Acct 512 - CH 6

Information about criminal rackets, convicts and their operations, and reputations of local businesses can be found at the

Better Business Bureau.

Most fraud investigators utilize the fraud triangle theory. A new theory called the fraud diamond has been proposed. Which of the following is an element of the fraud diamond and is not an element of the fraud triangle?

Capability

An internal control questionnaire for evaluating the completeness objective of cash receipts would not include which of the following questions?

Does a responsible person approve discounts taken by customers with payments on account?

Which question would be inappropriate when asking questions of personnel during a regular audit?

In your department, exactly who has the potential for committing fraud?

An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate?

Inquiry and inspection of records.

Which of the following is ordinarily considered an "extended procedure" during the independent audit of financial statements?

Measure the time lag between the date of recording cash receipts in the books to the date of deposit credit in the bank.

Which of the following management policies would increase the probability of fraud in a company?

Measuring performance and awarding bonuses based on short-term operating results.

Which of the following would be consistent with an employee taking cash receipts from customers on account?

The total of the accounts receivable subsidiary ledger balances is less than the accounts receivable control account.

When auditing financial statements and finding indications of a possible misappropriation of assets, independent auditors should:

all of these. investigate fully to determine the total amount of the misappropriation. determine which accounts are affected and the amount by which they are overstated or understated. determine the methods by which the misappropriation was carried out. identify a person(s) who are likely responsible for the misappropriation and obtain evidence about some other fraud indications in their work.

An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the:

cutoff bank statement is reconciled.

The auditors' information source for vouching the bank reconciliation items is the

cutoff bank statement.

Each of the following is a type of known misstatement, except:

differences between management and the auditor's judgment regarding estimates.

A practice that would not encourage fraud would include

due consideration of pressure put on employees in the work place.

The characteristics of people who commit the largest frauds would not include

employees that hold positions with little or no authority.

To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the:

general ledger.

The mail which includes payments should be opened by two people. This control is called:

joint custody.

The standard format for an audit approach for fraud cases would not include

paper trail.

The probability of fraud is not a function of

predication

Your client is in the process of acquiring another company. You have been requested to verify that cash for the company being acquired is properly stated. The audit technique that will yield the most persuasive evidence is:

preparation and review of standard bank confirmation inquiries.

The assertions by management regarding the cash accounts in the financial statements include all of the following except

proper internal control activities exist for all cash accounts.

The phases of employee fraud does not include the

prosecution

When counting cash on hand the auditor must exercise simultaneous control over all cash and other negotiable assets to prevent:

replacement or substitution of stolen assets.

In the audit of cash the auditor obtains a bank cutoff statement primarily to:

test the propriety of items appearing on the client's year-end bank reconciliation.

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if:

the client does not take the remedial action that the auditor considers necessary.

An auditor is considering whether the omission of the confirmation of investments impairs the auditor's ability to support a previously expressed unmodified opinion. The auditor need not perform this omitted procedure if:

the results of alternative procedures that were performed compensate for the omission.