AUD 3.1 - Fraud Risk

Question 1

An unintentional misstatement or omission

Answer 1

Error

Question 2

An intentional act by one or more people involving the use of deception that results in a misstatement of the financials

Answer 2

Fraud

Question 3

Three types of fraud:

Answer 3

Fraudulent financial reporting
Misappropriation of assets
Corruption

Question 4

Intentional misstatements or omissions of amounts or disclosures in the financial statements that are designed to deceive financial statement users

Answer 4

Fraudulent financial reporting

Question 5

Theft of an entity’s assets when the effect of the theft causes the financial statements to not be presented in conformity with GAAP

Answer 5

Misappropriation of assets

Question 6

Cheating, bribing a government official, or other illegal acts of hiring or dumping

Answer 6

Corruption

Question 7

What are the three fraud risk factors present when fraud occurs:

Answer 7

Incentives/pressures
Opportunity
Rationalization/attitude

Question 8

Who is responsible for designing and implementing programs and controls to prevent or deter and detect fraud

Answer 8

Management

Question 9

Is a discussion of the potential for material misstatement as the result of fraud required as part of planning?

Answer 9

YES

Question 10

Who should the audit team direct inquiries to regarding their view on fraud?

Answer 10

Management, employees, internal auditors, legal counsel, and those charged with governance

Question 11

Analytical procedures are required during what two phases of the audit?

Answer 11

Planning and final review

Question 12

What four attributes should be considered when analyzing risk?

Answer 12

Type of risk
Significance of risk
Likelihood of the risk
Pervasiveness of the risk

Question 13

There are presumptions in every audit that the following two risks exist:

Answer 13

Improper revenue recognition
Management override of controls

Question 14

Items are more susceptible to manipulation when they involve:

Answer 14

High degree of management judgement
Highly complex accounting principles

Question 15

What might increase the fraud risk assessment?

Answer 15

An identified control deficiency

Question 16

What are the three levels an auditor is required to respond to the results of the fraud risk assessment on?

Answer 16

Overall general response
Response encompassing specific audit procedures
Response addressing risks related to management override

Question 17

In the overall, general response of the fraud risk assessment, the auditor should consider:

Answer 17

Assigning personnel
Appropriate level of supervision needed
Evaluate managements selection and application of accounting principles
Incorporate an appropriate level of unpredictability in the selection of audit procedures

Question 18

In the response encompassing specific audit procedures of the fraud risk assessment, the auditor should respond to:

Answer 18

Specifically identified fraud risks by altering the nature, extent, or timing of audit procedures.

Question 19

In responding the the fraud risk assessment, is test of controls sufficient?

Answer 19

No, due to the risk of management override of controls

Question 20

In the responding to risks related to management override of the fraud risk assessment, the auditor should:

Answer 20

Examine journal entries and other adjustments
Review accounting estimates for bias
Evaluate the business purpose for significant unusual transactions

Question 21

Fraud that causes a material misstatement of the financial statements should be discussed with?

Answer 21

Senior management and reported directly to those charged with governance

Question 22

Any fraud involving senior management, regardless of the effect on the financial statements, should be reported to?

Answer 22

Directly to those charged with governance

Question 23

Documentation of the auditors fraud risk assessment and response is required?

Answer 23

YES