Auditing
Midterm Exam
Course Introduction
This course provides an in-depth exploration of the principles and practices of auditing within contemporary organizations. Students will learn about the roles and responsibilities of auditors, standards governing the audit process, and the legal and ethical considerations in the profession. Emphasis is placed on audit planning, evidence collection, internal control evaluation, and report preparation, as well as current issues such as audit risk and fraud detection. Through case studies and practical exercises, students will develop the analytical and critical thinking skills essential for conducting effective audits in both public and private sector contexts.
Recommended Textbook Fraud Examination 5th Edition by W. Steve Albrecht
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18 Chapters
886 Verified Questions
886 Flashcards
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Page 2
Chapter 1: The Nature of Fraud
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Sample Questions
Q1) Which of the following statements is true?
A)Fraud usually results from unintentional errors.
B)Fraud is more violent and traumatic than robbery.
C)Fraud always involves deception, confidence and trickery.
D)Losses from fraud are less than losses from robbery.
Answer: C
Q2) The most common fraud committed on behalf of an organization is:
A)Vendor fraud
B)Employee embezzlement
C)Fraudulent financial reporting
D)Customer fraud
Answer: C
Q3) Which of the following is the most common type of occupational fraud?
A)Financial statement fraud
B)Mail fraud
C)Investment fraud
D)Employee embezzlement
Answer: D
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3
Chapter 2: Who Commits Fraud and Why
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Sample Questions
Q1) According to Max Weber,______ is the probability that a person can carry out his or her own will despite resistance.
A)power
B)persuasion
C)prejudice
D)potency
Answer: A
Q2) _____ is the ability of the perpetrator to relate to the potential co-conspirator.
A)Expert power
B)Legitimate power
C)Referent power
D)Reward power
Answer: C
Q3) An employee who has the responsibilities of both writing checks and making bank deposits would have ____.
A)Financial pressure
B)Perceived opportunity
C)Rationalization
Answer: B
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Page 4
Chapter 3: Fighting Fraud: an Overview
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Sample Questions
Q1) Which of the following is a prerequisite for a fraud investigation?
A)Predication
B)A specific allegation of fraud against another party
C)Consistent bottom-line improvement
D)Rationalization
Answer: A
Q2) Which of the following is FALSE concerning legal actions by organizations regarding fraud?
A)Legal action is expensive.
B)Legal action is time consuming.
C)Legal action is sometimes embarrassing.
D)Legal action stops future frauds.
Answer: D
Q3) Which of the following questions should be answered when considering fraud risk and fraud prevention?
A)which types of fraud are the easiest and least costly to prevent
B)which employees are in the best position to commit fraud
C)which symptoms of a fraud act are most likely to be spotted
D)all types of possible fraud that can be committed
Answer: B
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Chapter 4: Preventing Fraud
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Sample Questions
Q1) Who has the primary responsibility for establishing and maintaining good internal controls?
A)Primary responsibility for controls belongs to internal auditors.They are the ones who create the controls and investigate potential violations of the controls.
B)Primary responsibility rests with management.Management both conveys acceptable culture and has the final say in how fraud cases are treated.
C)Primary responsibility lies with employees.They are the ones most likely to fully understand the system on a day-to-day basis and know where controls should be put in place.
D)Primary responsibility is not attributable to one person or group of people within an organization.Each member of an organization must consider himself or herself personally responsible for the organization's control environment.
Q2) Which of the following is a sign of a positive work environment?
A)Rigid rules followed by the organization
B)Managers who care about the employee work ethic
C)Careful hiring policies
D)Having positive personnel and operating procedures
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Chapter 5: Recognizing the Symptoms of Fraud
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) Which of the following is a highly suspicious financial statement relationship?
A)Increased revenues with decreased inventory.
B)Decreased production with decreased scrap.
C)Increased revenues with increased receivables
D)Decreased cost per unit with increased level of output
Q2) Which of the following is usually NOT a reason people hesitate to anonymously report their suspicions about an act of fraud?
A)The perpetrator has bullied them in the past.
B)The perpetrator is a friend who has helped them in the past.
C)The perpetrator is a relative.
D)The perpetrator is a neighbor.
Q3) Lifestyle changes of fraud perpetrators are related to which of the following fraud elements?
A)Theft act
B)Concealment
C)Conversion
D)Confession
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Chapter 6: Data-Driven Fraud Detection
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Sample Questions
Q1) According to Benford's law,5 will be the first digit of a random number set:
A)more often than 1.
B)less often than 4.
C)about the same as 6.
D)more often than 3.
Q2) Which of the following is similar to ACL and its primary competitor?
A)Picalo
B)IDEA
C)Microsoft Office + ActiveData
D)Z-score
Q3) Which of the following is the most direct method of focusing on changes in the company's balance sheet and income statement?
A)Calculating key ratios and comparing them from period to period
B)Comparing account balances in the statements from one period to the next
C)Performing a vertical analysis
D)Performing a horizontal analysis
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Chapter 7: Investigating Theft Acts
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Sample Questions
Q1) Undercover operations should be used only when:
A)large scale fraud is likely and other investigation methods fail.
B)controls are made so strict that opportunities to commit fraud are virtually impossible.
C)the investigation cannot be kept a secret.
D)there is a need to develop theories about what kind of fraud has occurred.
Q2) A(n)____ is a tool for explicitly considering all aspects of the fraud and for establishing fraud theories.
A)Vulnerability chart
B)Perceptual map
C)Surveillance log
D)Pareto chart
Q3) Which of the following is an increasingly popular form of gathering physical evidence of fraud?
A)reviewing spending habits of the those possibly involved
B)confiscating and searching computers
C)tracking missing inventory through bar codes
D)creating and viewing surveillance tapes
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9
Chapter 8: Investigating Concealment
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Sample Questions
Q1) Which of the following is NOT a warning sign indicating a possible problem with a document?
A)disguised or unnatural handwriting
B)authorized initialed changes
C)inconsistency or disruption in the continuity of the content
D)use of two or more different colors of ink
Q2) The risk that an auditor will examine a fraudulent check and not recognize it as being fraudulent is called _________ .
A)sampling risk
B)non-sampling risk
C)systematic risk
D)systemic risk
Q3) _______ are executed only by law enforcement officials and are generally used only in criminal cases.
A)Subpoenas
B)Voluntary consents
C)Search warrants
D)Interviews
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Chapter 9: Conversion Investigation Methods
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Sample Questions
Q1) Which of the following will be useful in ascertaining whether a doctor is legitimate?
A)Department of Business Regulation
B)Secretary of State
C)State Medical Registry
D)County Clerk
Q2) Funds from unknown sources equals:
A)Assets liabilities.
B)Net worth increase + living expenses.
C)Income funds from known sources.
D)Net worth prior year's net worth.
Q3) Mandy calls a local newspaper and pretends to be a neighbor who is away for the winter.She obtains account history and orders the newspaper for six months.Has Mandy committed a fraud? If yes,under which act?
A)No, the newspaper has not yet been delivered or paid.
B)Yes, she is in violation of the Gramm-Leach Bliley Act of 1999.
C)No, as the neighbor has not served any written notice to keep the information private.
D)Yes, she is in violation of Fair and Accurate Credit Transactions Act of 2003.
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Chapter 10: Inquiry Methods and Fraud Reports
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60 Verified Questions
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Sample Questions
Q1) Identify the strongest response to a threatened ego.
A)Repression
B)Disapproval
C)Loss of Status
D)Anger
Q2) Which of the following is true concerning signed statements?
A)Allow the confessor to draft the statement.
B)The statement's wording should be general.
C)Declarants should read and sign the statement without undue delay.
D)Two people are legally required to witness the signing of the statement.
Q3) Many times the information sought in an interview is closely related to the respondent's inner conflicts and tensions.Which element of conversation will he helpful in releasing this?
A)Expression
B)Deduction
C)Rituals
D)Therapy
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12
Chapter 11: Financial Statement Fraud
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Sample Questions
Q1) According to the study done by the Securities and Exchange Commission,greatest number of enforcement actions was in the area of ________.
A)improper use of off-balance-sheet arrangements
B)improper expense recognition
C)improper accounting for business combinations
D)improper revenue recognition
Q2) What is the meaning of "short sell"?
A)Buy shares from a brokerage firm and enter into a forward transaction to sell the shares at today's price on a future date.
B)Sell the shares at today's price to an investor and enter into an option agreement to buy the shares back in near future.
C)Buy shares from one brokerage firm and sell the shares to another brokerage firm with a view to make quick money.
D)Borrow shares from a brokerage and sell the shares at today's price with the intention to repay the borrowed stock they sold at some future time when the stock is trading for a lower price.
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13
Chapter 12: Revenue- and Inventory-Related Financial Statement
Frauds
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Sample Questions
Q1) When a company records fictitious revenues,what is the effect on asset turnover ratio?
A)The ratio increases
B)The ratio decreases
C)No effect
D)The ratio might increase or decrease depending upon the transaction.
Q2) Which of the following is a symptom of potential inventory fraud?
A)an auditor observing a weakness in the inventory-receiving procedures
B)an auditor observing an override of an internal control
C)an auditor observing inadequate physical controls in the warehouse
D)an auditor observing the lack of authorization required for purchases of inventory under $1,000
Q3) Which of the following is most likely an indicator of fraud involving inventory overstatement?
A)A sudden increase in the inventory turnover ratio.
B)A sharp decrease in gross profit margin.
C)A sudden decrease in sales.
D)A sudden increase in number of days' sales in inventory.
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Chapter 13: Liability, asset, and Inadequate Disclosure
Frauds
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Q1) Recognizing unearned revenue as earned revenue is an example of which type of fraud?
A)Liability understatement
B)Revenue understatement
C)Cost of goods sold understatement
D)Assets overstatement
Q2) Which of the following are accounting symptoms that may indicate cash or marketable security misstatements?
A)Obtaining statements directly from financial institutions as of the date you are concerned about.
B)Differences between recorded amounts and amounts confirmed with banks, brokers, and other independent parties.
C)Having physical possession of marketable security certificates.
D)Comparing cash and marketable security balances with those of similar companies.
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Chapter 14: Fraud Against Organizations
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Sample
Questions
Q1) Asset misappropriation is defined as:
A)a scheme that involves offering, giving, receiving, or soliciting anything of value to influence an official act.
B)demanding payment from a vendor in order to make or influence a decision in a vendor's favor.
C)deceiving individuals in putting their money into a fake investment.
D)a scheme that involves an employee prepares a fraudulent check for his or her own benefit.
Q2) Bid-rigging is a type of which of the following?
A)skimming
B)bribery
C)extortion
D)illegal gratuity
Q3) Which of the following is NOT a possible way to commit fraud by using a payroll scheme?
A)overstating expenses.
B)falsifying hours worked.
C)creating ghost employees.
D)producing false worker compensation claim.
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Page 16
Chapter 15: Consumer Fraud
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Sample Questions
Q1) Which of the following is a variation of fraudulent MLMs,in which an organization sells illusionary products and profits,instead of real products?
A)ponzi scheme
B)foreign advance scheme
C)identity theft scheme
D)shoulder surfing scheme
Q2) Once a fraudster has gained confidence that the identity theft is working,he or she often takes out a loan using the victim's identity.The most common type of fraudulent loan is for which of the following items?
A)foreign travel.
B)purchasing real estate.
C)education.
D)an automobile.
Q3) Which of the following is the limit set on consumers' credit card fraud liability by Federal law?
A)$50
B)$100
C)$150
D)$200
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Page 17
Chapter 16: Bankruptcy, divorce, and Tax Fraud
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Q1) Bankruptcy and divorce can be which of the following categories?
A)Criminal matters
B)Civil matters
C)Either of the above
D)Neither of the above
Q2) Which of the following is true concerning a Chapter 11 bankruptcy?
A)Constitutes a complete shutdown of the organization
B)Requires the entity to reorganize to pay creditors
C)Is available only to persons
D)Requires debtors to repay creditors over a specified period
Q3) Which of the following is always involved in planned bankruptcies?
A)Setting up a new company whose purpose is to help the perpetrator carry out the scheme
B)Purchasing inventory in increasing amounts on credit
C)Planning a bankruptcy with the creditors before a loan is made
D)The perpetrator skipping town when the bankruptcy is filed
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18
Chapter 17: E-Commerce Fraud
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Sample Questions
Q1) What is the term for when a hacker calls a targeted user posing as technical support and asks the victim to divulge the account information so that immediate steps can be taken to prevent data loss from the account?
A)social engineering
B)spoofing
C)data theft
D)customer impersonation
Q2) Which of the following is the first step in looking for e-business fraud?
A)Identify the frauds that can occur in the type of business being investigated.
B)Determine the symptoms of e-business fraud within the business being investigated.
C)Gain an understanding of the business being investigated.
D)Investigate any anomalies observed within the business being investigated.
Q3) Which of the following is NOT a means of using technology to spot technology fraud?
A)Routinely search databases for symptom.s
B)Utilize intrusion detective programs.
C)Secure company systems.
D)Train employees to recognize probable fraud.
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19
Chapter 18: Legal Follow-Up
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Sample Questions
Q1) Which is final court of appeal in the United States?
A)U.S.Court of Appeals
B)U.S.Supreme Court
C)U.S.District Courts
D)U.S.Claims Courts
Q2) Carolyn Laney has just been convicted of mail fraud in a U.S.District Court.She is not satisfied with the judgment rendered by the court.What can she do next?
A)Appeal to the Supreme Court
B)Appeal the findings in one of 12 circuit courts of appeals
C)Appeal to a Probate Court
D)Nothing, as verdicts from the district courts cannot be appealed.
Q3) Which of the following observations is true concerning discovery?
A)It is the last stage of the civil litigation process.
B)It is one of the stages in a civil litigation but not in a criminal litigation.
C)It is often the most challenging part of civil litigation because discovery can be?time-consuming and expensive.
D)It is a series of written questions that specifically identify information needed from the?opposing party.
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Page 20