Question 1

Which is not a link of the chain of command that the controller should inform of a material misstatement in the financial statements?

Accepted Answer

A) Audit Committee of Board of Directors 
B) CEO 
C) Hotline 
D) CFO 
A) Audit Committee of Board of Directors 
B) CEO 
C) Hotline 
D) CFO

Question 2

All of the following tend to be rationalizations for fraud except for:

Accepted Answer

A) We need to protect the shareholders and keep the stock price high. 
B) All companies use aggressive accounting techniques. 
C) The employee will be fired unless s/he goes along with the fraud. 
D) We are correcting a temporary problem that will not exist in the future. 
A) We need to protect the shareholders and keep the stock price high. 
B) All companies use aggressive accounting techniques. 
C) The employee will be fired unless s/he goes along with the fraud. 
D) We are correcting a temporary problem that will not exist in the future.

Question 3

The primary issue discussed in the Krispy Kreme case was:

Accepted Answer

A) Use of special-purpose-entities to keep debt off the books 
B) Use of "round trip" transactions to accelerate the recording of earnings 
C) Internal controls over operating activities 
D) Internal controls over the making of doughnuts 
A) Use of special-purpose-entities to keep debt off the books 
B) Use of "round trip" transactions to accelerate the recording of earnings 
C) Internal controls over operating activities 
D) Internal controls over the making of doughnuts

Question 4

The audit report on Sky Hook, Inc.that was discussed in The Audit Report case contained each of the following deficiencies except for:

Accepted Answer

A) The report was not addressed to the shareholders and/or the board of directors 
B) The report failed to identify the comparative financial statements included in the audit 
C) The failure to properly identify the auditing standards followed 
D) The failure to render an opinion based on the audit 
A) The report was not addressed to the shareholders and/or the board of directors 
B) The report failed to identify the comparative financial statements included in the audit 
C) The failure to properly identify the auditing standards followed 
D) The failure to render an opinion based on the audit

Question 5

Which of the following is an element of the introductory paragraph of an auditor's report?

Accepted Answer

A) Identifies the type of opinion the auditor is giving 
B) Identifies the management's responsibilities for the statements 
C) Identifies audit testing and procedures used 
D) Identifies the generally accepted auditing standards followed in conducting the audit 
A) Identifies the type of opinion the auditor is giving 
B) Identifies the management's responsibilities for the statements 
C) Identifies audit testing and procedures used 
D) Identifies the generally accepted auditing standards followed in conducting the audit

Question 6

The Marcus Yamabuto case deals with issues related to:

Accepted Answer

A) Premature revenue recognition 
B) Franchise revenue accounting 
C) Special purpose entities 
D) All of the above 
A) Premature revenue recognition 
B) Franchise revenue accounting 
C) Special purpose entities 
D) All of the above

Question 7

The misappropriation of assets refers to:

Accepted Answer

A) The deliberate use of company assets for personal reasons. 
B) The deliberate overstatement of financial statements. 
C) The deliberate omission of disclosures from the statements. 
D) All of the above. 
A) The deliberate use of company assets for personal reasons. 
B) The deliberate overstatement of financial statements. 
C) The deliberate omission of disclosures from the statements. 
D) All of the above.

Question 8

A study conducted of financial statement restatements in 2007 and 2008 indicated a decline in the number of restatements as a result of each of the following except for:

Accepted Answer

A) Improved audits of financial statements 
B) Improved reliability of internal controls 
C) A more relaxed approach of the SEC regarding materiality and the need to file restatements 
D) All were cited as reasons for the decline 
A) Improved audits of financial statements 
B) Improved reliability of internal controls 
C) A more relaxed approach of the SEC regarding materiality and the need to file restatements 
D) All were cited as reasons for the decline

Question 9

The auditor's responsibility with regard to illegal acts is greatest when:

Accepted Answer

A) The illegal acts have an indirect and material effect on financial statement amounts 
B) The illegal acts have a direct and material effect on financial statement amounts 
C) The illegal acts have a direct and immaterial effect on financial statement amounts 
D) Illegal acts exist regardless of the effects on the financial statements 
A) The illegal acts have an indirect and material effect on financial statement amounts 
B) The illegal acts have a direct and material effect on financial statement amounts 
C) The illegal acts have a direct and immaterial effect on financial statement amounts 
D) Illegal acts exist regardless of the effects on the financial statements

Question 10

Fannie Mae's financial statements were investigated because of allegations that the company:

Accepted Answer

A) Deferred derivative losses on the balance sheet thereby inflating profits 
B) Used derivatives to hide subprime loans 
C) Sold derivatives to increase cash flows prior to bank financing 
D) All of the above 
A) Deferred derivative losses on the balance sheet thereby inflating profits 
B) Used derivatives to hide subprime loans 
C) Sold derivatives to increase cash flows prior to bank financing 
D) All of the above

Question 11

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

Accepted Answer

A) Communicate to the audit committee both material and immaterial amounts of fraud 
B) Communicate to the audit committee both material and immaterial amounts of fraud that are detected 
C) Communicate to the SEC material amounts of fraud 
D) Communicate to the SEC both material and immaterial amounts of fraud that are detected 
A) Communicate to the audit committee both material and immaterial amounts of fraud 
B) Communicate to the audit committee both material and immaterial amounts of fraud that are detected 
C) Communicate to the SEC material amounts of fraud 
D) Communicate to the SEC both material and immaterial amounts of fraud that are detected

Question 12

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Accepted Answer

A) The financial statements have followed GAAP. 
B) Consistency in the application of GAAP. 
C) Adequate disclosures exist in the statements. 
D) Gathering sufficient audit evidence to warrant an opinion. 
A) The financial statements have followed GAAP. 
B) Consistency in the application of GAAP. 
C) Adequate disclosures exist in the statements. 
D) Gathering sufficient audit evidence to warrant an opinion.

Question 13

An unusual aspect of the Edvid case is that the company:

Accepted Answer

A) Accelerated the recording of revenue into an earlier period than seemed to be justified 
B) Delayed the of recognition of revenue into a later period than seemed justified 
C) The falsification of inventory amounts 
D) All of the above 
A) Accelerated the recording of revenue into an earlier period than seemed to be justified 
B) Delayed the of recognition of revenue into a later period than seemed justified 
C) The falsification of inventory amounts 
D) All of the above

Question 14

What are the audit committee's responsibilities with respect to fraud and risk assessment?

Accepted Answer

The audit committee's responsibilities w

Question 15

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

Accepted Answer

A) The illegal act has a material effect on the financial statements 
B) Senior management and the board have not acted properly to correct for the act 
C) The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report 
D) All of the above are additional requirements 
A) The illegal act has a material effect on the financial statements 
B) Senior management and the board have not acted properly to correct for the act 
C) The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report 
D) All of the above are additional requirements

Question 16

Which of the following is not a consideration in determining a measure of materiality?

Accepted Answer

A) Strong internal control 
B) Five percent of net income 
C) Risks of material misstatements due to fraud 
D) Risks of illegal acts 
A) Strong internal control 
B) Five percent of net income 
C) Risks of material misstatements due to fraud 
D) Risks of illegal acts

Question 17

The fraud at Tyco included each of the following acts except for:

Accepted Answer

A) Benefits given to certain members of the board of directors to secure their silence about the fraud 
B) Corporate assets used by members of top management for personal purposes 
C) Setting up special-purpose-entities to keep debt off Tyco's books 
D) Related party transactions that were not adequately disclosed 
A) Benefits given to certain members of the board of directors to secure their silence about the fraud 
B) Corporate assets used by members of top management for personal purposes 
C) Setting up special-purpose-entities to keep debt off Tyco's books 
D) Related party transactions that were not adequately disclosed

Question 18

Which of the following is not a component of internal control?

Accepted Answer

A) Control environment 
B) Information and communication systems 
C) Monitoring of controls 
D) Independence of the audit committee 
A) Control environment 
B) Information and communication systems 
C) Monitoring of controls 
D) Independence of the audit committee

Question 19

The first step for an auditor who concludes an illegal act exists is to:

Accepted Answer

A) Bring the matter to the attention of the audit committee 
B) Bring the matter to the attention of the SEC 
C) Assess the impact of the illegal act on the financial statements 
D) Assess the impact of the illegal act on the auditor's opinion 
A) Bring the matter to the attention of the audit committee 
B) Bring the matter to the attention of the SEC 
C) Assess the impact of the illegal act on the financial statements 
D) Assess the impact of the illegal act on the auditor's opinion

Question 20

Explain the circumstances under which an auditor should give each of the following opinions:
(a) Unqualified opinion
(b) Unqualified opinion with an explanatory paragraph
(c) Qualified opinion
(d) Adverse opinion

Accepted Answer

(a) An auditor should give an unqualifie

Which is not a link of the chain of command that the controller should inform of a material misstatement in the financial statements?

All of the following tend to be rationalizations for fraud except for:

The primary issue discussed in the Krispy Kreme case was:

The audit report on Sky Hook, Inc.that was discussed in The Audit Report case contained each of the following deficiencies except for:

Which of the following is an element of the introductory paragraph of an auditor's report?

The Marcus Yamabuto case deals with issues related to:

The misappropriation of assets refers to:

A study conducted of financial statement restatements in 2007 and 2008 indicated a decline in the number of restatements as a result of each of the following except for:

The auditor's responsibility with regard to illegal acts is greatest when:

Fannie Mae's financial statements were investigated because of allegations that the company:

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

An unusual aspect of the Edvid case is that the company:

What are the audit committee's responsibilities with respect to fraud and risk assessment?

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

Which of the following is not a consideration in determining a measure of materiality?

The fraud at Tyco included each of the following acts except for:

Which of the following is not a component of internal control?

The first step for an auditor who concludes an illegal act exists is to:

Explain the circumstances under which an auditor should give each of the following opinions: (a) Unqualified opinion (b) Unqualified opinion with an explanatory paragraph (c) Qualified opinion (d) Adverse opinion

Ethical Reasoning Implications for Accounting

Accountants Ethical Decision Process and Professional Judgment

Corporate Governance and Ethical Management

Aicpa Code of Professional Conduct

Legal and Regulatory Obligations in an Ethical Framework

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

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Exam 5: Audit Responsibilities and Accounting Fraud

Which is not a link of the chain of command that the controller should inform of a material misstatement in the financial statements?

All of the following tend to be rationalizations for fraud except for:

The primary issue discussed in the Krispy Kreme case was:

The audit report on Sky Hook, Inc.that was discussed in The Audit Report case contained each of the following deficiencies except for:

Which of the following is an element of the introductory paragraph of an auditor's report?

The Marcus Yamabuto case deals with issues related to:

The misappropriation of assets refers to:

A study conducted of financial statement restatements in 2007 and 2008 indicated a decline in the number of restatements as a result of each of the following except for:

The auditor's responsibility with regard to illegal acts is greatest when:

Fannie Mae's financial statements were investigated because of allegations that the company:

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

An unusual aspect of the Edvid case is that the company:

What are the audit committee's responsibilities with respect to fraud and risk assessment?

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

Which of the following is not a consideration in determining a measure of materiality?

The fraud at Tyco included each of the following acts except for:

Which of the following is not a component of internal control?

The first step for an auditor who concludes an illegal act exists is to:

Explain the circumstances under which an auditor should give each of the following opinions: (a) Unqualified opinion (b) Unqualified opinion with an explanatory paragraph (c) Qualified opinion (d) Adverse opinion

Ethical Reasoning Implications for Accounting

Accountants Ethical Decision Process and Professional Judgment

Corporate Governance and Ethical Management

Aicpa Code of Professional Conduct

Legal and Regulatory Obligations in an Ethical Framework

Earnings Management and the Quality of Financial Reporting

International Financial Reporting: Ethics and Corporate Governance Considerations

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