chap 10 corporate governance oversight to reduce fraud risks

Question 1

what might the auditor consider when evaluating the effectiveness of the audit committee ? (2)

Answer 1

1. the audit committees independence from management 2. the level of understanding between management and the audit committee regarding the committees responsibilities

Question 2

most companies require employees to periodically confirm their responsibilities for complying with the code of conduct. employees are asked to state what 3 things?

Answer 2

1. they understand the company’s expectations 2. they have complied with the code 3. they are unaware of any violations

Question 3

what are 2 policies to make sure you hire and promote appropriate employees so you can reduce the likelihood of fraud?

Answer 3

background checks continous evaluation of employee compliance with company values and code of conduct

Question 4

guidance by the AICPA identifies what 3 elements to prevent, deter, and detect fraud?

Answer 4

1. culture of honesty and high ethics 2. mangments responsibility to evaluate risks of fraud 3. auditt committee oversight

Question 5

what is the most effective way to prevent and deter fraud?

Answer 5

implement antifraud programs and controls that are based on core values embraced by the company

Question 6

how do internal auditors assist in deterring fraud?

Answer 6

by examining and evaluating internal controls that reduce fraud risk

Question 7

how does managment mitigate fraud risks? (2)

Answer 7

1. by designing and implemenbting programs and controls to mitigate them 2. by changing business activities and processes prone to fraud to reduce incentives and opportunites for fraud

Question 8

for high fraud risk areas, management should periodically evaluate what?

Answer 8

whether approprate anitfraued programs and controls have ben implemented and are operating effectively

Question 9

what training regarding ethical conduct should be provided to help reduce fraud? (2)

Answer 9

1.employees should be told of theri duty to communicate actual or suspected fraud and the appropriate way to do so 2. fraud awareness training should be tailored to employees specific job responsibilities

Question 10

management is resposible for implementing what to minimize the risk of fraud?(2)

Answer 10

1. corporate governance 2. control procedures

Question 11

who is responsible for setting the tone at the top for ethical behavior in the company (2)

Answer 11

management board of directors

Question 12

fraud awareness training should be tailored to employees what?

Answer 12

specific job responsibilities

Question 13

what 4 things do the audit committee do to fulfill their responsiblity for overseeing the financial reporting and internal control processes of the organization?

Answer 13

1. consider the potential for managment override of internal controls 2. oversees managments fraued risk assessment process 3. oversees managments anifraud programs and controls 4. assists in creating effective tone at the top by reinforcing manaements zero tolerance policy for fraud

Question 14

what are things the audit commitee may do to increase the likelyhood that any attempt by senior managment to involve employees in committing or concealng fraud is promptly disclosed?

Answer 14

1. direct reporting of key findings by internal auditors to the audit committee 2. periodic reports by ethics officers about whistleblowing 3. other reports about lack of ethical behavior or suspected fraud

Question 15

audit commitee oversight serves as a deterrent to fraud by who?

Answer 15

senior managment

Question 16

effective fraud oversight begins with managments recognition of what 2 facts?

Answer 16

1. fraud is possible 2. almost any employee is capable of committing a dishonest act under the right circumstances

Question 17

what are the 6 elements for creating a culture of honesty and high ethics ?

Answer 17

1. setting the tone at the top 2. creating a positive workplace environment 3. hiring and promoting appropriate employees 4. training 5. confirmation- confirm responsibilities for complying with the code of conduct 6. discipline

Question 18

how do internal auditors assis in detecting fraud?

Answer 18

by performing audit procedures that may uncover fraudulent fiancial reporting and misappropriation of assets

Question 19

how can managment deter fraud ?

Answer 19

by communicating fraud detection and punishment policies

Question 20

how can management prevent fraud by implementing antifraud programs and controls?

Answer 20

these programs and controls reduce opportunities to commit fraud

Question 21

why is it more effective and economical for companies to focus on fraud prevention and deterrence as opposed to fraud detection?

Answer 21

becasue collusion and false documentation make detection of fraud a challenge

Question 22

the audit committee has primary responsibility to oeversee what (2)?

Answer 22

1. the organizations financial reporting 2. internal control processess

Question 23

PCAOB standards note that ineffective oversight by the audit committee may be a strong indicator of what?

Answer 23

a material weakness in internal control over financial reporting

Question 24

the audit commitee is a subcommittee of what?

Answer 24

the board of directors

Question 25

internal audit activities can both ____ and _____ fraud

Answer 25

deter and detect

Question 26

what do PCAOB standards require the auditor of a public company to evaulate as part of their evaluation of the operating effectivness of internal control over financial reporting in relation to the audit committee?

Answer 26

evaluate the effectiveness of the board and audit committee

Question 27

management ressponsibility to evaluate risks of fraud include doing what 3 things?

Answer 27

1. identifying and measuring fraud risks 2. taking steps to mitigate identified risk 3. monitoring internal controls that prevent and detect fraud

Question 28

what provides more specific guidance about permitted and prohibitied behavior in a company?

Answer 28

the code of conduct

Question 29

management can minimize the risk of fraud, which can be reduced through a combination of what 3 measures?

Answer 29

1. prevention 2. deterrence 3. detection

Question 30

who is ultimately accountable for mitigating the risk of fraud?

Answer 30

the audit committee