Fraud Examination Practice Exam
Course Introduction
Fraud Examination explores the principles and practices involved in detecting, investigating, and preventing fraud within organizations. The course covers types of occupational fraud, common fraud schemes, behavioral red flags, and the legal and ethical considerations in fraud investigations. Students learn methodologies for gathering evidence, interviewing suspects and witnesses, and documenting findings in preparation for potential legal proceedings. Through real-world case studies and hands-on exercises, the course equips students with the analytical tools and professional skepticism necessary to identify vulnerabilities and implement effective anti-fraud controls.
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
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Page 2
Chapter 1: Auditing: Integral to the Economy
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100 Verified Questions
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Q1) The Center for Audit Quality has the primary authority to set auditing standards.
A)True
B)False Answer: False
Q2) The FASB is responsible for creating International Financial Reporting Standards.
A)True
B)False Answer: False
Q3) Which organization is responsible for setting International Standards on Auditing?
A) IASB
B) IFRS
C) IAASB.
D) AICPA
Answer: C
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Page 3
Chapter 2: The Auditors Responsibilities Regarding Fraud
and Mechanisms to Address Fraud: Regulation and Corporate Governance
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120 Verified Questions
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Sample Questions
Q1) Which of the following best describes professional skepticism?
A) An intent to deceive.
B) An attitude of intrusion and obstinacy.
C) A character that does not waver.
D) A questioning mind.
Answer: D
Q2) Once the fraud assessment is complete in the planning stage, the auditor need not consider fraud further.
A)True
B)False
Answer: False
Q3) Fraud categories.
What are three common ways in which fraudulent financial reporting takes place?
Answer: 1. Manipulation, falsification, or alteration of accounting records or supporting documents.
2. Misrepresentation or omission of events, transactions, or other significant information
3. Intentional misapplication of accounting principles
Page 4
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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) Management is obligated to report significant deficiencies in the control structure in their annual report on internal control effectiveness required by the Sarbanes-Oxley Act.
A)True
B)False
Answer: False
Q2) Internal controls may be preventive or detective.Which of the following controls is preventive?
A) Requiring two persons to open mail containing payments.
B) Reconciling the accounts receivable subsidiary file with the control account.
C) Using batch totals.
D) Preparing bank reconciliations.
Answer: A
Q3) Monitoring of the internal controls involves assessment by appropriate personnel of the design and operation of controls on a timely basis and taking necessary actions.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Professional Liability, Auditor Judgment
Frameworks, and Professional Responsibilities
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Sample Questions
Q1) Which of following is not part of the ethical framework derived from utilitarianism and rights theories?
A) Identification of the legal issues.
B) Determination of affected parties and their rights.
C) Determination of the most important rights.
D) Development of alternative courses of action.
Q2) Among immediate family members, whose ownership of client's stock is not considered the same as the covered member's ownership?
A) Spouse.
B) 14 year-old daughter living at home.
C) 19 year-old son away at college.
D) Grandfather.
Q3) Which of following is not an action required by Utilitarian Theory?
A) Identify the potential problem.
B) Identify the potential impact of actions on each affected party.
C) Identify the rights of the affected parties.
D) Identify the desirability of each action.
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) Which of the following is a procedure that requests a direct written response to the auditor form a third party?
A) Inquiry
B) Confirmation
C) Inspection
D) Observation
Q2) Audit procedures can be classified as risk assessment procedures, test of controls or substantive tests.
A)True
B)False
Q3) Which auditing standards apply to private companies?
A) The AICPA Standards.
B) The IASSB Standards.
C) The Standards of the PCAOB.
D) All of the above.
Q4) What does the effectiveness of internal controls influence?
A) Inherent risk.
B) Control risk.
C) Risk of material misstatement.
D) Both B and C.
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Chapter 6: A Framework for Audit Evidence
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Sample Questions
Q1) The auditor utilizes the same audit program and the same procedures each year for each client in order to ensure that nothing is missed in the current year audit.
A)True
B)False
Q2) Which of the following characteristics are not normally included in good audit documentation?
A) Initials of the person preparing and reviewing the document.
B) An assessment of whether the test indicates the possibility of material misstatement in an account.
C) A cross-reference.
D) All are included in good audit documentation.
Q3) The auditor's concern for potential fraud in the financial statements will most likely result in increased testing for the overstatement of revenues.
A)True
B)False
Q4) Auditors should mail third party confirmations through the client's mailroom.
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
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Sample Questions
Q1) Which item is correct concerning the risk of material misstatement?
A) Risk of material misstatement arises because audit procedures have been misapplied.
B) Risk of material misstatement can be controlled and changed by the auditor.
C) Risk of material misstatement must be assessed in non-quantitative terms.
D) Risk of material misstatement is controllable by the client.
Q2) Relationships between risks.
Identify how an increase in each of the following factors (assuming the other factors remain unchanged) will affect planned audit evidence. Audit risk, Inherent risk, Control risk, Detection risk, Tolerable misstatement
Q3) Touring a company's plant offers much insight into potential audit issues. A)True B)False
Q4) Brainstorming sessions should be led by the engagement team. A)True B)False
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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) Which of the following are limitations of using the MUS sampling method?
A) MUS is not very useful in testing for understatement.
B) MUS is not very useful in testing for zero and negative amounts.
C) N MUS is not very useful in testing if the auditor expects numerous misstatements.
D) All of the above.
Q2) Stratification of the population into several homogeneous subpopulations generally creates audit efficiency.
A)True
B)False
Q3) In analyzing misstatements using sampling techniques, the auditor should analyze the misstatements in what manners?
A) Qualitatively and quantitatively.
B) Absolutely and proportionately.
C) Haphazardly and randomly.
D) Methodically and systematically.
Q4) For tests of controls, the most commonly used statistical method is attribute sampling.
A)True
B)False
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Chapter 9: Auditing the Revenue Cycle
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Sample Questions
Q1) Use of reasonableness tests by Bono Mullins, PC will include relationships between financial but not non-financial datA.
A)True
B)False
Q2) Confirmations of receivables at an interim date.
When internal controls are strong, the auditor may decide to confirm receivables before year end. Roll-forward procedures are then used to obtain adequate evidence for the roll-forward period. Discuss why the auditor would want to confirm receivables before balance sheet date, the risks involved, and at least three of the roll-forward procedures that the auditor performs to gain assurance on the roll-forward period.
Q3) Accounts receivable risks.
In the financial statements, there are many risks associated with an audit that must be considered. Identify and discuss five separate risks that may exist related to accounts receivable.
Q4) Requirements for confirming accounts receivable.
Confirmation of accounts receivable is required under GAAS unless certain conditions exist. Identify the conditions that will be present in an audit that does not confirm accounts receivable.
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Page 11
Chapter 10: Auditing Cash and Marketable Securities
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101 Verified Questions
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Sample Questions
Q1) What form of evidence is used by the auditor to verify bank reconciliation items?
A) Cash counting observation.
B) General ledger.
C) Bank confirmation
D) Cutoff statement.
Q2) The standard bank confirmation should be sent to all banks used by the client during the year except those with a zero balance.
A)True
B)False
Q3) When auditing marketable securities, the auditor will do which of the following?
A) Examine broker's advices evidencing purchase of securities.
B) Recompute income.
C) Foot schedule.
D) Both A and B.
E) All of the above.
Q4) Bank reconciliations should be performed by the individual who makes bank deposits.
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
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Sample Questions
Q1) When auditing accounts payable, the auditor would most likely review a sample of cash disbursements throughout the year end to determine whether disbursements for goods and services are applicable to the subsequent year.
A)True
B)False
Q2) During your audit of Brown Company you are trying to determine whether all accounts payable were recorded. Which assertion are you gathering evidence for?
A) Occurrence.
B) Presentation and Disclosure.
C) Completeness.
D) Valuation or allocation.
Q3) The tracing of a sample of receiving reports through the recording process tests the completeness assertion.
A)True
B)False
Q4) Cost accounting systems.
When auditing a manufacturing concern, what major inquiries might be made by the auditor about the cost accounting system?
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Chapter
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Sample Questions
Q1) The risk of material misstatement related to the existence of long-lived assets at Client A is considered low, while this risk at Client B is considered high. Sufficiency of evidence for testing the existence of equipment would be higher for client B.
A)True
B)False
Q2) Long-lived assets typically represent the smallest single category of assets in many organizations.
A)True
B)False
Q3) Estimating the amount of reclamation costs are an inherent risk associated with natural resources.
A)True
B)False
Q4) Auditors do NOT need to know the business and economics of the business in order to perform meaningful preliminary analytical procedures.
A)True B)False
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Chapter 13: Auditing Debt Obligations and Stockholders
Equity Transactions
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Sample Questions
Q1) The transactions in the stockholders' equity accounts are typically tested using a statistical sampling approach.
A)True
B)False
Q2) Typically, when determining the appropriate audit procedures to perform for debt accounts, the auditor will usually decide to test debt obligations, including interest, using only substantive procedures.
A)True
B)False
Q3) Relevant accounts when auditing stockholders' equity include leasehold improvements.
A)True
B)False
Q4) Which of the following is not true regarding the testing of transactions in the stockholders' equity accounts?
A) The transactions are typically tested on a 100% basis.
B) The transactions are typically tested on a sampling basis.
C) The number of transactions is typically small.
D) Most of these transactions are highly material.
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Chapter 14: Activities Required in Completing a Quality Audit
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Sample Questions
Q1) Analytical procedures help auditors assess the overall presentation of the financial statements.
A)True
B)False
Q2) In evaluating the reasonableness of an estimate, the auditor would not normally concentrate on which of the following factors and assumptions?
A) Subjective judgments that introduce bias.
B) Deviations from historical patterns.
C) Amounts that are inconsistent with current economic trends.
D) All of these are a focus of the auditor regarding reasonable estimates.
Q3) If conclusion is drawn that there may be a going concern problem, which of the following should the auditor do?
A) Withdraw from the engagement.
B) Issue a qualified or adverse opinion.
C) Identify and assess management's plan to overcome the problem.
D) Communicate this fact with management that is one level above the controller.
Q4) Dual-dating opinions.
Describe the concept and the purpose of dual-dating an audit report.
Page 16
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Chapter 15: Audit Reports on Financial Statements
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Sample Questions
Q1) When there is a restriction on the scope of the internal control over financial reporting (ICFR) engagement, what should the auditor do?
A) The auditor will either withdraw from the engagement or disclaim an opinion.
B) The auditor will issue an adverse opinion.
C) The auditor will issue an opinion on the ICFR based on another audit firm's work.
D) The auditor will report this directly to the Treadway Commission.
Q2) According to the AICPA, the auditor needs to form an opinion on the financial statements based on an evaluation of the audit evidence obtained. This is stated in which AICPA principle governing an audit conducted in accordance with GAAS?
A) Principle 1
B) Principle 4
C) Principle 5
D) Principle 7
Q3) A client that has a departure from generally accepted accounting principles that is immaterial will receive a qualified or adverse opinion.
A)True
B)False
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Chapter 16: Advanced Topics Concerning Complex
Auditing Judgments
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Sample Questions
Q1) Which of the following reflects the scope of services performed in external auditing by a CPA?
A) Risk analysis.
B) Control analysis.
C) Operations analysis.
D) Audits of financial statements.
Q2) Which method focuses on assuring that the year-end balance sheet is correct and does not consider the impact of prior-year uncorrected misstatements reversing in later years?
A) Rollover.
B) Iron curtain.
C) Dual.
D) Percentage.
Q3) In performing substantive analytical procedures, the threshold for determining whether differences between the client's recorded balance and the auditor's expectation should be based on planning materiality.
A)True
B)False
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Chapter 17: Other Services Provided by Audit Firms
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Sample Questions
Q1) The SEC requires public filers to have quarterly financial information reviewed by independent auditors.
A)True
B)False
Q2) What types of companies can have a compilation performed in accordance with the AICPA standards?
A) Public Companies: Yes; Nonpublic Companies: Yes
B) Public Companies: No; Nonpublic Companies: No
C) Public Companies: No; Nonpublic Companies: Yes
D) Public Companies: Yes; Nonpublic Companies: No
Q3) A report on agreed-upon procedures issued by accountants provides a form of attestation assurance.
A)True
B)False
Q4) In agreed-upon procedure engagements, the practitioner does not perform a review, and does not provide an opinion or negative assurance.
A)True
B)False
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