Question 1
1 / 1 pts
Which of the following might be considered a "red flag" indicating possible fraud in a
large manufacturing company with several subsidiaries?
Complex sales transactions and transfers of funds between affiliated companies.
The existence of a financial subsidiary.
Use of separate bank accounts for payrolls by each subsidiary.
A consistent record of above average return on investment for all subsidiaries.
Question 2
1 / 1 pts
A perceived opportunity can take the form of an opportunity to :
conceal fraud
To commit fraud
Avoid punishment
All of the choices are forms of opportunity.
Question 3
1 / 1 pts
A CPA, while performing an audit, strives to achieve independence in appearance in
order to -
Become independent in fact.
Comply with the generally accepted standards of field work.
Maintain public confidence in the profession.
Reduce risk and liability.
Question 4
1 / 1 pts
Independent auditors of financial statements perform audits that reduce and control -
Complexity of financial statements
Business risk faced by investors
Information risk faced by investors
Timeliness of financial statements
IncorrectQuestion 5
0 / 1 pts
Which of the following is an example of error?
Client personnel alter accounting records from which financial statements are prepared.
Client personnel overlook or misinterpret facts causing accounting estimates to be
incorrect.
Client personnel make mistakes in gathering or processing accounting data from which
financial statements are prepared.
Client personnel make mistakes in the application of accounting principles.
IncorrectQuestion 6
0 / 1 pts
The risk that the auditor's own work will lead to the decision that material misstatement
do not exist in the financial statements, when in fact such misstatements do exist, is -
relative risk
control risk
detection risk
Audit risk
Question 7
1 / 1 pts
Which of the following is not a condition necessary for fraud to occur?
explanations
Pressure
rationalization
Opportunities
Question 8
1 / 1 pts
An auditor assess control risk because it -
indicates where inherent risk may be the greatest.
Affects the level of detection risk the auditor may accept
determines whether sampling risk is sufficiently low.
Includes the aspects of nonsampling risk that are controllable.
Question 9
1 / 1 pts
Inherent risk and control risk differ from detection risk in that inherent risk and control
risk
elements of udit risk while detection risk is not.
functions of the client and its environment while detection risk is not
changed at the auditor's discretion while detection risk is not
considered at the individual account balance level while detection risk is not.
IncorrectQuestion 10
0 / 1 pts
When conducting an audit, errors that arouse suspicion of fraud should be given greater
attention than other errors. This is an example of applying the criterion of -
Materiality
dual-purpose testing
Reliability of evidence
Risk
Question 11
1 / 1 pts
Which of the following best describes relationships among auditing, attest and
assurance services?
Attest is a type of auditing service.
Auditing and attest services represents two distinctly different types of services.
Auditing is a type of assurance service.
Assurance is a type of attest service.
Question 12
1 / 1 pts
When a material misstatement is discovered in the financial statements of a publicly
traded company for which an auditor has issued an unqualified opinion,
the primary responsibility for recalling, correcting, and re-issuing the financial
statements rests with which of the following parties?
The management of the company.
The shareholders of the company.
The auditor who issued the unqualified opinion.
The Securities and Exchange Commission.
Question 13
1 / 1 pts
Which of the following is least likely to be an important component of the role of an audit
committee of a client's board of directors?
Review of the auditor's working papers at the conclusion of an engagement.
Review of the auditor's proposed fee for an engagement.
Review of management's recommendations regarding the appointment of an external
auditor.
Review of any non-audit services to be provided by the external auditor.
IncorrectQuestion 14
0 / 1 pts
Which of the following statements about internal control is correct?
An exceptionally strong internal system is enough for auditor to eliminate substantive
test on a significant account balance.
The cost-benefit relationship is a primary criterion that should be considered in
designing an internal control system.
A properly maintained internal control system reasonably ensures that collusion among
employees cannot occur.
The establishment and maintenance of internal control is an important responsibility of
the internal auditor.
Question 15
1 / 1 pts
The major components of an organization's internal control structure consist of all of the
following except
Control environment
Control activities
Control risk
Risk assessment
Question 16
1 / 1 pts
Which of the following most likely would not be considered an inherent limitation of the
potential effectiveness of an entity's internal control?
Management override
Mistakes in judgement.
collusion among employees
Incompatible duties.
IncorrectQuestion 17
0 / 1 pts
Proper segregation of functional responsibilities calls for separation of the functions of
Authorization, recording and custody
Custody, execution and reporting
Authorization, execution, and payment
Authorization, payment and recording
Question 18
1 / 1 pts
A manager of a manufacturing plant alters production reports to provide the corporate
office with an inflated perception of the plant's cost effectiveness in an effort to keep the
inefficient plant from being closed. This action would be classified as:
Fraud
Exposure
Risk
Hazard
Question 19
1 / 1 pts
A cash shortage may be concealed by transporting funds from one location to another
or by converting negotiable assets to cash. Because of this, which of the following is
vital?
Simultaneous bank reconciliation.
Simultaneous verification.
Simultaneous surprise cash count.
Simultaneous confirmation
Question 20
1 / 1 pts
Controls that stop problems from occurring are called -
Programmed controls
Corrective controls
Preventive controls
Detective controls.
Question 21
1 / 1 pts
Which of the following is an effective implementation of the information and
communication component of COSO's Internal Control-Integrated Framework?
The organization builds in edit checks to determine whether all purchases are made
from authorized vendors.
The organization has a whistleblower function that allows parties internal and external to
the organization to communicate concerns about possible inappropriate actions in the
organization's operations.
The reorganization has one-way communication with parties external to the
organization.
The organization has a robust process for assessing risks internal and external to the
organization.
Question 22
1 / 1 pts
Which of the following factors is not a reason that audit firms experience litigation for
business failures, rather than audit failures?
Joint and several liability statutes.
Class action lawsuits.
Contingent-fee compensation for audit firm.
A misunderstating by some users that an unqualified audit opinion represent an
insurance policy against investment losses.
Question 23
1 / 1 pts
The three laws most relevant to auditor liability include common law, contract law, and
statutory law.
True
False
Question 24
1 / 1 pts
Negligence occurs when a person fails to perform a contractual duty.
True
False
IncorrectQuestion 25
0 / 1 pts
Examples of breach of contract include violating client confidentiality, failing to provide
the audit report on time, and failing to discover material error or material employee
fraud.
True
False
Question 26
1 / 1 pts
To win a claim against the auditor, third parties suing under common law must generally
prove that they suffered a loss, that the loss was due to lack of reliance on misleading
financial statements, and that the auditor knowingly participated in the financial
misrepresentation.
True
False
Question 27
1 / 1 pts
Which of the statement is false?
Negligence is the failure to exercise reasonable care, thereby causing harm to another
person or to property.
Gross negligence is operating with reckless disregard for the truth, or the failure to use
even minimal care.
Breach of contract occurs when a person competently performs a contractual duty.
Fraud is an intentional concealment oir misrepresentation of a material fact with the
intent to deceive another person, causing damage to the deceived person.
Question 28
1 / 1 pts
An audit client can sue the auditor under contract law for which of the following?
Fraud
Gross negligence
All of the above.
Breach of contract.
Negligence
Question 29
1 / 1 pts
An internal control structure can never be regarded as completely effective. Even if
systems personnel could design an ideal system, its effectiveness depends on the -
Ability of the internal audit staff to maintain it.
Adequacy of the computer system.
Proper implementation by management.
Competency and independently of the people using it.
Question 30
1 / 1 pts
Which of the following is least likely an application of maintaining an attitude of
professional skepticism?
In planning and performing an audit, the auditor assumes that management is
dishonest.
The auditor makes a critical assessment, with a questioning mind, of the validity of audit
evidence obtained.
The auditor is alert to audit evidence that contradicts or brings into question the
reliability of documents or management representations.
The auditor does not consider representation from management as substitute for
obtraining sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
Question 31
1 / 1 pts
An assurance engagement should exhibit the following elements except -
Suitable criteria
Appropriate professional fee
A three-party relationship
A subject matter
Question 32
1 / 1 pts
Which of the following describes self-service threat?
It may occur when a previous judgement needs to be re-evaluated by the professional
accountant responsible for that judgement.
Ity may occur when a professional accountant may be deterred from acting objectively
by threats, actual or perceived.
It may occur when a professional accountant promotes a position or opinion to the point
that subsequent objectivity may be compromised.
It may occur when because of close relationship, a professional accountant becomes
too sympathetic to the interests of others.
Question 33
1 / 1 pts
What is the primary difference between fraud and error in financial statement reporting?
The level of management involved.
The materiality of the misstatement.
The type of transaction effected.
The intent to deceive.
Question 34
1 / 1 pts
Which of the following is one of the better auditing techniques that might be used by an
auditor to detect kiting?
Prepare a schedule of bank transfers from the client's books.
Review subsequent bank statements and cancelled checks received directly from the
banks.
Prepare year-end bank reconciliations.
Review composition of authenticated deposit slips.
Question 35
1 / 1 pts
Which of the following statements best describes the auditor's responsibility regarding
the detection of fraud?
The auditor should design audit procedures that will provide reasonable assurance that
the financial statements are free from material misstatement due to errors and/or fraud.
The auditor is responsible for the failure to detect fraud only when such failure clearly
results from nonperformance of audit procedures specifically described in the
engagement letter.
The auditor is responsible for the failure to detect fraud only when an unqualified
opinion is issued.
The auditor must extend auditing procedures to actively search for evidence of fraud
where the examination indicates that fraud may exist.
Question 36
1 / 1 pts
With respect to errors and fraud, the auditor should plan to -
Search for errors that would have a material effect and for fraud that would have either
materiality or immaterial effects on the financial statements.
Discover errors or fraud that would have a material effect on the financial statements.
Search for errors or fraud that would have a material effect on the financial statements.
Search for fraud that would have a material effect and for errors that would have either
material or immaterial effects on the financial statements.
Question 37
1 / 1 pts
Most fraud perpetrators are insiders because -
Insiders have more need for money than outsiders.
Insiders know more about the system and its weaknesses that outsiders.
Insiders are more dishonest than outsiders.
Outsiders are more likely to get caught that insiders.
Question 38
1 / 1 pts
Intentional or reckless conduct that results in materially misleading financial statements
is called -
Financial fraud
Audit failure fraud.
Fraudulent financial reporting
Misstatement fraud
Question 39
1 / 1 pts
Reasons for committing fraud includes living beyond one's means, having heavy debs,
or unusually high bills. Such a motivator for committing fraud is commonly known as a
-
opportunity
Spark
catalyst
pressure
Question 40
1 / 1 pts
Which of the following are affected by the quality of an organization's interval controls?
Ability of the organization to remain in business.
Reliability of financial data.
Ability of management to make informed business decisions.
All of the above.
Question 41
1 / 1 pts
Which of the following creates an opportunity for committing fraudulent financial
reporting in an organization?
Management demands financial success.
Commitment tied to debt covenants.
Management is aggressive in its application of accounting rules.
Poor internal control.
Question 42
1 / 1 pts
Which of the following statements regarding internal controls is false?
A limitation of internal control is faulty human judgement.
Internal control is a process consisting of ongoing tasks and activities.
Internal control is primarily about policy manuals, forms, and procedures.
Internal control is geared toward the achievement of multiple objectives.
Question 43
1 / 1 pts
Which of the following scenarios provides the best example of segregation of duties?
Employees perform multiple jobs, and have access to related records.
The payroll department cannot add employees to the payroll or change pay rates
without the explicit authorization of the Human Resource Department
The internal audit function performs an independent test of transactions throughout the
year and reports any errors to departmental managers.
The person responsible for reconciling the bank accounts is responsible for cash
disbursements but not for cash receipts.
Question 44
1 / 1 pts
Which of the following is not part of management's fraud risk assessment process?
The assessment considers pressures that might lead to fraud in the financial
statements.
The assessment considers ways to fraud could occur.
fraud risk assessment serve as an important basis for determining the control activities
needed to mitigate fraud risks.
The assessment considers the role of the external auditor in preventing fraud.
Question 45
1 / 1 pts
Which one of the following components of internal control over financial reporting sets
the tone for the organization?
Information and communication
Risk assessment.
Control environment
Monitoring Risk Assessment Organizations face risk of material misstatement in their
financial reports.
Question 46
1 / 1 pts
Which of the following factors does not create a demand for external audit services?
Requirements of the state boards of accountancy.
Complexity of the accounting processing system.
Remoteness between a user and the organization.
Potential bias by management in providing information.
Question 47
1 / 1 pts
To provide assurance that each voucher is submitted and paid only once, and auditor
most likely would examine a sample of paid vouchers and determine whether each
voucher is -
Supported by a vendor's invoice.
Approved for authorized purchases.
Stamped "paid" by the check signer.
Pre-numbered and accounted for.
Question 48
1 / 1 pts
An auditor suspects that certain client employees are ordering merchandise for
themselves over the Internet without recording the purchase or receipt of the
merchandise. When vendor's invoices arrive, one of the employees approves the
invoices for payment. After the invoices are paid, the employees destroys the invoices
and the related vouchers. In gathering evidence regarding the fraud, the auditor most
likely would select items for testing from the file of all -
Approved vouchers.
Vendor invoices.
Cash disbursement.
receiving reports.
Question 49
1 / 1 pts
Sound internal control dictates that defective merchandise returned by customers
should be presented initially to the -
Sales clerk
Inventory control clerk
Receiving clerk
Purchasing clerk
Question 50
1 / 1 pts
The adequacy of disclosures in the financial statements and footnotes is the primary
responsibility of the-
Staff member who drafted the statements
Partner assigned to engagement.
Auditor in charge of the field work.
Client
Incorrect: 5, 6, 10, 14, 17, 25
