Question 1

The audit team has identified and documented fraud risk. Their next step should be to:

Accepted Answer

A)  evaluate factors that should reduce risk. 
B)  develop programs to test for fraud. 
C)  proceed with performing tests of controls. 
D)  proceed with performing substantive tests of balances. 
A)  evaluate factors that should reduce risk. 
B)  develop programs to test for fraud. 
C)  proceed with performing tests of controls. 
D)  proceed with performing substantive tests of balances. D

Question 2

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

Accepted Answer

A)  Significant accounting estimates involving subjective judgments. 
B)  Excessive pressure for management to meet debt repayment requirements. 
C)  Management's practice of making overly aggressive forecasts. 
D)  High turnover of accounting, internal audit and information technology staff. 
A)  Significant accounting estimates involving subjective judgments. 
B)  Excessive pressure for management to meet debt repayment requirements. 
C)  Management's practice of making overly aggressive forecasts. 
D)  High turnover of accounting, internal audit and information technology staff. C

Question 3

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 C

Question 4

When the auditor suspects that fraud may be present, SAS No. 99 requires the auditor to:

Accepted Answer

A)  terminate the engagement with sufficient notice given to the client. 
B)  issue an adverse opinion or a disclaimer of opinion. 
C)  obtain additional evidence to determine whether material fraud has occurred. 
D)  re-issue the engagement letter. 
A)  terminate the engagement with sufficient notice given to the client. 
B)  issue an adverse opinion or a disclaimer of opinion. 
C)  obtain additional evidence to determine whether material fraud has occurred. 
D)  re-issue the engagement letter.

Question 5

Analytical procedures can be very effective in detecting inventory fraud. Which of the following analytical procedures would NOT be useful in detecting fraud?

Accepted Answer

A)  Gross margin percentage 
B)  Inventory Turnover 
C)  Cost of sales percentage 
D)  Accounts payable turnover 
A)  Gross margin percentage 
B)  Inventory Turnover 
C)  Cost of sales percentage 
D)  Accounts payable turnover

Question 6

Auditors should consider risk factors related to incentives, opportunities, and attitudes whenever they assess the likelihood of material misstatements due to fraud.

Accepted Answer

A) True 
 B)False

Question 7

Financial statements of all companies are potentially subject to manipulation.

Accepted Answer

A) True 
 B)False

Question 8

The board of directors has the primary oversight responsibility to assess fraud risks and establish corporate governance programs and controls to prevent, deter, and detect fraud.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Which of the following is the best reason for management to emphasize fraud prevention and deterrence?

Accepted Answer

A)  collusion and false documentation make fraud detection difficult to detect 
B)  collusion is impossible to detect 
C)  false Documentation is impossible to detect 
D)  all of the above are equally valid reasons 
A)  collusion and false documentation make fraud detection difficult to detect 
B)  collusion is impossible to detect 
C)  false Documentation is impossible to detect 
D)  all of the above are equally valid reasons

Question 11

The two main categories of fraud are fraudulent financial reporting and misappropriation of assets.

Accepted Answer

A) True 
 B)False

Question 12

________ 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 13

As part of the brainstorming sessions, auditors are directed to emphasize:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 14

Which of the following is one of the conditions for fraud described in SAS No. 99?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 15

In the context of financial statement auditing, fraud is defined as an intentional misstatement of a material fact regarding balances, transactions or presentation of the financial statements.

Accepted Answer

A) True 
 B)False

Question 16

The audit committee is responsible for determining an organization's financial reporting and internal control processes.

Accepted Answer

A) True 
 B)False

Question 17

Because fraud perpetrators are often knowledgeable about audit procedures, SAS No. 99 requires auditors to incorporate unpredictability into the audit plan.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a category of fraud?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 19

Management and the board of directors are responsible for setting the "tone at the top."

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  Assessment inquiry 
B)  Declarative inquiry 
C)  Interrogative inquiry 
D)  Informational inquiry 
A)  Assessment inquiry 
B)  Declarative inquiry 
C)  Interrogative inquiry 
D)  Informational inquiry

Exam 11: Fraud Auditing

The audit team has identified and documented fraud risk. Their next step should be to:

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

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?

When the auditor suspects that fraud may be present, SAS No. 99 requires the auditor to:

Analytical procedures can be very effective in detecting inventory fraud. Which of the following analytical procedures would NOT be useful in detecting fraud?

Auditors should consider risk factors related to incentives, opportunities, and attitudes whenever they assess the likelihood of material misstatements due to fraud.

Financial statements of all companies are potentially subject to manipulation.

The board of directors has the primary oversight responsibility to assess fraud risks and establish corporate governance programs and controls to prevent, deter, and detect fraud.

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

Which of the following is the best reason for management to emphasize fraud prevention and deterrence?

The two main categories of fraud are fraudulent financial reporting and misappropriation of assets.

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

As part of the brainstorming sessions, auditors are directed to emphasize:

Which of the following is one of the conditions for fraud described in SAS No. 99?

In the context of financial statement auditing, fraud is defined as an intentional misstatement of a material fact regarding balances, transactions or presentation of the financial statements.

The audit committee is responsible for determining an organization's financial reporting and internal control processes.

Because fraud perpetrators are often knowledgeable about audit procedures, SAS No. 99 requires auditors to incorporate unpredictability into the audit plan.

Which of the following is a category of fraud?

Management and the board of directors are responsible for setting the "tone at the top."

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

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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 and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and 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 Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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