Chapter 11

Front 1

Any intentional deceit meant to deprive another person or party of their property or rights or an intentional misstatement of financial statements

Back 1

Fraud

Front 2

An intentional misstatement or omission of amounts or disclosures with the intent to deceive users.

Back 2

Fraudulent Financial Reporting

Front 3

Most fraudulent financial reporting cases involve...

Back 3

the intentional misstatements of amounts rather than disclosures.

Front 4

Omissions of amounts are...

Back 4

less common.

Front 5

Most fraudulent financial reporting involve an attempt to overstate income by..

Back 5

overstatement of assets and income or omission of liabilities and expenses.

Front 6

What are deliberate actions taken by management to meet earnings objectives?

Back 6

Earnings Management

Front 7

What is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings?

Back 7

Income Smoothing

Front 8

What is fraud that involves theft of an entity's assets?

Back 8

Misappropriation of Assets

Front 9

What is the most common fraud scheme?

Back 9

Misappropriation of Assets

Front 10

What are the three conditions of the fraud triangle?

Back 10

1. Incentives/Pressure
2. Opportunities
3. Attitudes/Rationalization

Front 11

A common incentive for companies to manipulate financial statements is...

Back 11

a decline in the company's financial prospects.

Front 12

The opportunities for risk is greater for companies in industries where...

Back 12

significant judgements and estimates are involved.

Front 13

Fraud is more prevalent in ____ & ____ because it is more difficult for these entities to maintain adequate separation of duties.

Back 13

smaller business & non-profit organizations

Front 14

What is it when an auditor neither assumes that management is dishonest nor assumes unquestioned honesty?

Back 14

Professional Skepticism

Front 15

3 parts of perceived opportunity

Back 15

1. opportunity to commit fraud
2. opportunity to conceal fraud
3. opportunity to avoid punishment

Front 16

Upon discovering information or other conditions that indicate a material misstatement due to fraud that may have occurred, auditor should

Back 16

thoroughly probe the issues, acquire additional evidence as needed, and consult with other team members.

Front 17

SAS 99 requires auditors to make specific ____ about fraud in every audit.

Back 17

inquiries

Front 18

5 Sources of information gathered to assess fraud risks

Back 18

1. Communications among audit team
2. Inquiries of management
3. Risk factors
4. Analytical procedures
5. Other Information

Front 19

The existence of fraud risk factors...

Back 19

does not mean fraud exists, only that the likelihood of fraud is higher.

Front 20

Because occurrances of fraudulent financial reporting often involve manipulation of revenue, SAS 99 requires the auditor to perform...

Back 20

analytical procedures on revenue accounts.

Front 21

The risk of fraud can be reduced through a combination of...

Back 21

prevention, deterrence, and detection measures.

Front 22

Management is responsible for implementing ______ & _______ to minimize the risk of fraud.

Back 22

corporate governance and control procedures

Front 23

Guidance developed by the AICPA identifies three elements to prevent, deter, and detect fraud:

Back 23

1. Culture of honesty and high ethics
2. Managements responsibility to evaluate risks of fraud
3. Audit committee oversight

Front 24

Research indicates that the most effective way to prevent fraud is to implement...

Back 24

anti fraud programs and controls that are based on core values embraced by the company.

Front 25

Creating a culture of honesty and high ethics includes six elements:

Back 25

1. Setting the tone at the top
2. Creating a positive workplace environment
3. Hiring and promoting appropriate employees
4. Training
5. Confirmation
6. Discipline

Front 26

The audit committee has primary responsibility to oversee the organization's...

Back 26

financial reporting and internal control processes.

Front 27

When risks of material misstatements due to fraud are identified, the auditor should first...

Back 27

discuss these findings with management and obtain management's views of the potential for fraud.

Front 28

Auditor responses to fraud risk include the following:

Back 28

1. Change in the overall conduct of the audit
2. Design and perform procedures to address fraud risks
3. Design and perform procedures to address management override of controls

Front 29

Three procedures must be performed in every audit:

Back 29

1. Examine journal entries and other adjustments for evidence of possible misstatements due to fraud
2. Review accounting estimates for biases
3. Evaluate the business rationale for significant unusual transactions

Front 30

These accounts are especially susceptible to fraud:

Back 30

Revenue and related accounts receivable and cash accounts

Front 31

Three main types of revenue manipulations are:

Back 31

1. Fictitious revenues
2. Premature revenue recognition
3. manipulation of adjustments to revenues

Front 32

What is the recognition of revenue before GAAP requirements for recording revenue?

Back 32

Premature revenue recognition

Front 33

Two methods of premature revenue recognition are:

Back 33

1. bill and hold sale
2. side agreements

Front 34

The most common adjustment to revenue involves..

Back 34

sales returns and allowances

Front 35

Many potential warning signals indicate revenue fraud, two of the most useful are:

Back 35

Analytical procedures and documentary discrepancies.

Front 36

What is an inquiry to corroborate or contradict prior information obtained?

Back 36

Assessment Inquiry

Front 37

What is an inquiry to obtain information about facts and details the auditor does not have?

Back 37

Informational Inquiry

Front 38

What is an inquiry used to determine if the interviewee is being deceptive or purposefully omitting disclosure of key knowledge of facts, events or circumstances?

Back 38

Interrogative Inquiry