AUD 2 - Chapter 17 Practice Q's Flashcards
Which of the following is characteristic of management fraud?
A. Falsification of documents in order to steal money from an employer
B. Victimization of investors through the use of materially misleading financial statements
C. Illegal acts committed by management to evade laws and regulations
D. Conversion of stolen inventory to cash deposited in a falsified bank account
Which of the following is characteristic of management fraud?
A. Falsification of documents in order to steal money from an employer
*B. Victimization of investors through the use of materially misleading financial statements
C. Illegal acts committed by management to evade laws and regulations
D. Conversion of stolen inventory to cash deposited in a falsified bank account
Management fraud is victimization of investors through the use of materially misleading financial statements
CICA auditing standards do not require auditors of financial statements to:
A. Understand the nature of errors and irregularities
B. Assess the risk of occurrence of errors and irregularities
C. Design audits to provide reasonable assurance of detecting errors and irregularities
D. Report all finding of errors and irregularities to police authorities
CICA auditing standards do not require auditors of financial statements to:
A. Understand the nature of errors and irregularities
B. Assess the risk of occurrence of errors and irregularities
C. Design audits to provide reasonable assurance of detecting errors and irregularities
*D. Report all finding of errors and irregularities to police authorities
Independent auditors are not required to report all findings of errors and irregularities to police
Which of the following auditors have the highest expectations in their audit standards regarding the detection of fraud:
A. External auditors of financial statements
B. government auditors of financial statements, programs, activities, and functions
C. Internal auditors employed by companies
D. Management advisory consultants engaged to design a company’s information system
Which of the following auditors have the highest expectations in their audit standards regarding the detection of fraud:
A. External auditors of financial statements
B. government auditors of financial statements, programs, activities, and functions
C. Internal auditors employed by companies
D. Management advisory consultants engaged to design a company’s information system
Government auditors are expected to find more
Which 2 of the following characterize the work of fraud examiners and are different from the typical attitude of external auditors?
A. Analysis of control weaknesses for opportunities to commit fraud
B. Analysis of control strengths as a basis for planning other audit procedures
C. Determination of a materiality amount that represents a significant misstatement of the current-year financial statements
D. Thinking of materiality as a cumulative amount - that is, growing over a number of years
Which 2 of the following characterize the work of fraud examiners and are different from the typical attitude of external auditors?
*A. Analysis of control weaknesses for opportunities to commit fraud
B. Analysis of control strengths as a basis for planning other audit procedures
C. Determination of a materiality amount that represents a significant misstatement of the current-year financial statements
D. Thinking of materiality as a cumulative amount - that is, growing over a number of years
Analysis of control weaknesses for opportunities to commit fraud characterizes fraud examiners’ work
When auditing with “fraud awareness,” auditors should
especially notice and follow up employee activities under
which of these conditions?
a. The company always estimates the inventory but
never takes a complete physical count.
b. The petty cash box is always locked in the desk of the
custodian.
c. Management has published a company code of
ethics and sends frequent communication newsletters
about it.
d. The board of directors reviews and approves all
investment transactions.
When auditing with “fraud awareness,” auditors should
especially notice and follow up employee activities under
which of these conditions?
*a. The company always estimates the inventory but
never takes a complete physical count.
b. The petty cash box is always locked in the desk of the
custodian.
c. Management has published a company code of
ethics and sends frequent communication newsletters
about it.
d. The board of directors reviews and approves all
investment transactions.
Risk is high when the company always estimates the inventory but never take a complete physical count.
Which is the best way to enact a broad fraud-prevention
program?
a. Install airtight control systems of checks and supervision.
b. Name an “ethics offi cer” who is responsible for
receiving and acting upon fraud tips.
c. Place dedicated “hot line” telephones on walls around
the workplace with direct communication to the
company ethics offi cer.
d. Practise management “of the people and for the people”
to help them share personal and professional problems
Which is the best way to enact a broad fraud-prevention
program?
a. Install airtight control systems of checks and supervision.
b. Name an “ethics offi cer” who is responsible for
receiving and acting upon fraud tips.
c. Place dedicated “hot line” telephones on walls around
the workplace with direct communication to the
company ethics offi cer.
*d. Practise management “of the people and for the people”
to help them share personal and professional problems
Practice management “of the people and for the people” to help them share personal and professional problems is the best long-run way to stop fraud
Which of the following gives the least indication of
fraudulent activity?
a. Numerous cash refunds have been made to different
people at the same post offi ce box address.
b. Internal auditor cannot locate several credit memos to
support reductions of customers’ balances.
c. Bank reconciliation has no outstanding cheques or
deposits older than 15 days.
d. Three people were absent the day the auditors handed
out the paycheques and have not picked them up four
weeks later.
Which of the following gives the least indication of
fraudulent activity?
a. Numerous cash refunds have been made to different
people at the same post offi ce box address.
b. Internal auditor cannot locate several credit memos to
support reductions of customers’ balances.
*c. Bank reconciliation has no outstanding cheques or
deposits older than 15 days.
d. Three people were absent the day the auditors handed
out the paycheques and have not picked them up four
weeks later.
Bank reconciliation has no outstanding checks or deposits older than 15 days is a sign of a good bank reconciliation, a fraud detection technique
Which of the following combinations is a good means of
hiding employee fraud but a poor means of carrying out
management (fi nancial reporting) fraud?
a. Overstating sales revenue and overstating customer
accounts receivable balances
b. Overstating sales revenue and overstating bad debt
expense
c. Understating interest expense and understating accrued
interest payable
d. Omit the disclosure information about related party sales
to the president’s relatives at below-market prices
Which of the following combinations is a good means of
hiding employee fraud but a poor means of carrying out
management (fi nancial reporting) fraud?
a. Overstating sales revenue and overstating customer
accounts receivable balances
*b. Overstating sales revenue and overstating bad debt
expense
c. Understating interest expense and understating accrued
interest payable
d. Omit the disclosure information about related party sales
to the president’s relatives at below-market prices
Overstating sales revenue and overstating bad debt expense does not misstate income or assets but will hide an employee embezzlement.
Which of these arrangements of duties could most likely
lead to an embezzlement or theft?
a. Inventory warehouse manager has responsibility for
making the physical inventory observation and reconciling
discrepancies to the perpetual inventory records.
b. Cashier prepared the bank deposit, endorsed the
cheques with a company stamp, and took the cash
and cheques to the bank for deposit (no other bookkeeping
duties).
c. Accounts receivable clerk received a list of payments
received by the cashier so that he could make entries
in the customers’ accounts receivable subsidiary
accounts.
d. Financial vice-president received cheques made out
to suppliers and the supporting invoices, signed the
cheques, and put them in the mail to the payees
Which of these arrangements of duties could most likely
lead to an embezzlement or theft?
*a. Inventory warehouse manager has responsibility for
making the physical inventory observation and reconciling
discrepancies to the perpetual inventory records.
b. Cashier prepared the bank deposit, endorsed the
cheques with a company stamp, and took the cash
and cheques to the bank for deposit (no other bookkeeping
duties).
c. Accounts receivable clerk received a list of payments
received by the cashier so that he could make entries
in the customers’ accounts receivable subsidiary
accounts.
d. Financial vice-president received cheques made out
to suppliers and the supporting invoices, signed the
cheques, and put them in the mail to the payees
The inventory warehouse manager can steal inventory and manipulate the records
If sales and income were overstated by recording a false
credit sale at the end of the year, in which account could
you fi nd the false “dangling debit?”
a. Inventory
b. Cost of goods sold
c. Bad debt expense
d. Accounts receivable
If sales and income were overstated by recording a false
credit sale at the end of the year, in which account could
you fi nd the false “dangling debit?”
a. Inventory
b. Cost of goods sold
c. Bad debt expense
*d. Accounts receivable
Which of these is an invalid social insurance number?
a. 462 003 335
b. 473 09 7787
c. 506 98 5529
d. 700 051 135
Which of these is an invalid social insurance number?
- a. 462 003 335
b. 473 09 7787
c. 506 98 5529
d. 700 051 135
462-003-358 no consecutive zeros issued
Records from which of the following sources could be
used to fi nd the owner of an offi ce building?
a. Ministry of Industry and Trade export/import licence
fi les
b. Transport Canada records
c. City and county tax assessor-collector fi les
d. Securities commission filings
Records from which of the following sources could be
used to fi nd the owner of an offi ce building?
a. Ministry of Industry and Trade export/import licence
fi les
b. Transport Canada records
*c. City and county tax assessor-collector fi les
d. Securities commission filings
Real estate owners are in the city and county tax assessor-collector files
Where has experience shown that most accounting errors
requiring adjustment can be found?
a. Systematic processing of large volumes of day-to-day
ordinary transactions
b. Payroll fraudsters’ mistakes in using unissued social
insurance numbers
c. Petty cash embezzlements
d. Nonroutine, nonsystematic journal entries
Where has experience shown that most accounting errors
requiring adjustment can be found?
a. Systematic processing of large volumes of day-to-day
ordinary transactions
b. Payroll fraudsters’ mistakes in using unissued social
insurance numbers
c. Petty cash embezzlements
*d. Nonroutine, nonsystematic journal entries
Nonroutine, nonsystematic journal entries appear to produce the most accounting errors requiring adjustment
Which of these is known as the fi nancial analysis that
expresses balance sheet accounts as percentages of total
assets?
a. Horizontal analysis
b. Vertical analysis
c. Net worth analysis
d. Expenditure analysis
Which of these is known as the fi nancial analysis that
expresses balance sheet accounts as percentages of total
assets?
a. Horizontal analysis
*b. Vertical analysis
c. Net worth analysis
d. Expenditure analysis
Vertical analysis expresses balance sheet accounts as percentages of total assets
