Question 1

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?

Accepted Answer

A)   PCAOB
B)   audit committee
C)   an appropriate level of management that is at least one level above those involved
D)   the internal auditorsE) A) and D)
F) A) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

To address heightened risks of fraud, the auditor can do all of the following except

Accepted Answer

A)   use specialists to assist in evaluating the accuracy and reasonableness of management's key estimates.
B)   decrease the amount of substantive tests.
C)   use ACL or IDEA to search for fictitious revenue transactions.
D)   use EXCEL to perform analytical procedures at the disaggregated level.E) B) and D)
F) B) and C)

Question 4

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Accepted Answer

The three main types of revenue manipula...

Question 5

It is possible that management may have programs designed to deter, prevent, and to detect fraud. Auditor should therefore consider whether such antifraud programs mitigate the risk of material misstatement due to fraud.

Accepted Answer

A) True 
 B)False

Question 6

Fictitious revenues

Accepted Answer

A)   increase accounts receivable turnover.
B)   understate the gross margin percentage.
C)   lower accounts receivable turnover.
D)   have no impact on the gross margin percentage.E) A) and D)
F) C) and D)

Question 7

Which of the following is a risk factor related to opportunities and financial statement fraud?

Accepted Answer

A)   ineffective communication of company values
B)   promotions inconsistent with expectations
C)   significant related-party transactions
D)   adverse relationships between management and employeesE) C) and D)
F) None of the above

Question 8

Which of the following is a category of fraud?

Accepted Answer

A)   
B)   
C)   
D)   E) All of the above
F) None of the above

Question 9

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

Accepted Answer

A)   It is often more effective and economical for companies to focus on fraud prevention and deterrence rather than on fraud detection.
B)   Collusion is impossible to detect.
C)   The AICPA requires management to implement a fraud prevention program.
D)   All of the above are equally valid reasons.E) B) and D)
F) B) and C)

Question 10

An auditor uses ________ inquiry to corroborate or contradict prior information.

Accepted Answer

A)   assessment
B)   declarative
C)   interrogative
D)   informationalE) A) and C)
F) A) and B)

Question 11

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 receivable turnoverE) None of the above
F) C) and D)

Question 12

The Committee of the Sponsoring Organization (COSO) of the Treadway Commission recently issued a Fraud Risk Management Guide which is not consistent with the COSO Internal Control - Integrated Framework issued by COSO in 2013.

Accepted Answer

A) True 
 B)False

Question 13

The "tone at the top" provides a foundation upon which a more detailed code of conduct can be developed to provide specific guidance for the organization and its employees. Components of a code of conduct may include sections on 1) general employee conduct, 2) relationships with clients and suppliers, and 3) conflicts of interest. Give a narrative description of what might be included in each of the above components of a code of conduct.

Accepted Answer

(may vary)
General employee conduct-Empl...

Question 14

"Cookie jar reserves" are often created by companies whenever their earnings are low to create reserves for future periods when earnings need to be "boosted" upward.

Accepted Answer

A) True 
 B)False

Question 15

When the reserve for inventory obsolescence is understated, cost of goods sold expense is understated and net income is also overstated.

Accepted Answer

A) True 
 B)False

Question 16

Fraud is more prevalent in smaller businesses and not-for-profit 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.E) C) and D)
F) B) and D)

Question 17

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of fraudulent financial reporting at an audit client?

Accepted Answer

A)   Significant accounting estimates are not difficult for the auditor to verify and justify.
B)   Board members' personal net worth is threatened if the entity's financial performance does not meet market expectations.
C)   Increasing business complexity occurs as a result of numerous recent acquisitions.
D)   Information technology personnel are found to be not keeping up with the latest trends in internal controls and data security.E) B) and C)
F) B) and D)

Question 18

Auditors must report to the Securities and Exchange Commission frauds perpetrated by senior management which are deemed to be also material weaknesses.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of misappropriation of assets at an audit client?

Accepted Answer

A)   The presence of inventory items which are large in size and low in value
B)   Employees with access to cash who have adverse relationships with management
C)   The audit client announces required layoffs six months from now
D)   An approved vendor list to detect unauthorized or fictitious vendors is not properly controlledE) A) and B)
F) All of the above

Question 20

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Accepted Answer

A)   fraudulent financial reporting
B)   expense smoothing
C)   income smoothing
D)   Each of the above is correct.E) None of the above
F) C) and D)

Exam 10: Fraud Auditing

"Cookie jar reserves" are often created by companies whenever their earnings are low to create reserves for future periods when earnings need to be "boosted" upward.

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of misappropriation of assets at an audit client?

Correct Answer
verified

Correct Answer
verified
(may vary)
General employee conduct-Empl...
View Answer

The Committee of the Sponsoring Organization (COSO) of the Treadway Commission recently issued a Fraud Risk Management Guide which is not consistent with the COSO Internal Control - Integrated Framework issued by COSO in 2013.

Correct Answer
verified

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Correct Answer
verified

Fictitious revenues

Correct Answer
verified

Auditors must report to the Securities and Exchange Commission frauds perpetrated by senior management which are deemed to be also material weaknesses.

Correct Answer
verified

An auditor uses ________ inquiry to corroborate or contradict prior information.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following is a category of fraud?

Correct Answer
verified

Which of the following is a risk factor related to opportunities and financial statement fraud?

Correct Answer
verified

When the reserve for inventory obsolescence is understated, cost of goods sold expense is understated and net income is also overstated.

Correct Answer
verified

It is possible that management may have programs designed to deter, prevent, and to detect fraud. Auditor should therefore consider whether such antifraud programs mitigate the risk of material misstatement due to fraud.

Correct Answer
verified

To address heightened risks of fraud, the auditor can do all of the following except

Correct Answer
verified

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of fraudulent financial reporting at an audit client?

Correct Answer
verified

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?

Correct Answer
verified

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Correct Answer
verified
The three main types of revenue manipula...
View Answer

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

Correct Answer
verified

Exam 10: Fraud Auditing

"Cookie jar reserves" are often created by companies whenever their earnings are low to create reserves for future periods when earnings need to be "boosted" upward.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of misappropriation of assets at an audit client?

Correct AnswerverifiedShow Answer

Correct Answerverified(may vary)General employee conduct-Empl...View AnswerShow Answer

The Committee of the Sponsoring Organization (COSO) of the Treadway Commission recently issued a Fraud Risk Management Guide which is not consistent with the COSO Internal Control - Integrated Framework issued by COSO in 2013.

Correct AnswerverifiedShow Answer

Which of the following is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Correct AnswerverifiedShow Answer

Fictitious revenues

Correct AnswerverifiedShow Answer

Auditors must report to the Securities and Exchange Commission frauds perpetrated by senior management which are deemed to be also material weaknesses.

Correct AnswerverifiedShow Answer

An auditor uses ________ inquiry to corroborate or contradict prior information.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is a category of fraud?

Correct AnswerverifiedShow Answer

Which of the following is a risk factor related to opportunities and financial statement fraud?

Correct AnswerverifiedShow Answer

When the reserve for inventory obsolescence is understated, cost of goods sold expense is understated and net income is also overstated.

Correct AnswerverifiedShow Answer

It is possible that management may have programs designed to deter, prevent, and to detect fraud. Auditor should therefore consider whether such antifraud programs mitigate the risk of material misstatement due to fraud.

Correct AnswerverifiedShow Answer

To address heightened risks of fraud, the auditor can do all of the following except

Correct AnswerverifiedShow Answer

Which of the following is not a risk factor that the auditor should take into account when considering the possibility of fraudulent financial reporting at an audit client?

Correct AnswerverifiedShow Answer

With whom should the auditor communicate whenever he or she determines that senior management fraud may be present, even if the matter might be considered inconsequential?

Correct AnswerverifiedShow Answer

List the three main types of revenue manipulations employed to commit fraudulent financial reporting and give an example for each type.

Correct AnswerverifiedThe three main types of revenue manipula...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
(may vary)
General employee conduct-Empl...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The three main types of revenue manipula...
View Answer

Correct Answer
verified