Fraud Examination Exam Bank
Course Introduction
Fraud Examination introduces students to the principles and methodologies used to detect, investigate, and prevent fraud within organizations. The course explores the various types of occupational fraud, common schemes, and the motivations behind fraudulent behavior. Students learn about investigative techniques, evidence gathering, interview strategies, and the legal aspects of fraud cases. Emphasis is placed on documentation, internal controls, and ethical responsibilities of fraud examiners. Case studies and real-world examples are used to provide practical insights into identifying warning signs and responding effectively to incidents of fraud.
Recommended Textbook
Auditing A Risk Based Approach to Conducting a Quality Audit 10th Edition by Karla Johnstone
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17 Chapters
1898 Verified Questions
1898 Flashcards
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Page 2
Chapter 1: Auditing: Integral to the Economy
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) The Center for Audit Quality is dedicated to enhancing investor confidence in what?
A) The financial markets.
B) Management.
C) Auditors.
D) Both B and C.
E) All of the above.
Answer: A
Q2) The Center for Audit Quality has the primary authority to set auditing standards.
A)True
B)False
Answer: False
Q3) What is the first phase in an audit?
A) Client acceptance or client continuance.
B) Understanding the client.
C) Understanding internal controls.
D) Testing of account balances.
Answer: A
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Chapter 2: The Auditors Responsibilities Regarding Fraud
and Mechanisms to Address Fraud: Regulation and Corporate Governance
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly.
A)True
B)False Answer: True
Q2) Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for all other engagements.
A)True
B)False Answer: False
Q3) Management compensation that is tied to profits may create incentives to commit fraud.
A)True
B)False Answer: True
Q4) Rationalization is one element of the Fraud Triangle. A)True
Page 4
B)False Answer: True
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Chapter 3: Internal Control Over Financial Reporting:
Responsibilities of Management and the External Auditors
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) In addition to controls being specific, they may be broad, such as policies regarding a code of ethics.
A)True
B)False
Answer: True
Q2) With whom does the tone of internal control typically originate?
A) Auditors.
B) Employees.
C) Management.
D) Stockholders.
Answer: C
Q3) Effective control not only identifies risk but also responds to these risks appropriately.
A)True
B)False
Answer: True
Q4) Preventive controls are designed to prevent the occurrence of a misstatement.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Professional Liability, Auditor Judgment
Frameworks, and Professional Responsibilities
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) Which of the following represents a situation in which an auditor is independent of its client?
A) The audit fee paid by the client represents 10% of the auditor's annual gross revenue.
B) The auditor takes a personal loan from the president of the company.
C) The auditor's dependent son holds 25 shares of the client's common stock.
D) The auditor has not received payment for the previous audit services.
Q2) According to the Sarbanes-Oxley Act, which of the following services may an auditor perform without impairing their independence?
A) Actuarial services.
B) Appraisal services.
C) Internal audit services.
D) Tax Services
Q3) A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained.
A)True
B)False
Q4) The importance of independence. Why is "independence" referred to as the cornerstone of auditing?
Page 6
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Chapter 5: Professional Auditing Standards and the Audit
Opinion Formulation Process
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) The nature of an audit procedure indicates when the procedure is performed during the audit.
A)True
B)False
Q2) At what level does the auditor assess the risk of material misstatement?
A) The financial statement level.
B) The company level.
C) The assertion level.
D) Both A and C.
E) All of the above.
Q3) Which one of the following has the most affect on the reliability of financial statements?
A) The size of the client
B) The industry of the client
C) The client's internal control structure.
D) The client's trend of earnings.
Q4) Assertions are relevant to the audit process because they are the representations of management embodied in the financial statements.
A)True B)False
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Chapter 6: A Framework for Audit Evidence
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) A date at which audit evidence is collected earlier than the balance sheet date is referred to as what?
A) Subsequent date.
B) Cutoff period.
C) Significant date.
D) Interim date.
Q2) Proper audit documentation.
Audit documentation serves as the primary support of an audit. Give at least six examples of the components of proper working paper documentation.
Q3) Vouching of transactions deals with which of the following?
A) Testing forward.
B) Testing backward.
C) Testing at a point in time.
D) Directional testing either forward or backward.
Q4) Relevance and reliability of evidence make up the appropriateness of audit evidence.
A)True
B)False
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Chapter 7: Planning the Audit: Identifying and Responding to
the Risks of Material Misstatement
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92 Verified Questions
92 Flashcards
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Sample Questions
Q1) Importance of materiality judgments.
Explain the differences between performance materiality and tolerable misstatement.
Q2) The purpose of the auditor's consideration of the effectiveness of internal controls is to determine the nature, extent and timing of substantive testing.
A)True B)False
Q3) Which of the following factors would lead an auditor to assess inherent risk at a higher level?
A) The account balance is easily determined without estimation.
B) The account balance is composed of a high volume of nonroutine transactions.
C) The account balance is composed of simple transactions.
D) All of the above would lead the auditor to assess a higher level of inherent risk.
Q4) Auditors are only concerned with materiality for the financial statements as a whole. A)True B)False
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9
Chapter 8: Specialized Audit Tools: Sampling and
Generalized Audit Software
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Non-statistical sampling.
Describe non-statistical sampling for test of account balances and how it is used by the auditor.
Q2) Tolerable misstatement is the maximum amount of misstatement the auditor can accept in the population without requiring an audit adjustment or a qualified audit opinion.
A)True
B)False
Q3) Using MUS sampling.
Describe MUS sampling and identify the conditions that would cause an auditor choose to use MUS sampling.
Q4) In selecting a sample for attribute testing, block sampling involves which of the following approaches?
A) Each item in the population having an equal chance of selection.
B) Every nth item being selected after a random start.
C) An arbitrary selection with no conscious bias.
D) Selecting all items on a day or week.
Q5) Sample size varies directly with sampling risk.
A)True
B)False
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Chapter 9: Auditing the Revenue Cycle
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) The auditor traces recorded sales to invoices, sales orders and shipping documents in order to substantiate which assertion?
A) Cutoff.
B) Completeness.
C) Legality.
D) Occurrence.
Q2) Edge and Gregg, LLP would most likely discover a client's first-time use of channel stuffing through the use of trend analysis.
A)True
B)False
Q3) Customer complaints noted in returned accounts receivable confirmations may be an indicator of fraud.
A)True
B)False
Q4) A comprehensive chart of accounts and a review of complex or unusual transactions by supervisory personnel are control procedures necessary for proper classification of accounts.
A)True
B)False
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Chapter 10: Auditing Cash and Marketable Securities
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) The ease with which cash can be stolen is most related to which of the following risks?
A) Control risk.
B) Inherent risk.
C) Detection risk.
D) Liquidity risk.
Q2) Which of the following is not a normal edit test as part of computerized control for checks?
A) Field checks.
B) Self-checking digits.
C) Cross-references.
D) Reasonableness tests.
Q3) The primary purpose of the cutoff bank statement is to verify the reconciling items on the bank reconciliation.
A)True
B)False
Q4) The deposit of cash directly at the bank to speed collections often involves the use of a lockbox.
A)True
B)False
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Chapter 11: Auditing Inventory, Goods and Services, and
Accounts Payable: the Acquisition and Payment Cycle
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) When a purchasing agent benefits personally by accepting payment from a vendor, the purchasing agent is guilty of which of the following?
A) Performing kiting.
B) Committing embezzlement.
C) Receiving kickbacks.
D) Stealing company assets.
Q2) The major accounts in the acquisition and payment cycle are inventory, cost of goods sold, accounts payable, and other expense accounts.
A)True
B)False
Q3) Accounting for inventories is a major consideration for many companies because of its significance to which of the following financial statements?
A) Balance sheet.
B) Income statement.
C) Statement of Cash Flow
D) Both A and B.
Q4) Acquisition and payment processes.
What are the five major phases of the acquisition and payment process?
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Chapter 12: Auditing Long-Lived Assets: Acquisition, Use, Impairment,
and Disposal
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) After a natural resource such as gas or coal is used up by the client, the client is responsible for restoring the land to its original condition. What is the cost of this restoration called?
A) Impairment expense.
B) Depletion expense.
C) Amortization expense.
D) Reclamation expense.
Q2) Which one of the following factors is not an inherent risk associated with long-lived assets?
A) Obsolescence of assets.
B) Impairment of assets.
C) Incomplete recording of disposals.
D) Lack of physical controls over the long-lived assets.
Q3) Audit firms should NOT customize the audit programs based on the assessment of the risk of material misstatement when auditing long-lived assets.
A)True
B)False
Q4) Audit approach for leases.
Describe the substantive procedures typically used to test leases.
Page 14
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Chapter 13: Auditing Debt Obligations and Stockholders
Equity Transactions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) When identifying and assessing control risks of material misstatement associated with debt obligations and stockholders' equity transactions, documentation is only required for integrated audits, not financial statement only audits.
A)True
B)False
Q2) A potential fraud risk associated with debt obligations is the intentional misclassification of short-term debt as long-term debt.
A)True
B)False
Q3) How are most bonds marketed?
A) Through the board of directors.
B) Through an underwriter.
C) Through auditors.
D) Through employees.
Q4) Using substantive procedures to test debt obligations is most appropriate because there are a relatively large number of transactions involving immaterial dollar amounts.
A)True
B)False
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Chapter 14: Activities Required in Completing a Quality Audit
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) After completing the audit report of Blair Corporation, but before delivering the audit report to the client, a tornado demolished the main production facility. In this case, what option is available to the auditor other than dual dating the report?
A) Use the original audit report date.
B) Go back to the client's office and extend testing to the date of the tornado, thereby taking responsibility for all events up to the date of the tornado.
C) Report the situation in the management representation letter.
D) Issue a scope limitation.
Q2) Auditors are responsible for designing and maintaining policies and procedures to identify, evaluate, and account for contingencies.
A)True
B)False
Q3) By performing a final analytical review, the audit firm will identify any unusual, unexpected, or unexplained relationships that should be resolved before the issuance of the audit report.
A)True
B)False
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Page 16
Chapter 15: Audit Reports on Financial Statements
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Andrews Corporation adopted an accounting principle that is a material departure from GAAP. The auditor determined that the financial statements are fairly presented, except for this specifically identifiable GAAP departure, and therefore would issue a disclaimer of opinion.
A)True
B)False
Q2) If a significant scope limitation is imposed by the client, a disclaimer should ordinarily be issued.
A)True
B)False
Q3) The auditor will issue an unqualified opinion on ICFR if the auditor has identified only one material weakness in ICFR.
A)True
B)False
Q4) The decision about whether to make reference to another auditor in the report on the audit of ICFR does not differ from the corresponding decision as it relates to the audit of the financial statements.
A)True
B)False
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Chapter 16: Advanced Topics Concerning Complex Auditing Judgments
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Which of the following factors is not relevant when assessing identified internal control deficiencies?
A) Weaknesses in the control environment.
B) The absence of a material misstatement in the financial statements.
C) Volume of transactions affected by the deficiency.
D) Effectiveness of oversight/governance.
Q2) Which of the following is not a significant challenge related to valuation issues for audits of merger and acquisition transactions?
A) Valuing the assets upon acquisition.
B) Valuing the liabilities upon acquisition.
C) Measuring restructuring charges.
D) Measuring the qualifications of personnel from the acquired company.
Q3) The auditor need not inform the audit committee about adjustments arising from the audit that were considered to be material.
A)True
B)False
Q4) Determining materiality is based solely on quantitative factors.
A)True
B)False
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Chapter 17: Other Services Provided by Audit Firms
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) Review reports.
For a review report, identify:
A.for whom what type of the organization the report may be performed;
B.the procedures the auditor performs;
C.the type of assurance provided;
D.the requirement for auditor independence.
Q2) Pro Forma Financial Information.
What is the difference between historical financial information and pro forma financial information? Discuss the guidelines that should be adhered to when presenting pro forma financial information.
Q3) Types of Assurance Engagements.
What is the difference between reasonable assurance engagements and limited assurance engagements?
Q4) In limited assurance engagements, practitioners perform limited procedures (usually analysis of an issue but without significant testing) and checks to see if anything comes to their attention indicating a problem.
A)True
B)False
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