Course Introduction
Forensic Accounting Exam Materials
Forensic Accounting focuses on the application of accounting principles, investigative skills, and legal knowledge to examine financial records and uncover evidence of fraud, embezzlement, and other financial crimes. This course covers techniques for detecting fraudulent activity, legal frameworks relevant to financial investigation, expert witness testimony, and the use of technology in forensic analysis. Students will engage with real-world case studies and scenarios to develop skills in data analysis, reporting, and ethical decision-making, preparing them for roles in litigation support, corporate investigations, and regulatory compliance.
Recommended Textbook
Auditing Assurance Services and Ethics in Australia 10th Edition by Alvin Arens
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19 Chapters
2045 Verified Questions
2045 Flashcards
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Page 2
Chapter 1: Demand for audit and assurance services
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Discuss the similarities and differences between the roles of independent auditors, officers serving the Auditor-General, taxation auditors, and internal auditors.
Answer: The roles of all four types of auditors are similar in that they involve the accumulation and evaluation of evidence about information to ascertain and report on the degree of correspondence between the information and established criteria.The differences in their roles centre around the information audited and the criteria used to evaluate that information.Independent auditors primarily audit companies' financial statements.The Auditor-General's primary responsibility is to perform the audit function for Parliament.Taxation auditors are responsible for the enforcement of federal tax laws.Internal auditors primarily perform performance and compliance audits for their employing company.
Q2) To operate effectively, internal auditors must be:
A) registered with ASIC and meet minimum professional development requirements.
B) independent of the line functions within an organisation.
C) contracted by the organisation subject to audit.
D) members of either the Institute of Chartered Accountants in Australia or CPA Australia. Answer: B
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Page 3
Chapter 2: Auditors legal environment
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Explain the significance of the statement that an auditor is 'a watchdog but not a bloodhound'.
Answer: This statement, made in the judgement in the Kingston Cotton Mills case, refers to the auditor's duty to detect fraud and irregularities.It means that the auditor is not expected to track down every possible fraudulent activity or irregularity but, more reasonably, to act as a watchdog by planning an audit such that there is a reasonable expectation of detecting fraud and error.
Q2) The WA Chip and Pulp Co.case reaffirmed the:
A) importance of auditor independence.
B) duty to investigate suspicions of fraud regardless of its materiality.
C) duty to conduct the audit with reasonable care and skill.
D) duty to inform management if there is a suspicion of a material fraud.
Answer: B
Q3) If an auditor's suspicion of fraud is aroused, investigations should be extended.
A)True
B)False
Answer: True
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Chapter 3: Audit quality and ethics
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Corporate failures are signals of failures in audit quality in the conduct of an audit.
A)True
B)False
Answer: False
Q2) Part B of the Code of Ethics for Professional Accountants identifies threats to independence from the following sources:
A) familiarity and intimidation.
B) self-interest, self-review, and advocacy.
C) both A and B
D) the work environment.
Answer: C
Q3) The disadvantage of including general statements in a code of professional ethics is:
A) there are usually too many to remember.
B) the difficulty of enforcing general ideals without minimum standards of ideal behaviour.
C) the emphasis on positive activities.
D) that they identify ideal conduct.
Answer: B
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Page 5
Chapter 4: Audit responsibilities and objectives
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) There are eight general balance-related audit objectives.One is the existence objective, which deals with whether the amounts included in the financial statements should actually be included.Identify and discuss each of the remaining eight general balance-related audit objectives.
Q2) ASA 200 states that the objective of an audit of a financial report is to enhance the degree of confidence in the financial statements by the intended users.
A)True
B)False
Q3) What is the first step to developing audit objectives?
A) Divide the financial statements into cycles.
B) Know general audit objectives for classes of transactions and accounts.
C) Understand objectives and responsibilities for the audit.
D) Know management assertions about accounts.
Q4) There is no distinction made by auditing standards between an auditor's responsibility for searching for errors and his responsibility for searching for fraud.
A)True
B)False
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6
Chapter 5: Audit evidence
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Which of the following statements is NOT correct?
A) The decision of how many items to test will not be influenced by the increased costs of performing the additional tests.
B) The decision of how many items to test must be made by the auditor for each audit procedure.
C) The sample size for any given procedure is likely to vary from audit to audit.
D) It is possible to vary the sample size from one unit to 100% of the items in the population.
Q2) When making decisions about evidence for a given audit, the auditor's goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified, and to do so:
A) at the lowest possible cost.
B) no matter what the cost involved in obtaining such evidence.
C) only if the cost is reasonable.
D) at any cost because the costs are billed to the client.
Q3) Physical examination is usually more costly than observation.
A)True
B)False
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Chapter 6: Audit planning and documentation
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Which of the following would NOT be classified as a related-party transaction?
A) loans or credit sales to the principal owner or client
B) an advance of one week's salary to an employee
C) sales of merchandise between affiliated companies
D) exchanges of equipment between two companies owned by the same person
Q2) What are the three main reasons why the auditor should properly plan engagements?
1)to enable the auditor to obtain sufficient appropriate evidence
2)to help keep audit costs reasonable
3)to avoid misunderstandings with the client
4)to earn audit fees for the firm.
A) 1, 2, 3
B) 1, 2, 4
C) 1, 3, 4
D) 2, 3, 4
Q3) Reclassification entries are recorded in the:
A) general journal.
B) cash receipts journal.
C) sales journal.
D) financial statements but not in the general ledger.
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Chapter7: Materiality and risk
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Identify the three strategies that auditors can use during the audit to respond to risk.
Q2) In situations in which the auditor believes the chance of financial failure or loss is high, and there is a corresponding increase in engagement risk for the auditor, acceptable audit risk should:
A) remain the same.
B) be reduced.
C) be increased.
D) be calculated using a computerised statistical package.
Q3) According to ASA 320, at what point should materiality be considered?
A) when determining the nature, timing, and extent of audit procedures
B) when evaluating the effect of uncorrected misstatements, if any, on the financial report and in forming the opinion in the auditor's report
C) at all stages of audit planning
D) both A and B
Q4) Unlike control risk and inherent risk, planned detection risk and required audit evidence will vary from cycle to cycle.
A)True
B)False
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Chapter 8: Internal control and control risk
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) When controls leave no documentary evidence or trail:
A) it is impossible to audit that area of client's system.
B) it is impossible to verify them, so the auditor will have to rely on substantive tests.
C) the only thing available as verification of their effectiveness is inquiry of management.
D) the auditor generally observes them being applied.
Q2) The reason to prevent those who authorise transactions from having control over the related asset is to protect the company primarily against:
A) defalcation.
B) error.
C) non-compliance with accounting standards.
D) unbiased information.
Q3) Monitoring activities in an internal control structure determines that:
A) controls are operating as intended.
B) external audit assurance is no longer necessary.
C) improvements in internal control are overdue.
D) auditing procedures are to be restricted.
Q4) Describe three inherent limitations of internal control.
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Chapter 9: Fraud auditing
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) Fraud is more prevalent in smaller businesses because:
A) it is more difficult to maintain adequate segregation of duties.
B) employees may be less trustworthy.
C) cash is readily accessible.
D) all of the above
Q2) When risks of material misstatements due to fraud are identified, how should auditors adjust their audit approach?
Q3) Which of the following accounts is most susceptible to manipulation and theft?
A) insurance expense
B) long-term loans
C) cash accounts
D) share capital
Q4) ASA 240 states that in exercising professional scepticism, 'the auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence obtained and is alert to audit evidence that contradicts or brings into question the reliability of documents and responses to inquiries and other information obtained from management and those charged with governance'.
A)True
B)False
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Chapter 10: The impact of information technology on the audit process
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) What type of analyst coordinates development and changes to IT systems?
A) technical
B) financial
C) systems
D) all of the above
Q2) Which two broad control groupings for IT systems are described by auditing standards?
1)General controls
2)application controls
3)information controls
4)performance controls
A) 2 and 3
B) 3 and 4
C) 1 and 3
D) 1 and 2
Q3) Controls which apply to the processing of individual transactions are called:
A) general controls.
B) application controls.
C) systems controls.
D) user controls.
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Chapter 11: Overall audit plan and audit program
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105 Flashcards
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Sample Questions
Q1) For efficiency, tests of controls are frequently done at the same time as: A) analytical procedures.
B) compliance tests.
C) substantive tests of transactions.
D) substantive tests of balances.
Q2) The reliance placed on substantive tests in relation to the reliance placed on internal control varies in a relationship that is ordinarily:
A) inverse.
B) direct.
C) equal.
D) parallel.
Q3) Describe the five types of audit tests used to determine whether financial statements are stated fairly.Identify which of the five types are substantive tests and which are used to reduce assessed control risk.
Q4) If tests of controls reveal that controls are sufficiently effective to justify reducing control risk, the auditor is justified in reducing substantive audit tests.
A)True
B)False
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Chapter 12: Audit of the sales and collection cycle: Tests of controls
and substantive tests of transactions
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120 Verified Questions
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Sample Questions
Q1) To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with:
A) an approved price list.
B) the amounts posted to the customer's account in the accounts receivable master file.
C) the original invoices.
D) the amounts recorded in the sales journal for that transaction.
Q2) Which one of the following is NOT one of the five classes of transactions included in the sales and collection cycle?
A) write-off of uncollectible accounts
B) depreciation expense-store equipment
C) sales returns and allowances
D) bad debt expense
Q3) When designing audit procedures, the direction of tests is a crucial step in satisfying the:
A) valuation objective.
B) classification objective.
C) cutoff objective.
D) completeness objective.
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Chapter 13: Completing tests in the sales and collection cycle:
Accounts receivable
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Favourable results from analytical procedures reduce the extent to which the auditor needs to test details of balances.
A)True
B)False
Q2) In confirming accounts receivable balances, the auditor finds overstatements caused by mistakes in billing customers which will then overstate both accounts receivable and sales.
A)True
B)False
Q3) When customers do NOT respond to positive confirmation requests, auditors:
A) cannot complete the engagement and must issue a disclaimer.
B) cannot express an unqualified opinion.
C) must examine supporting documents.
D) must rely on inquiry of client.
Q4) The accounts receivable balance-related audit objective net realisable value is not affected by assessed control risk for sales or cash receipts.
A)True B)False
Page 15
Q5) Describe how the auditor tests the rights objective for accounts receivable.
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Chapter 14: Audit sampling
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) Which one of the following statements regarding block sampling is NOT true?
A) It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks are used.
B) Once the first item in the block is selected, the remainder of the block is chosen automatically.
C) Block sampling is the selection of several items in sequence.
D) A 'reasonable number' for most situations is probably at least six blocks from six different months.
Q2) Which one of the following statements regarding monetary-unit sampling (MUS)is NOT true?
A) An account with a large balance has a greater chance of being included in the sample than an account with a small balance.
B) There is no need to use stratified sampling with MUS; it occurs automatically.
C) MUS automatically places emphasis on physical units with larger recorded balances.
D) The sampling unit in MUS is the account balance.
Q3) Discuss the advantages and disadvantages of monetary-unit sampling (MUS)over other sampling methods.
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Page 16
Chapter 15: Audit of transaction cycles and financial statement balances
I
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Perpetual inventory master files maintained by persons who do not have custody of or access to assets are a useful cost accounting control, because:
A) they are a record that can be used to pinpoint responsibility for custody when there are differences between physical counts and amounts shown on records.
B) they provide a record of items on hand, which is used to initiate production or acquisition of additional materials or goods.
C) they provide a record of the use of raw materials and sale of finished goods, which can be reviewed for obsolete or slow-moving items.
D) all of the above
Q2) A document received from the vendor indicating such things as the description and quantity of goods and services received, price including freight, cash discount terms, and date of billing is called the voucher.
A)True
B)False
Q3) Discuss the four aspects of the audit of cost accounting with which the auditor is most concerned.
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Chapter 16: Audit of transaction cycles and financial statement balances II
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137 Verified Questions
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Sample Questions
Q1) Cash account is primarily affected by which transactions in the sales and collection cycle?
A) sales
B) collections
C) both A and B
D) none of the above
Q2) In auditing the retained earnings balance for the year, the auditor traces the entry in retained earnings to the net earnings shown in the balance sheet.
A)True
B)False
Q3) The most important objective for depreciation expense is:
A) accuracy.
B) classification.
C) cutoff.
D) disclosure.
Q4) A shareholders' master file is a record of the issuance and redemption of shares over the life of the corporation.
A)True
B)False
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Chapter 17: Completing the audit
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Sample Questions
Q1) Although there is no professional requirement to do so on audit engagements, auditors normally issue a formal 'management letter' to their clients.This letter:
A) demonstrates to management that the audit firm adds value beyond the audit service.
B) encourages a better relationship between the audit firm and management, and suggests additional services that the firm can provide.
C) provides a written record of the auditor's observations and suggestions for improvement.
D) all of the above
Q2) 'An agreement which commits the firm to a set of fixed conditions in the future regardless of what happens to profits or the economy as a whole' is a definition of a: A) commitment.
B) potentially hazardous agreement.
C) conditional contract.
D) contingent liability.
Q3) What is the purpose of a management representation letter?
Q4) What are the three conditions required for the existence of a contingent liability?
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19
Chapter 18: Audit reporting
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Sample Questions
Q1) The audit of a half-year financial report requires the same audit procedures as those performed during the annual financial report audit.
A)True
B)False
Q2) Whenever an auditor issues a standard unmodified opinion, the implication is that the auditor:
A) is satisfied that the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
B) does not believe the report is prepared or presented fairly in all material respects in accordance with an applicable accounting framework.
C) does not know if the report is prepared and presented fairly in all material respects in accordance with an applicable accounting framework.
D) is satisfied that the report is prepared and presented fairly except for a specific aspect of it.
Q3) Discuss how materiality affects audit reporting decisions.
Q4) What are 'significant uncertainties', and should they always be referred to in the audit report?
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Chapter 19: Other auditing and assurance engagements
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Sample Questions
Q1) An audit designed to evaluate the efficiency and effectiveness of an organisation or some part thereof would NOT come under the title of:
A) compliance audit.
B) operational audit.
C) management audit.
D) performance audit.
Q2) When making a review of interim financial information, the auditor's work consists primarily of:
A) confirming and verifying account balances at the interim date.
B) making inquiries and performing analytical procedures concerning significant accounting matters.
C) studying and evaluating limited amounts of documentation supporting the interim financial information.
D) scanning and reviewing client-prepared, internal financial statements.
Q3) External auditors often reduce their level of planned detection risk when internal auditors are competent and independent in the conduct of their work.
A)True
B)False
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