chap 10 responsibilities when fraud is suspected and documenting the fraud assessment

Question 1

risk of fraud is oten high for accounts that are based on what?

Answer 1

managments subjective estimation

Question 2

what 7 matters do auditing standards required the auditors to document in relation to the auditors consideration of material misstatments due to fraud?

Answer 2

1. significant decisions made during discussion among the engagement team in planning the audit about the susceptibility of the entitys FSs to material fraud, including how and when the discussion occurred and who participated 2. procedures performed to obtain info necessary to identify and assess the risks of material fraud 3. specific risks of material fraud that were identified at both the overall FS level and the assertion level and a description of the auditors responses to those risks 4. reasons supporting a conclusion that there is not a significant risk of material imporoper revenue recognition 5. other conditions and analytical relationships indicating that additional auditing procedures or other responses were required, and the actions taken by the auditor in response 6. results of the procedures performed to address the risk of managment override of controls 7. the nature of communications about fraud made to management, the audit committee , or others

Question 3

software tols can be used to search for fictitious revenue transactions by searching for what 2 things?

Answer 3

1. duplicate sales invoice numbers 2. reconciling databases of sales invoices to databases of shipp[ing records to ensure all sales are supported by evidence of shipping

Question 4

T/F auditors may expand other substantive procedures to address hieghted risks of fraud

Answer 4

T

Question 5

if fraud by senior management is a material weakness, the auditors report on internal control over financial reporting with contain what kind of opinion

Answer 5

adverse

Question 6

T/F auditing standards require the auditor to consider the implications of things that may not be significant to the auditor for other aspects of the audit

Answer 6

T

Question 7

what is assessment inquiry?

Answer 7

used to corroborate or contradict prior info.

Question 8

which kind of inquiry is used to obtain info about facts and details that the auditor does not have , usually about past or current events or processes?

Answer 8

informational inquiry

Question 9

what is informational inquiry?

Answer 9

used to obtain info about facts and details that the auditor does not have , usually about past or current events or processes

Question 10

auditors often use informational inquiry when gathering follow up evidence about what?(2)

Answer 10

1. programs and controls 2. other evidence involving a misstatement or suspected fraud uncovered during the audit

Question 11

what kind of inquiry is often used to determine if the individual is being deceptive or purposefully omitting disclosure of key knowledge of facts, events, or circumstances

Answer 11

interrogative inquiry

Question 12

PCAOB auditing standards state that fraud of any magnitude by who may have importanct implications for the auditors opinion on internal control over fianncial reporting ?

Answer 12

senior managment

Question 13

auditors can most effectively use infomational inquiry by posing whatkind of questions?

Answer 13

open ended questions about details of events, processes, or circumstances

Question 14

what are 2 problems with an auditor disclosing the possible fraud to parties other than senior management and its audit committee?

Answer 14

`1. it is prevented by the auditors professional code of conduct 2. it may violate legal obligations of confidentiality

Question 15

T/F the disclosure of possible fraud to parties other than the clients senior management and its audit committee is part of the auditors responsibility

Answer 15

F not ordinarily

Question 16

external auditors detect a small % of frauds but are more likely to do so when ?

Answer 16

it materially affects the FSs

Question 17

who does the auditor need to speak to if she believes that senior managment may be involved in the fraud?

Answer 17

the audit committeed

Question 18

interviewing allows the auditor to do what3 things>

Answer 18

1. clarify unobservable issues 2. observe the respondents verbal and nonverbal responses 3. identify issues omitted from the documentation or confirmations

Question 19

auditors often use what 2 kinds of audit software to determine whether fraud may exist

Answer 19

1. ACL 2. IDEA

Question 20

the auditor often starts assessment inquiry with what kind of questions?

Answer 20

broad, open ended questions that allow the interviewee to provide detailed responses that can later be followed up with more specific questions

Question 21

what kind of inquiry is used to corroborate or contradict prior info.?

Answer 21

assessment inquiry

Question 22

when fraud is suspected, the auditor gathers additional info to

Answer 22

determine whether fraud actually exists

Question 23

the auditor should stay attentive by doing what 3 things?

Answer 23

1. maintaining eye contact 2. nodding in agreement 3. demonstrating other signs of comprehension

Question 24

when it is determined that fraud may be present, the auditor is required to discuss the matter and audit approach for further investigation with who?

Answer 24

the level of managment that is at least one level above those involved as well as senior managment and the audit committee

Question 25

the key to oberving behavioral cues is to identify when the individuals behavior begins to what?

Answer 25

change from her normal behavior

Question 26

when auditing the FSs of a public company, the auditor should consider what deficiences when auditing internal controls over financial reporting?

Answer 26

deficiences in managments antifraud programs and controls that fail to mitigate the risk of fraud in the FSs

Question 27

interrogative interviewing should tyupically be done by who from the audit team?

Answer 27

senior members who are experienced and knowledgeable about the clients affairs

Question 28

if the results of the auditors procedures indicate a significant risk of material misstatment due to fraud, the auditor should consider what?

Answer 28

withdrawing from the engagement

Question 29

what 2 things strenthen the auditors inquiry techniques and helps her apply professional skepticism?

Answer 29

1. good listening techniques 2. observation of behavioral clues

Question 30

when using interogative inquiry, the auditor often asks what kind of questions?

Answer 30

specific directed questions that see either a yes or no response

Question 31

what are 3 categories of inquiry?

Answer 31

1. informational 2. assessment 3. interrogative

Question 32

for inquiry to be effective, the auditor needs to be skilled at what? (2)

Answer 32

1. listening 2. evaluating responses to questions

Question 33

why is it important for the autiro to be skilled at listening and evaluating responses to questions?

Answer 33

the interviewees initial response will typically omit useful info so effective follow up questions are needed and often lead to better info to assess whether fraud exists

Question 34

what is interrogative inquiry?

Answer 34

often used to determine if the individual is being deceptive or purposefully omitting disclosure of key knowledge of facts, events, or circumstances

Question 35

auditors use basic spreadsheet tools like excel to do what?

Answer 35

perform analytical procedures at disaggregated levels

Question 36

auditors should attempt to avoid what about the info being provided?

Answer 36

preconceived ideas

Question 37

withdrawing from the engagment because of significant risk of material misstatment due to fraud may depend on what 2 things?

Answer 37

1. managments integrity 2. the diligence and cooperation of manaqgment and the Board in investigating the potential fraud and taking appropriate action

Question 38

auditors in response to heightened risks that management used inappropriate assumptions to estimate account balances may do what?

Answer 38

use specialist to assist in evaluating the accuracy and reasonableness of key assumptions

Question 39

when gathering additional info to determine whether fraud exists, the audit often begins by doing what?

Answer 39

making additional inquires of managment and others

Question 40

it is critical for the auditor to use effective listening skills throughout the inquiry process to maintain a what?

Answer 40

questioning mindset

Question 41

frauds are often detected in what 4 ways from most to least?

Answer 41

1. tip 2. management review 3. internal audit 4. by accident

Question 42

one common use of assessment inquiry is to corroborate management responses to earlier inquires by doing what?

Answer 42

asking questions of other employees

Question 43

good listeners take advantage of silence to do what 2 things?

Answer 43

1. think about the info provided 2. prioritize and review info heard