522 - Exam 1 - Everything Else

Question 1

Q36 - SEC Practice alert 97-1 (c.13)

Answer 1

Topic: Continuous Auditing

1. Auditors are ONLY responsible for audited FS, NOT other information presented on a company website
2. The CLIENT is responsible to insure content is secure
3. The CLIENT must create distinct boundaries between audited FS & other information available on a company website

Question 2

Q36 - Deterrence

Answer 2

Topic: Fraud Controls
Fraud cannot be totally prevented, we settle for Deterrence, which comes from perception + fear of getting caught/consequences
a. Discipline (professional or employer-mandated)
b. Criminal prosecution (fines and/or imprisonment)
c. Civil litigation (damages and/or judgments)

Question 3

Q36 - SEC Fair disclosure rule

Answer 3

XBRL helps:

1. All FS data is made available simultaneously to ALL users
2. Online, real-time disclosures level the playing field for all users
3. Reduces likelihood of selective releases of data & insider trading

Question 4

Q36 - Control Agents

Answer 4

Topic: Continuous Auditing: Auditing becomes pro-active, instead of reactive
Control Agents – auditor-defined heuristics (problem-solving techniques) that are applied to certain groups of risk-prone transactions
1. Agent looks for unusual activities
2. To explain these activities, the agent looks for similar activities
3. An audit alert is generated, so the auditor can follow up, as needed

Question 5

Q36 - Defalcation (ch.3)

Answer 5

Topic: Financial Fraud Factors
Fraudulent Financial Information > Defalcation
–> def: Defalcation - Misappropriation of Assets

Question 6

Anti-Fraud Strategies (only card from Ch.3) (2Qs)

Answer 6

1. Targeted Fraud Risk Assessments (FRAs)
   a. Periodic AND Continuous
   b. Fraud Vulnerability Reviews
   c. Pro-active Forensic Accounting
2. Gamesmanship Reviews - Comprehensive Assessment of Top Mgmt., are they likely to “Game” the system?
3. Fraud Prevention Programs
   a. IC Policies & Procedures
   b. Enforce compliance
   c. Periodic assessment of effectiveness
4. Enforcement Procedures
   a. Is SEC effective?
   b. Other government agencies (e.g. DOJ)
   c. Is the current governmental climate a deterrent to fraud?

Question 7

Information technology & the digital environment play a role in fraud and computer crimes due to: (c.13) (1Q)

Answer 7

1. Increased use of information technology in business
2. Many businesses center on technology
3. Increased data use by financial statement auditors/forensic accountants
4. Increased exploitation of information technology by fraudsters & cybercriminals

Question 8

Corporate Governance must insure that: (c.13)

Answer 8

1. Electronic information feeding the financial reporting process is timely and accurate
2. Reasonable IT protections exist to support organizational viability and vitality