Question 1

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

Accepted Answer

Management cannot act one way and expect

Question 2

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets.

Accepted Answer

A) True 
 B)False

Question 3

Information and idea exchange sessions by the audit team are required by SAS No. 99.

Accepted Answer

A) True 
 B)False

Question 4

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 5

PCAOB Standard 5 indicates that material fraud by senior management is a material weakness.

Accepted Answer

A) True 
 B)False

Question 6

SAS No. 99 requires auditors to document which of the following matters related to the auditor's consideration of material misstatements due to fraud?

Accepted Answer

A)  Reasons supporting a conclusion that there is not a significant risk of material improper expense recognition. 
B)  Procedures performed to obtain information necessary to identify and assess the risks of material fraud. 
C)  Results of the internal auditor's procedures performed to address the risk of management override of controls. 
D)  Discussions with management regarding separation of duties. 
A)  Reasons supporting a conclusion that there is not a significant risk of material improper expense recognition. 
B)  Procedures performed to obtain information necessary to identify and assess the risks of material fraud. 
C)  Results of the internal auditor's procedures performed to address the risk of management override of controls. 
D)  Discussions with management regarding separation of duties.

Question 7

"An attitude, character, or set of ethical values exist that allow management or employees to commit a dishonest act …." describes the opportunities condition included in the fraud triangle.

Accepted Answer

A) True 
 B)False

Question 8

Auditors must issue a qualified opinion on internal control whenever senior management commits fraud that is considered a material weakness.

Accepted Answer

A) True 
 B)False

Question 9

The most common fraud in the acquisition and payment cycle is for the fraudster 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

Only payments to approved vendors
Detail

Question 10

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

Accepted Answer

A)  adjustments to revenue accounts 
B)  fictitious revenue recorded 
C)  premature revenue recognized 
D)  alteration of cutoff documents 
A)  adjustments to revenue accounts 
B)  fictitious revenue recorded 
C)  premature revenue recognized 
D)  alteration of cutoff documents

Question 11

Explain professional skepticism and the need for maintaining professional skepticism during an audit.

Accepted Answer

SAS No. 1 states that, in exercising pro

Question 12

Which of the following is a factor that relates to incentives or pressures 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.

Question 13

Fraud is more prevalent in smaller businesses and not-for-organizations because it is more difficult for them to maintain:

Accepted Answer

A)  adequate separation of duties. 
B)  adequate compensation. 
C)  adequate financial reporting standards. 
D)  adequate supervisory boards. 
A)  adequate separation of duties. 
B)  adequate compensation. 
C)  adequate financial reporting standards. 
D)  adequate supervisory boards.

Question 14

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

Accepted Answer

In the context of financial statement au

Question 15

Misappropriation of assets is normally perpetrated by:

Accepted Answer

A)  members of the board of directors. 
B)  employees at lower levels of the organization. 
C)  management of the company. 
D)  the internal auditors. 
A)  members of the board of directors. 
B)  employees at lower levels of the organization. 
C)  management of the company. 
D)  the internal auditors.

Question 16

Management is responsible for:

Accepted Answer

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

Question 17

With respect to misappropriation of assets, most frauds involve:

Accepted Answer

A)    
B)    
C)    Yes No 
D)    
A)    
B)    
C)    Yes No 
D)

Question 18

What types of inquiry techniques might an auditor use when making inquiries of client personnel? What are the uses of each technique?

Accepted Answer

There are three main types of inquiry av

Question 19

Companies may intentionally understate earnings when income is high to create a reserve of "earnings" that may be used in future years to increase earnings. This practice is known as:

Accepted Answer

A)  performance-based management. 
B)  earnings management. 
C)  asset management. 
D)  expense management. 
A)  performance-based management. 
B)  earnings management. 
C)  asset management. 
D)  expense management.

Question 20

Professional skepticism requires auditors to "either assume that management is dishonest or they have questionable honesty."

Accepted Answer

A) True 
 B)False

Exam 11: Fraud Auditing

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

The same three fraud triangle risk conditions apply to fraudulent financial reporting and misappropriation of assets.

Information and idea exchange sessions by the audit team are required by SAS No. 99.

Which of the following is least likely to uncover fraud?

PCAOB Standard 5 indicates that material fraud by senior management is a material weakness.

SAS No. 99 requires auditors to document which of the following matters related to the auditor's consideration of material misstatements due to fraud?

"An attitude, character, or set of ethical values exist that allow management or employees to commit a dishonest act …." describes the opportunities condition included in the fraud triangle.

Auditors must issue a qualified opinion on internal control whenever senior management commits fraud that is considered a material weakness.

The most common fraud in the acquisition and payment cycle is for the fraudster 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. This is an example of which of the following?

Explain professional skepticism and the need for maintaining professional skepticism during an audit.

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

Fraud is more prevalent in smaller businesses and not-for-organizations because it is more difficult for them to maintain:

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

Misappropriation of assets is normally perpetrated by:

Management is responsible for:

With respect to misappropriation of assets, most frauds involve:

What types of inquiry techniques might an auditor use when making inquiries of client personnel? What are the uses of each technique?

Companies may intentionally understate earnings when income is high to create a reserve of "earnings" that may be used in future years to increase earnings. This practice is known as:

Professional skepticism requires auditors to "either assume that management is dishonest or they have questionable honesty."

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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