and hold" arrangement. "Bill and hold" is an example of which of the following?

Accepted Answer

A)  significant accounting estimates 
B)  fictitious revenue recorded 
C)  premature revenue recognized 
D)  alteration of cutoff documents 
A)  significant accounting estimates 
B)  fictitious revenue recorded 
C)  premature revenue recognized 
D)  alteration of cutoff documents

Question 9

Most frauds are discovered by accident.

Accepted Answer

A) True 
 B)False

Question 10

Auditors are required to perform certain procedures in every audit to address the risk of management override of internal controls. What are these procedures?

Accepted Answer

Auditing procedures require the followin

Question 11

Fictitious revenue transactions have the same level of documentary evidence as legitimate transactions.

Accepted Answer

A) True 
 B)False

Question 12

Discuss the need for maintaining professional skepticism during an audit.

Accepted Answer

Auditing standards require that the audi

Question 13

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 14

Which party has the primary responsibility to oversee an organization's financial reporting and internal control process?

Accepted Answer

A)  the board of directors 
B)  the audit committee 
C)  management of the company 
D)  the financial statement auditors 
A)  the board of directors 
B)  the audit committee 
C)  management of the company 
D)  the financial statement auditors

Question 15

If the auditor discovers information indicating a material misstatement due to fraud may have occurred, the auditor should immediately withdraw from the audit engagement.

Accepted Answer

A) True 
 B)False

Question 16

When the auditor identifies risk at the assertion level,

Accepted Answer

A)  the auditor may need to obtain audit evidence that is more reliable and relevant. 
B)  the auditor may choose to conduct substantive testing during interim periods rather than at the end of the period. 
C)  the auditor may decrease the sample size. 
D)  both a and b 
A)  the auditor may need to obtain audit evidence that is more reliable and relevant. 
B)  the auditor may choose to conduct substantive testing during interim periods rather than at the end of the period. 
C)  the auditor may decrease the sample size. 
D)  both a and b

Question 17

Senior management is responsible for promoting a culture of honesty and ethics. Describe what that implies for the organization.

Accepted Answer

Note: responses with examples may vary
M

Question 18

Auditors should rely on original, rather than duplicate, copies of documents.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

Accepted Answer

A)  lack of controls related to the calculation and approval of accounting estimates 
B)  ineffective oversight of financial reporting by the board of directors 
C)  management's set of ethical values 
D)  high turnover of accounting, internal audit, and information technology staff 
A)  lack of controls related to the calculation and approval of accounting estimates 
B)  ineffective oversight of financial reporting by the board of directors 
C)  management's set of ethical values 
D)  high turnover of accounting, internal audit, and information technology staff

Exam 10: Fraud Auditing

When assessing fraud risk,

Although the financial statements of all companies are potentially subject to manipulation, the risk is greater for companies that

The risk of management override of controls exists in just about every audit. Therefore, auditors must perform certain features in every audit, including examining management's estimates, judgments, and assumptions that may indicate a potential for bias.

Which of the following is not one of the elements to prevent, deter, and detect fraud according to the AICPA?

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

According to a KPMG survey, most fraud perpetrators

The most common fraud in the acquisition and payment cycle is for the perpetrator to issue payments to fictitious vendors and deposit the cash in fictitious accounts. What procedures could the company take to prevent this type of fraud?

Company management is often under pressure to increase revenue and/or net income. One approach is to use a "bill and hold" arrangement. "Bill and hold" is an example of which of the following?

Most frauds are discovered by accident.

Auditors are required to perform certain procedures in every audit to address the risk of management override of internal controls. What are these procedures?

Fictitious revenue transactions have the same level of documentary evidence as legitimate transactions.

Discuss the need for maintaining professional skepticism during an audit.

When dealing with revenue frauds,

Which party has the primary responsibility to oversee an organization's financial reporting and internal control process?

If the auditor discovers information indicating a material misstatement due to fraud may have occurred, the auditor should immediately withdraw from the audit engagement.

When the auditor identifies risk at the assertion level,

Senior management is responsible for promoting a culture of honesty and ethics. Describe what that implies for the organization.

Auditors should rely on original, rather than duplicate, copies of documents.

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

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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