Section 1 (Qs) - Auditors Responsibility For Fraud

Front 1

AICPA auditing standards delineate two types of frauds that are relavant for audit purposes: those that involve intentional fraudulent financial reporting and those that involve the misappropriation of company assets.

T/F?

Back 1

True

Front 2

Which of the following is true regarding financial audits conducted in accordance with generally accepted government auditing standards?

A. When the audit report discloses identified fraud, it should also include the views of responsible officials concerning the fraud.

B. The fraud-related responsibilities of the auditor are fundamentally the same as this required of Auditors under the AICPA standards.

C. In addition to considering fraud during the audit, the auditor must also consider instances of noncompliance and abuse.

D. All of these are correct.

Back 2

D. All of these are correct.

Front 3

Which of the following is required of Auditors during and audit of internal control over financial reporting conducted in accordance with PCAOB standards?

A. Evaluating controls specifically designed to mitigate the motivations for management to engage in financial statement fraud.

B. Evaluating the controls enacted to address the risk of management override of other controls.

C. Assessing controls over journal entries and adjustments made during the end of the period.

D. All of the above.

Back 3

D. All of the above.

Front 4

Government auditing standards, also known as the Yellow Book, apply to which of the following types of engagements?

A. Government review engagements.

B. Government performance audits.

C. Government financial audits.

D. All of these are correct.

Back 4

D. All of these are correct.

Front 5

Under the institute of internal Auditors international standards for the professional practice of internal auditing, an organizations internal audit function is required to hold primary responsibility for all internal fraud investigations.

T/F

Back 5

False

Front 6

During a performance audit of a government agency, the auditor identifies information indicating fraud might have occurred. Which of the following statements is true regarding how the auditor should respond?

A. If the fraud is deemed insignificant to the audit objectives, the auditor should conduct additional work as a separate engagement or refer the matter to the authorities.

B. The auditor should extend the audit steps and procedures to determine whether fraud has likely occurred.

C. If the fraud is likely to have occurred, the auditor should extend the audit steps to determine the effect of the fraud on the audit findings.

D. All of these answers are correct.

Back 6

D. All of these answers are correct.

Front 7

According to AICPA standards, the financial statement auditor is only concerned with fraud that:

A. Is determined to meet the legal definitions of fraud.

B. Involves the misappropriation of company assets.

C. Is perpetrated by one or more members of management.

D. Causes a material misstatement in the financial statements.

Back 7

D. Causes a material misstatement in the financial statements.

Front 8

The external auditor should perform which of the following procedures to obtain information to use in identifying the risks of material misstatement due to fraud?

A. Make inquiries of management and others within the entity to determine whether they have knowledge of any actual, suspected, or alleged fraud affecting the entity.

B. Evaluate any unusual or unexpected relationships that have been identified in performing analytical procedures.

C. Evaluate whether the information obtained from the risk assessment procedures indicates that fraud risk factors are present.

D. All of the above.

Back 8

D. All of the above.

Front 9

Which of the following is not an effective response for addressing the risk of material misstatement due to fraud during a financial statement audit?

A. Using different sampling methods when collecting data for audit testing.

B. Implementing audit procedures on an unannounced basis.

C. Engaging in consistent auditing procedures each year.

D. Assigning specialists to assist regarding a particularly technical issue.

Back 9

C. Engaging in consistent auditing procedures each year.

Front 10

According to the institute of internal Auditors international standards for the professional practice of internal auditing, the internal audit team must evaluate the potential for the occurrence of fraud, as well as the organizations fraud risk management initiatives.

T/F

Back 10

True

Front 11

According to the institute of internal Auditors international standards for the professional practice of internal auditing, internal Auditors must apply the care and skill of an expert whose primary responsibility is investigating fraud.

Back 11

False

Front 12

According to the PCAOB standards, the external auditor should integrate the audit of the company's internal controls over financial reporting (ICOFR) with the audit of the company's financial statements.

Back 12

True

Front 13

Government auditing standards for performance audits state that as part of planning the audit, audit team members should discuss fraud risks among the team.

Back 13

True

Front 14

Yellow book auditing standards apply to performance audits conducted at private companies and nonprofit organizations.

Back 14

False

Front 15

PCAOB standards provide guidance for Auditors on:

A. Evaluating management's discussion and analysis.

B. Determining whether and entity's financial statements are affected by fraud.

C. Performing an audit of management's assessment of internal control over financial reporting.

D. None of these answers are correct.

Back 15

C. Performing an audit of management's assessment of internal control over financial reporting.

Front 16

The primary purpose of the AICPA's standards relating to Auditors consideration of fraud is to:

A. Establish Auditors as being primarily responsible for the prevention and detection of fraud within an organization.

B. Emphasize that the primary responsibility for establishing internal controls rests with Auditors.

C. Establish standards for Auditors in fulfilling their responsibilities related to fraud during a financial statement audit.

D. All of these are correct.

Back 16

C. Establish standards for Auditors in fulfilling their responsibilities related to fraud during a financial statement audit.

Front 17

Which of the following is a responsibility that the internal auditor should carry out in conducting audit engagements?

A. Evaluate the indicators of fraud and decide whether any further action is necessary or whether an investigation should be recommended.

B. Consider fraud risks in the assessment of internal control design and determination of audit steps to perform.

C. Evaluate whether management is actively retaining responsibility for oversight of the fraud risk management program.

D. All of these answers are correct.

Back 17

D. All of these answers are correct.

Front 18

The risk of the auditor not detecting a material misstatement resulting from employee fraud is greater than the risk of the auditor not detecting a material misstatement resulting from management fraud.

T/F

Back 18

False

Front 19

The risk of an auditor not detecting a material misstatement resulting from fraud is higher than the risk of an auditor not detecting a material misstatement resulting from error.

T/F

Back 19

True

Front 20

According to PCAOB standards, an auditor should implement a bottom-up approach when auditing an entity's internal control over financial reporting.

T/F

Back 20

False

Front 21

Which of the following is not one of the responsibilities that the internal auditor should carry out in conducting audit engagements?

A. Have sufficient knowledge of fraud to identify red flags indicating fraud might have been committed.

B. Consider fraud risks in the assessment of internal control design and determination of audit steps to perform.

C. Be alert to opportunities that could allow fraud, such as control deficiencies.

D. Report all findings of fraud to the securities and exchange commission within 10 working days.

Back 21

D. Report all findings of fraud to the securities and exchange commission within 10 working days.

Front 22

According to AICPA standards, the Auditors assessment of the risk of material misstatement due to fraud at the financial statement level should have an effect on which of the following aspects of an audit.

A. Choice of auditing procedures.

B. Assignment and supervision of personnel.

C. Consideration of accounting principles used.

D. All of the above.

Back 22

D. All of the above.

Front 23

According to government auditing standards, assessing the risk of potential fraud relates solely to planning the audit and should therefore be performed only at the beginning of the audit engagement.

T/F

Back 23

False

Front 24

According to government auditing standards, as part of a performance audit, the auditor should make a determination as to whether any questionable acts discovered during the engagement legally constitute fraud.

T/F

Back 24

False

Front 25

AICPA auditing standards require Auditors to brainstorm how management could perpetrate and conceal fraudulent financial reporting.

T/F

Back 25

True

Front 26

Which of the following parties has some responsibility regarding an organizations fraud detection and prevention efforts?

A. Board of directors.

B. In-house legal counsel.

C. Management.

D. All of the above.

Back 26

D. All of the above.

Front 27

Which of the following factors should Auditors discuss during their fraud brainstorming session, as required by AICPA standards?

A. How a company's assets could be misappropriated.

B. How and where financial statements might be susceptible to fraud.

C. Factors that indicate a culture that enables individuals to rationalize committing fraud.

D. All of the above.

Back 27

D. All of the above.

Front 28

During a performance audit of a government agency, if the auditor identifies information indicating fraud might have occurred, the auditor should stop the audit and contact the inspector generals office for a criminal investigation

T/F

Back 28

False

Front 29

At the close of an integrated audit performed under PCAOB standards, the auditor may choose to issue a single report containing both an opinion on the company's financial statements and an opinion on its internal control over financial reporting, or to issue a separate report for each opinion.

T/F

Back 29

True

Front 30

According to the institute of internal Auditors international standards for the professional practice of internal auditing, the internal audit activity must evaluate risk exposures relating to the organizations governance, operations, and information systems regarding all of the following except:

A. Effectiveness and efficiency of operations.

B. Sale of tangible and intangible assets.

C. Compliance with laws, regulations, and contracts.

D. Reliability and integrity of financial and operational information.

Back 30

B. Sale of tangible and intangible assets.

Front 31

The private Securities litigation reform act requires public company audits to include procedures designed to provide reasonable Assurance of detecting _____ that would have a direct and material effect on the financial statements.

A. Illegal Acts.

B. Fraud.

C. Corruption.

D. None of these answers are correct.

Back 31

A. Illegal Acts

Front 32

According to government auditing standards, during a performance audit, the auditor should:

A. Employ an attitude of professional skepticism.

B. Design audit procedures to provide reasonable Assurance of detecting fraud that is significant to the audit objectives.

C. Assess the risks fraud occurring that are significant within the context of the audit objectives.

D. All of these answers are correct.

Back 32

D. All of these answers are correct.

Front 33

Under the provisions of the private Securities litigation Reform Act 1995, if an auditor detects or otherwise becomes aware that an illegal act has or might have occurred, which of the following is an auditor than required to do?

A. Inform the appropriate level of management as soon as practicable.

B. Ensure that the audit committee adequately informed any detected illegal acts unless such acts are clearly inconsequential.

C. Determine and consider the possible effects of the act on the company's financial statements.

D. All of these answers are correct.

Back 33

D. All of these answers are correct.

Front 34

According to the Institute of internal Auditors International standards for the professional practice of internal auditing, due professional care implies infallibility.

T/F

Back 34

False