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37 Cards in this Set

  • Front
  • Back
_____________ smoothing is a form of earning management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings.
Income
Fraudulent financial reporting may be contributed to:
External Performance Pressures, Internal Performance Pressures, Lack of Segregation of Duties
Auditing standard AU316 requires an auditor to:
Document communication with management, audit committee and others about fraud
A company's management should develop a code of conduct that addresses such areas as:
Dealing with outside people and organizations, Privacy and confidentiality, Conflicts of interest
When reviewing company's estimates an auditor should:
Review prior period estimates to identify changes
A helpful tool for identifying possible fraud in a particular account is
Analytical Procedures
To protect against the misappropriation of fixed assets, a company may:
Permanently label the asset
_____________inquiry is often used to determine if the individual is being deceptive or purposefully omitting disclosures of key knowledge of facts, events or circumstances.
Interrogative
An auditor should observe an individual during inquiry for:
Both verbal and non-verbal cues
If an auditor discovers fraud, an auditor should:
Consider withdrawing from the audit if the fraud is significant, Approach the appropriate level of management, Conduct further investigations
T/F
Fraudulent financial reporting is fraud that involves the theft of an entity's assets.
False
T/F
An employee's personal situation may contribute to his or her committing a misappropriation of company assets.
True
T/F
High turnover in a department may create an opportunity for fraud.
True
T/F
An auditor should always assume that management is completely honest.
False
T/F
Less experienced audit team members should brainstorm with more experienced members to determine possible areas of fraud for a client.
True
T/F
It is the auditor's responsibility to set the tone for ethical behavior in an organization.
False
T/F
An audit committee plays an important role in developing a strong zero-tolerance for fraud in a company.
True
T/F
Auditors should develop tests for a client and use those tests consistently from one period to the next.
False
T/F
An auditor should notify the client in advance which inventories the auditor intends to test.
False
t/f
If an auditor suspects fraud in a particular area, the auditor should gather additional evidence through more testing
True
Define fraudulent financial reporting
2 examples of fraudulent reporting are
Intentional misstatement or omission of amounts or disclosures with the intent to deceive users.
overstating assets, omitting liabilities, or understating income
Misappropriation of assets
Define/ 2 examples
is a fraud that involves theft of an entities assets material or un-material from an employee and others internal to the organization.
Embezzling, shop lifting
The financial triangle
Incentive/Pressure (Motive)
Opportunities
Attitudes/Rationalization
Example of risk factors for Financial reporting -incentive/pressures
financial stability- personal net worth being threatened, economic conditions, pressure to meet debt repayment
Example of risk factors for Financial reporting -opportunities
Significant accounting estimates involve subjective judgments that are difficult to verify, ineffective BOD, high turnover
Example of risk factors for Financial reporting -Attitudes/Rationalization
inappropriate or ineffective communication, known history of law violations or securities laws, management making unrealistic forecasts to analysts creditors and 3rd parties.
Example of risk factors for Misappropriation of assets-incentive/pressures
adverse relationships with management, personal debt obligations, known employee layoff, promotion/compensation or other rewards inconsistent with expectations
Example of risk factors for Misappropriation of assets-opportunities
presence of large amounts of cash, inadequate internal controls (ie seg of duties)
Example of risk factors for Misappropriation of assets-Attitudes/Rationalization
Disregard for the need to monitor or reduce risk of misappropriating assets, disregard for internal controls by overriding or failing to correct known internal control deficiencies
Sources used by auditors to gather info to assess fraud risks
Professional Skepticism- questioning mind
Critical Evaluation of Audit Evidence
Communication among audit team
Inquires of management
Analytical Procedures
Other Information
What should the audit team consider in its planning discussion about fraud risks?
help???
Auditor Responsibilities when detecting fraud
Unless an independent audit can provide this assurance about freedom from misstatement due to material fraud, it has little if any value to society.
SAS 99 - “The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.”
How to be proactive when detecting fraud
Understand the client’s business and
Understand how changes in the economy might affect the business
Understand management's motivations for committing a fraud
Identify opportunities for other employees to commit defalcation
Identify areas that might suggest fraud
Analyze changes in company's financial results for reasonableness
How to respond to the risk of fraud
Discuss risks with management
Focus on risk areas
Evaluate business purpose for significant unusual transactions
Specific risk fraud areas
Overstate assets, revenues
Understate liabilities, expenses
How to detect (Overstate assets, revenues, Understate liabilities, expenses) Risks of fraud
Internal control weaknesses
Analytical review
Detailed testing of records/ documents
Physical inspection/ count of assets
When fraud is detected get ________ evidence
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