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    Audit 101

    Uploaded by

    Jonard Alter
    The document provides information about audit procedures related to fraud risk. It presents multiple choice questions about factors that increase fraud risk, an auditor's responsibility to detect fraud, documentation of fraud risk factors, required actions if fraud is detected, and internal controls to prevent fraud. The questions assess understanding of when fraud risk is heightened, discrepancies that suggest fraud, an auditor's role in detecting material misstatements from fraud, appropriate documentation, required investigations if fraud is suspected, controls to detect override of controls, ways to conceal embezzlement, indications of potential fraud from changes in accounts receivable, and the greatest fraud risk factor for a company experiencing rapid growth.

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    Audit 101

    Uploaded by

    Jonard Alter
    471 views3 pages
    The document provides information about audit procedures related to fraud risk. It presents multiple choice questions about factors that increase fraud risk, an auditor's responsibility to detect fraud, documentation of fraud risk factors, required actions if fraud is detected, and internal controls to prevent fraud. The questions assess understanding of when fraud risk is heightened, discrepancies that suggest fraud, an auditor's role in detecting material misstatements from fraud, appropriate documentation, required investigations if fraud is suspected, controls to detect override of controls, ways to conceal embezzlement, indications of potential fraud from changes in accounts receivable, and the greatest fraud risk factor for a company experiencing rapid growth.

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    The document provides information about audit procedures related to fraud risk. It presents multiple choice questions about factors that increase fraud risk, an auditor's responsibility to detect fraud, documentation of fraud risk factors, required actions if fraud is detected, and internal controls to prevent fraud. The questions assess understanding of when fraud risk is heightened, discrepancies that suggest fraud, an auditor's role in detecting material misstatements from fraud, appropriate documentation, required investigations if fraud is suspected, controls to detect override of controls, ways to conceal embezzlement, indications of potential fraud from changes in accounts receivable, and the greatest fraud risk factor for a company experiencing rapid growth.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    471 views3 pages

    Audit 101

    Uploaded by

    Jonard Alter
    The document provides information about audit procedures related to fraud risk. It presents multiple choice questions about factors that increase fraud risk, an auditor's responsibility to detect fraud, documentation of fraud risk factors, required actions if fraud is detected, and internal controls to prevent fraud. The questions assess understanding of when fraud risk is heightened, discrepancies that suggest fraud, an auditor's role in detecting material misstatements from fraud, appropriate documentation, required investigations if fraud is suspected, controls to detect override of controls, ways to conceal embezzlement, indications of potential fraud from changes in accounts receivable, and the greatest fraud risk factor for a company experiencing rapid growth.

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    Audit 101

    Which of the following characteristics is most likely to heighten an auditor's concern


    about the risk of material misstatements due to fraud in an entity's financial statements?

    1. The entity's industry is experiencing declining customer demand.


    2. Employees who handle cash receipts are not bonded.
    3. Internal auditors have direct access to the board of directors and the entity's
    management.
    4. The board of directors is active in overseeing the entity's financial reporting policies.
    1. The entity's industry is experiencing declining customer demand.
    Which of the following circumstances is most likely to cause an auditor to increase the
    assessment of the risk of material misstatement of the financial statements due to
    fraud?

    1. Property and equipment are usually sold at a loss before being fully depreciated.
    2. Unusual discrepancies exist between the entity's records and confirmation replies.
    3. Monthly bank reconciliations usually include several in-transit items.
    4. Clerical errors are listed on a computer-generated exception report.
    2. Unusual discrepancies exist between the entity's records and confirmation replies.
    Which of the following statements reflects an auditor's responsibility for detecting fraud?

    1. An auditor is responsible for detecting employee errors and simple fraud, but not for
    discovering fraudulent acts involving employee collusion or management override.
    2. An auditor should plan the audit to detect fraud caused by departures from GAAP.
    3. An auditor is not responsible for detecting fraud unless the application of auditing
    standards would result in such detection.
    4. An auditor should design the audit to provide reasonable assurance of detecting
    errors and fraud that are material to the financial statements.
    4. An auditor should design the audit to provide reasonable assurance of detecting
    errors and fraud that are material to the financial statements.
    When fraud risk factors are identified during an audit, the auditor's documentation
    should include

    The Risk Factors Identified, The Auditor's Response to The Risk Factors Identified

    1. Yes, Yes
    2. Yes, No
    3. No, Yes
    4. No, No
    1. Yes, Yes
    If an independent audit leading to an opinion on financial statements causes the auditor
    to believe that a material misstatement due to fraud exists, the auditor should first

    1. request that management investigate to determine whether fraud has actually


    occurred.
    2. make the investigation necessary to determine whether fraud has actually occurred.
    3. consider the implications for other aspects of the audit and discuss the matter with
    the appropriate levels of management.
    4. consider whether fraud was the result of a failure by employees to comply with
    existing controls.
    2. make the investigation necessary to determine whether fraud has actually occurred.
    Which of the following is least likely to suggest to an auditor that the client's
    management may have overridden internal control?

    1. There are numerous delays in preparing timely internal financial reports.


    2. Management does not correct internal control weaknesses that it knows about.
    3. Differences are always disclosed on a computer exception report.
    4. There have been two new controllers this year.
    3. Differences are always disclosed on a computer exception report.
    Cash receipts from sales on account have been misappropriated. Which of the following
    acts will conceal this embezzlement and be least likely to be detected by the auditor?

    1. Understating the sales journal


    2. Overstating the accounts receivable control account
    3. Overstating the accounts receivable subsidiary records
    4. Understating the cash receipts journal
    1. Understating the sales journal
    An auditor discovers that a client's accounts receivable turnover is substantially lower
    for the current year than for the prior year. This trend may indicate that

    1. the client recently tightened its credit-granting policies.


    2. employees have stolen inventory just before year-end.
    3. fictitious credit sales have been recorded during the year.
    4. an employee has been lapping receivable in both years.
    3. fictitious credit sales have been recorded during the year.
    Which of the following internal controls will best detect the theft of valuable items from
    an inventory that consists of hundreds of different items selling for $1 to $10 and a few
    items selling for hundreds of dollars?

    1. Maintain a perpetual inventory of only the more valuable items, with frequent periodic
    verification of the validity of the perpetual records.
    2. Have an independent auditing firm examine and report on management's assertion
    about the design and operating effectiveness of the control activities relevant to
    inventory.
    3. Have separate warehouse space for the more valuable items, with sequentially
    numbered tags.
    4. Require and authorized officer's signature on all requisitions for the more valuable
    items.
    1. Maintain a perpetual inventory of only the more valuable items, with frequent periodic
    verification of the validity of the perpetual records.
    While performing a preliminary assessment for a new client audit, the auditor
    determines that the client has had excessive growth over the past several years due to
    recent acquisitions and internal expansion. Through discussions with management, the
    auditor concludes that the company's operational staff is too lean and that internal
    controls in several operation functions may be currently insufficient to accommodate this
    rapid growth. About which of the following fraud risk factors related to the client would
    the auditor have the greatest concern?

    1. Rationalization/attitude
    2. Inadequate organizational structure
    3. Opportunity
    4. Incentives/pressures
    3. Opportunity

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