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Auditing A Risk Based Approach to Conducting a Quality Audit 10Th Edition By Johnstone Test Bank
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Auditing A Risk Based Approach to Conducting a Quality Audit 10Th Edition By Johnstone Test Bank
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WITH ANSWERS
Auditing A Risk Based Approach to Conducting a Quality Audit 10Th Edition By Johnstone Test Bank
chapter 2
1. The auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements.
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2. An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits.
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3. The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud.
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4. Auditors need to consider fraud arising from misappropriation of assets and fraudulent financial reporting.
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5. Fraud is an intentional act involving the use of deception that results in a material misstatement of the financial statements.
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6. An example of fraudulent financial reporting is the treasurers diversion of hundreds of thousands of dollars into a personal money market account.
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7. BruceCo. has accounted for the revenue of Jiffy Mac, Inc., one of its suppliers as though it were its subsidiary. BruceCo. has probably committed fraud because of its misapplication of consolidation principles.
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8. Consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act.
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9. The most important lesson to be learned from The Great Salad Oil Swindle is that auditors can commit fraud by falsely including inventory that does not exist.
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10. The onslaught of fraud in financial statements over the recent decade has been the first of its kind in history.
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11. The fraud triangle requires the auditor to actively consider and assess the risk of fraud for clients and their financial statements.
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12. Fraud detection procedures should only be performed for clients that have had fraud problems in the past.
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13. If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly.
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14. Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for all other engagements.
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15. According to professional audit standards, the audit team should assemble early in the planning stages of an audit to conduct a fraud brainstorming meeting in order to determine the types of fraud that may occur with the client.
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16. Rationalization is one element of the Fraud Triangle.
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17. Once the fraud assessment is complete in the planning stage, the auditor need not consider fraud further.
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18. Pressure upon management to manipulate financial information is a common characteristic in fraud cases.
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19. Management compensation that is tied to profits may create incentives to commit fraud.
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20. Management may feel pressure to maintain debt covenants, which is a deterrent to fraud.
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21. Audit procedures to detect fraud are generally an expansion of normal audit procedures.
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22. Complex transactions such as derivative instruments provide management certain opportunities to manipulate financial statements to its advantage.
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23. A board of directors that is actively involved in monitoring management mitigates opportunities to commit fraud.
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24. Rationalization involves the mindset of the fraudster to justify committing the fraud.
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25. The auditor should not consider that fraud is present in revenue accounts because revenue is not typically a very complex account.
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26. Management always uses journal entries to commit fraud because they are not reviewed by auditors.
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27. Auditors must keep a questioning mind when analyzing management responses to inquiry and auditors should strive to obtain corroborating evidence before accepting the management responses.
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28. The auditor must perform a brainstorming session with client management in order to plan the procedures to be performed.
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29. According to the PCAOB, the detection of material fraud is a reasonable expectation of users of audited financial statements.
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30. One fraud risk factor includes the presence of domineering members of management who seek the ultimate loyalty of subordinates.
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31. The audit team should develop its own ideas about how fraud may be performed by the client and then covered up.
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32. Audit tests do not relate to fraud testing because testing for fraud is conducted in a separate engagement.
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33. When the risk of fraud is high in financial statements, the auditor should assign less experienced auditors to the engagement.
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34. Various types of ways that fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing.
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35. When fraud risk is great in the organization under audit, procedures applied are likely to be more extensive.
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36. The Sarbanes-Oxley Act significantly enhanced criminal penalties for crimes involving the destruction or alteration of corporate audit records.
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37. During the time period of 1998 to 2007, the median size of public company perpetrating fraud rose tenfold to $100 million (as compared to the previous ten years).
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38. According to COSO studies, the majority of the frauds took place at companies that were listed on the Over-The-Counter (OTC) market, rather than those listed on the NYSE or NASDAQ.
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39. Auditors are responsible to fraud even if it has an immaterial effect on the financial statements.
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40. The landmark Enron fraud in the early 2000s involved the movement of significant debt off the books to related, unconsolidated entities.
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41. Successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.
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42. Transparency is a desirable, but not critical, element of effective corporate governance.
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43. The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud.
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44. According to the Sarbanes-Oxley Act, the audit committee must have at least 3 independent members..
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45. The auditor can be satisfied with less than persuasive evidence in the audit process because of the belief that management is honest.
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46. Professional skepticism involves such things as questioning and corroborating management responses to inquiries and determining the authenticity of documents.
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47. The objective of financial reporting is to provide useful information to interested users.
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48. Corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization.
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49. The audit committee is a subcommittee of the board of directors comprised of independent outside directors.
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50. Implementing an effective ethical environment is primarily the responsibility of the audit committee of the Board of Directors.
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51. Any major disagreement the auditor has with management should be discussed with the audit committee.
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52. Managers of organizations are hired by Boards of Directors to perform responsibilities such as the implementation of internal control.
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53. An audit must be performed by persons who can make sound judgments relating to complex accounting issues.
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54. The audit committee must be composed of outsiders such as the organizations attorney and audit partner.
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55. Management of companies should have the ability to hire and fire the external auditor.
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56. The audit committee should have the authority to hire and fire the external auditor.
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57. Formulating corporate strategy and risk management policy is primarily the responsibility of the Board of Directors.
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58. Audit committees of publicly traded companies must establish whistleblowing mechanisms within the company.
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59. Why is fraud detection an important part of the audit?
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60. One of the primary goals of the PCAOB is to restore confidence in which group?
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61. Which of the following represents the size of company that has historically committed fraudulent financial reporting or that has experienced asset misappropriation by its employees?
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62. What is the primary determinant in the difference between fraud and errors in financial statement reporting?
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| 63. Which of the following statements reflects an auditors responsibility for detecting fraud?
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64. Which of the following best represents fraud related to financial reporting?
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65. According to professional auditing standards, which of the following best represents a type of fraudulent financial reporting?
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66. What type of fraud occurs when the deposits of current investors are used to pay returns on the deposits of previous investors with no real investment happening?
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67. Which of the following actions was a key element of the Enron audit fraud?
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68. Which of the following is a stated principle of a NYSE report identifying key core governance principles?
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69. Which of the following is a specific corporate governance responsibility of Executive Management?
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