Ethics

When should auditors bring matters relating to fraud to the attention of the appropriate level of management? (Check all that apply). Multiple select question. If the audit committee fails to act on the notification of possible fraud After being informed of the possibility by the SEC After a minor misappropriation of assets is discovered Fraud may cause a material misstatement in the financial statements

After a minor misappropriation of assets is discovered Fraud may cause a material misstatement in the financial statements

As stated in the audit report, the auditors' responsibilities include: (Check all that apply). Multiple select question. An overview of judgments made and conclusions reached Prepare the statements Conduct an audit in accordance with GAAS An overview of how the audit was performed Express an opinion on the financial statements Express an opinion on the internal controls

An overview of judgments made and conclusions reached Conduct an audit in accordance with GAAS An overview of how the audit was performed Express an opinion on the financial statements

An auditor's ability to exercise professional skepticism depends on: (Check all that apply). Multiple select question. Approaching the audit with a questioning mind A critical assessment of audit evidence Persistent questioning of management The culture of the audit firm

Approaching the audit with a questioning mind A critical assessment of audit evidence

Auditor's should look for fraud by: (Check all that apply) Multiple select question. Assessing audit risk Being alert to red flags Evaluating the control environment Preparing the financial statements Examining internal controls Guaranteeing that the fraud will be detected

Assessing audit risk Being alert to red flags Evaluating the control environment Examining internal controls

How can a risk management culture be improved? (Check all that apply). Multiple select question. Commitment to integrity and ethical values Engage the external auditors to develop the systems Evaluating the culture of the organization Senior management and the board should adopt internal control procedures

Commitment to integrity and ethical values Senior management and the board should adopt internal control procedures

Which of the following are elements of the risk assessment done by auditors? (Check all that apply). Multiple select question. Communications with the predecessor auditor Contact the SEC about any violations Assessing the integrity of key management personnel Discuss with management why the previous auditors were fired Discuss with management any differences of opinion it had with the predecessor auditor on accounting issues

Communications with the predecessor auditor Assessing the integrity of key management personnel

What should be included in management representations? (Check all that apply). Multiple select question. Communications with the audit committee about internal control weaknesses Confirmation of providing auditor access to relevant information Disclosure of any deficiencies in internal controls Certifications sent to the SEC Affirmation that management has performed an assessment of the internal controls

Confirmation of providing auditor access to relevant information Disclosure of any deficiencies in internal controls Affirmation that management has performed an assessment of the internal controls

How does an auditor gather and objectively evaluate audit evidence? Multiple choice question. By assessing audit risk Consider competency and sufficiency of the evidence Consider whether internal control are effective Apply fieldwork standards

Consider competency and sufficiency of the evidence

Audit committee communications should address the following matters: (Check all that apply). Multiple select question. Critical accounting estimates Critical accounting policies and practices Significant accounting policies and practices Critical audit procedures followed Significant unusual transactions Significant changes that auditors made to the process used to develop critical accounting estimates

Critical accounting estimates Critical accounting policies and practices Significant accounting policies and practices Significant unusual transaction

Which of the following techniques can lead to fraudulent financial reporting? (Check all that apply). Multiple select question. Audits that lack independence Deception in the financial statements Misrepresentation of a material item in the statements Failure to obtain documents to verify the financial statement items Intentional misapplication of GAAP to statement items

Deception in the financial statements Misrepresentation of a material item in the statements Intentional misapplication of GAAP to statement items

For each Critical Audit Matter (CAM), the auditor should (select all that apply): Multiple select question. Describe how the CAM was addressed in the audit Identify the CAM Disclose which audit partner signed off on the CAM

Describe how the CAM was addressed in the audit Identify the CAM

What is the purpose of assessing audit risk and materiality? Multiple choice question. To draw a conclusion about the proper opinion to issue Determine nature, timing, and extent of auditing procedures Evaluate internal controls Evaluate independence issues

Determine nature, timing, and extent of auditing procedures

Due care requires Multiple choice question. An opinion whether the statements conform to GAAP An opinion whether such care has been exercised Diligence and competence Independence in mental attitude

Diligence and competence

The ethical standard that typically drives fraud is Multiple choice question. Justice Utilitarianism Egoism Enlightened egoism

Egoism

Internal controls can help to reduce fraud involving cash receipts by Multiple select question. Reporting fraud to to the board of directors Eliminating pressures to commit fraud Eliminating opportunities to commit fraud Segregating responsibilities

Eliminating opportunities to commit fraud Segregating responsibilities

What is the goal of the audit committee's evaluation of fraud risk and management's oversight responsibilities? (Check all that apply). Multiple select question. Meet SEC reporting requirements Support communications with the external auditor about fraud Ensure that management fulfills its responsibilities Serve as a deterrent to senior management engaging in fraud

Ensure that management fulfills its responsibilities Serve as a deterrent to senior management engaging in fraud

Misstatements can occur because of: (Check all that apply). Multiple select question. Errors or fraud Omission of financial statement information Incorrect estimates Misapplication of GAAP Audit procedures Audit assurance

Errors or fraud Omission of financial statement information Incorrect estimates Misapplication of GAAP

Misappropriation of assets can be reduced by: Multiple choice question. Reporting fraud to the auditors Creating ethical standards to prevent it Establishing internal controls to safeguard assets Eliminating the opportunity to commit fraud

Establishing internal controls to safeguard assets

Which estimates should be communicated to the audit committee in addition to critical accounting estimates? Multiple choice question. Estimates with a high degree of subjectivity Estimates that have been changed by management Estimates that were used by the auditor to form an opinion Estimates that create changes in accounting policies

Estimates with a high degree of subjectivity

Audit committee responsibilities for fraud risk assessment include: Multiple choice question. Report unresolved matters to the SEC Discuss fraud risk assessment with external auditors Consider any Dodd-Frank reporting responsibilities Evaluate management's identification of fraud risks

Evaluate management's identification of fraud risks

Audit procedures selected are designed to: (Check all that apply). Multiple select question. Evaluate the reasonableness of significant estimates Evaluate audit committee responsibilities Form an opinion on the statements Obtain evidential matter Satisfy risk assessment concerns Support auditor judgments

Evaluate the reasonableness of significant estimates Obtain evidential matter Satisfy risk assessment concerns Support auditor judgments

Which management attitudinal risk factors indicate fraudulent financial reporting may exist? (Check all that apply). Multiple select question. Excessive interest by management in increasing share prices and earnings Ignorance of securities regulations Management's unwillingness to correct significant problems with internal controls Lack of support or enforcement of entity ethical standards Financial management's participation in selecting accounting principles Committing to overly aggressive financial analysts' earnings estimates

Excessive interest by management in increasing share prices and earnings Management's unwillingness to correct significant problems with internal controls Lack of support or enforcement of entity ethical standards Committing to overly aggressive financial analysts' earnings estimates

How should an auditor meet a level of reasonable assurance? Multiple choice question. Assess whether the management audited the internal controls Ensure that the independence in fact standard has been met Exercise a level of care to avoid charges of negligence

Exercise a level of care to avoid charges of negligence

To meet the general responsibilities related to the quality of professionals who perform an audit, an auditor should: (Check all that apply). Multiple select question. Need not exercise any professional skepticism Exercise due care in the performance of the audit and preparation of the report Maintain independence in mental attitude Have adequate technical training and proficiency Take up the audits of only those businesses whose owners are personally known to the auditor

Exercise due care in the performance of the audit and preparation of the report Maintain independence in mental attitude Have adequate technical training and proficiency

Unmodified opinions can be given on the audit of the financial statements when Multiple choice question. Differences exist with management on GAAP issues Financial statements fairly present the financial position Management has met all of its responsibilities Auditor is unable to obtain sufficient appropriate evidence on which to base the opinion

Financial statements fairly present the financial position

The former CEO at Qwest Communications, Joseph Nacchio, often displayed which red flag in the fraud triangle? Multiple choice question. Had a poor attitude Had a gambling addiction Focused only on meeting revenue targets Purchased expensive homes in multiple countries

Focused only on meeting revenue targets

How did Michael Hudson, the former assistant treasurer at Frisch's Restaurant commit fraud? Multiple select question. Delayed the recording of expenses Forged vendor statements Recorded revenue for product that never shipped Programmed the company payroll computer to pay himself additional funds

Forged vendor statements Programmed the company payroll computer to pay himself additional funds

The expression of an opinion by the auditors is based on an audit in accordance with

GAAS

Emphasis of matter issues that might be addressed in the audit report include: (Check all that apply). Multiple select question. Going concern Outstanding litigation Subsequent events Compliance of statements with GAAP Internal controls

Going concern Outstanding litigation Subsequent events

Michael Hudson, the former assistant treasurer at Fricsh's Restaurant, exhibited which pressure that should have been a red flag in the fraud triangle? Multiple choice question. Had a poor attitude Purchased expensive cars Had a gambling problem Focused on stock price only

Had a gambling problem

Which of the following are included in the objectives of reporting? (Select all that apply) Multiple select question. Identify inconsistencies in application of accounting principles between current and prior period. Determine if the financial statements were prepared in accordance with GAAP. Adequately plan and supervise the audit work. Identify inadequate informative disclosures in the footnotes to the financial statements. Assess the risk of material misstatement of the financial statements.

Identify inconsistencies in application of accounting principles between current and prior period. Determine if the financial statements were prepared in accordance with GAAP. Identify inadequate informative disclosures in the footnotes to the financial statements.

Which financial or profitability risk factors might motivate fraud? (Check all that apply). Multiple select question. Unclear accounting or regulatory requirements Estimates and judgments are made in the financial statements Inability to generate cash flows Recurring operating losses

Inability to generate cash flows Recurring operating losses

Fraud includes: (Check all that apply). Multiple select question. Intentional material misstatements in the financial statements Accidental mistakes in the statement Unintended errors in the statements Misappropriation of assets

Intentional material misstatements in the financial statements Misappropriation of assets

Fraudulent financial reporting includes: (Check all that apply). Multiple select question. Intentional omissions of amounts from the statements Unintentional acts to deceive others Errors in the statements Intentional misstatements in the financial statements

Intentional omissions of amounts from the statements Intentional misstatements in the financial statements

Factors that might lead to fraud include: (Check all that apply). Multiple select question. Internal budget pressures Inefficient audits Inadequate knowledge of the rules Meet financial analysts' earnings projections Personal pressures Egoism

Internal budget pressures Meet financial analysts' earnings projections Personal pressures Egoism

Rationalizations given for fraud include: (Check all that apply). Multiple select question. It is a temporary fix Shareholders expect us to do it Aggressive accounting is acceptable Keep the stock price high Lack of internal controls

It is a temporary fix Aggressive accounting is acceptable Keep the stock price high

Auditors render an independent opinion on the financial statements prepared by Multiple choice question. Management The PCAOB The SEC The audit firm

Management

The responsibility for preventing and detecting fraud belongs to whom? Multiple choice question. The internal auditor The external auditor The IRS The AICPA Management

Management

Auditors can't guarantee that fraud will be detected because Multiple choice question. Auditors are not always independent of management Management may hide it from auditors Audits are not designed to detect fraud Management prepares the statements

Management may hide it from auditors

When should a qualified opinion be issued? (Check all that apply). Multiple select question. Auditor was unable to obtain sufficient appropriate evidence of undetected misstatements that could be both material and pervasive Misstatements in the financial statements are both material and pervasive Misstatements in the financial statements are material but not pervasive Modified opinion is appropriate Auditor was unable to obtain sufficient appropriate evidence, but the possible effects could be material but not pervasive

Misstatements in the financial statements are material but not pervasive Modified opinion is appropriate Auditor was unable to obtain sufficient appropriate evidence, but the possible effects could be material but not pervasive

What rationalization did Dennis Kozlowski use in the Tyco fraud? Multiple choice question. It was a one-time fix Aggressive accounting is acceptable My predecessors did it Shareholders sanction it

My predecessors did it

Which of the following are objectives when performing an integrated audit? (Select all that apply) Multiple select question. Obtain sufficient evidence to support auditor's opinion that immaterial errors have been detected. Obtain sufficient evidence to support auditor's guarantee that financial statements are free of material misstatements. Obtain sufficient evidence to support the auditor's control risk assessments for audit of financial statements. Obtain sufficient evidence to support the auditor's opinion on ICFR at year-end.

Obtain sufficient evidence to support the auditor's control risk assessments for audit of financial statements. Obtain sufficient evidence to support the auditor's opinion on ICFR at year-end.

What conditions generally exist when fraud occurs by management? (Check all that apply). Multiple select question. Opportunity to commit fraud Rationalizing the fraud act Pressure or incentive to commit fraud Failed audit Persistent operating losses

Opportunity to commit fraud Rationalizing the fraud act Pressure or incentive to commit fraud

How should an auditor consider audit risk and materiality? (Check all that apply). Multiple select question. Maintain professional skepticism during the audit Planning of the audit and designing audit procedures Prepare a report on internal controls Determine whether the statements are in conformity with GAAP Evaluate whether the financial statements present fairly financial results

Planning of the audit and designing audit procedures Determine whether the statements are in conformity with GAAP Evaluate whether the financial statements present fairly financial results

Pervasive effects on the financial statements require Multiple choice question. A disclaimer of opinion Professional judgment by the auditor An adverse opinion Withdrawal from the engagement

Professional judgment by the auditor

Falsification of financial statements and the failure an audit compromises Multiple choice question. Public trust of the auditor Audit independence Audits The expectation gap

Public trust of the auditor

The link between the ICFR and audit of financial statements is Multiple choice question. Audit reports do not have to include any references to ICFR The audit of ICFR should be integrated with the audit of financial statements Assessment of ICFR's is optional while audit opinions are required ICFR is only required when a modified opinion is given

The audit of ICFR should be integrated with the audit of financial statements

When should the auditor issue a modified opinion? (Select all that apply) Multiple select question. The auditor obtains evidence indicating the financial statements are materially misstated. The auditor finds an emphasis-of-matter situation that is fundamental to users' understanding of the financial statements. The auditor is unable to obtain sufficient evidence indicating the financial statements are free from material misstatement. The auditor finds litigation uncertainty that is appropriately disclosed in the financial statements.

The auditor obtains evidence indicating the financial statements are materially misstated. The auditor is unable to obtain sufficient evidence indicating the financial statements are free from material misstatement.

Which of the following are factors for disclosing Critical Audit Matters? Select all that apply. Multiple select question. The degree of auditor judgment related to areas in the financial statements The professional qualifications of the auditor to address the matters The auditor's assessment of the risk of material misstatement The nature an extent of audit effort required to address the matter

The degree of auditor judgment related to areas in the financial statements The auditor's assessment of the risk of material misstatement The nature an extent of audit effort required to address the matter

When should an auditor give a modified opinion? Multiple choice question. Statements were prepared by management The financial statements are materially misstated Statements present fairly financial position, results of operations, and cash flows There are no internal control concerns

The financial statements are materially misstated

The auditor should communicate asset misappropriations to Multiple choice question. The offending employee The SEC Those charged with governance Attorneys to determine legal obligations

Those charged with governance

Dennis Kozlowski's rationalization for committing fraud at Tyco was Multiple choice question. To keep up with the masters of the universe The auditors didn't care Because he could get away with it The board of directors approved it

To keep up with the masters of the universe

The financial statements and notes should be informative of matters that may affect: (Check all that apply). Multiple select question. User understandings The audit opinion Materiality Internal controls

User understandings The audit opinion

An example of a direct effect illegal act is: Multiple choice question. Violations of tax laws Errors committed in the statements Operational matters Violations of worker discrimination laws

Violations of tax laws

The auditor's responsibility to provide reasonable assurance about the financial statements can be described as: Multiple choice question. Eliminate all opportunities for fraud Ensure all fraud has been detected Whether communications with the audit committee are adequate Whether the statements are free of material misstatements

Whether the statements are free of material misstatements

The objectives of audit procedures and evidence quality standards include (select all that apply): Multiple select question. adequate planning of audit work adequate planning of financial statement preparation obtaining sufficient understanding of internal controls gathering sufficient evidence

adequate planning of audit work obtaining sufficient understanding of internal controls gathering sufficient evidence

The unintentional omission of a material amount in financial statements is referred to as Multiple choice question. a restatement. fraud. an error. an illegal act.

an error.

What is the purpose of the auditor's assessment of the control environment? (Check all that apply). Multiple select question. assess whether management's operating style is effective Support the independent auditor's opinion assess whether top management ethical values are understood

assess whether management's operating style is effective assess whether top management ethical values are understood

Auditors render an _____________opinion on the conformity of the financial statements with _______________________.

audit GAAP

The Tyco Board of Directors violated the corporate governance system by: (Select all that apply) Multiple select question. borrowing money from the company. overseeing Tyco's system of internal controls. maintaining independence from the audit committee. doing business with the company. not disclosing related-party relationships.

borrowing money from the company. doing business with the company. not disclosing related-party relationships.

Audit committee communications should include critical accounting policies and practices and critical accounting

estimates

An auditor's responsibility for detecting illegal acts that have a direct and material effect in the statements is __________________ than responsibility to detect indirect effect items. (Enter one word per blank)

greater

The objectives of reporting is to Multiple choice question. guide auditors in rendering the audit report. assess the qualities of the auditor. decide on the opinion to be issued. assess the quality of internal control.

guide auditors in rendering the audit report.

Fraud always entails a(n)______ decision

intentional

Reasonable assurance in an audit Multiple choice question. guarantees management has implemented proper internal controls over financial reporting. guarantees that the financial statements are free of material misstatement. is not an absolute guarantee that the financial statements are free of material misstatement.

is not an absolute guarantee that the financial statements are free of material misstatement.

When the auditor is unable to obtain sufficient audit evidence to conclude the financial statements are free of material misstatement, the auditor should Multiple choice question. issue an unqualified opinion. issue a modified opinion. issue an unmodified opinion. include an emphasis-of-matter paragraph.

issue a modified opinion.

In the Qwest Communications Case, the fraud was caused by management's Multiple choice question. pressure on employees to meet earnings targets failure to follow GAAS lack of professional competence deflating expense amounts

pressure on employees to meet earnings targets

The degree of responsibility that the auditor is taking with respect to the opinion they issue on the financial statements is determined by the objectives of ______

reporting

To ensure that the statements are fairly presented, the financial reporting framework: (Check all that apply). Multiple select question. is based on materiality standards. requires compliance with relevant laws or regulations. acknowledges management's responsibility for the statements. is used to determine measurement and recognition of material items in financial statements.

requires compliance with relevant laws or regulations. is used to determine measurement and recognition of material items in financial statements.

Discussions with predecessor auditors about accounting and financial reporting differences with management are part of ____________ _________________

risk assessment

The auditor's assessment of fair presentation includes whether the: (Check all that apply). Multiple select question. statements reflect transactions and events within reasonable limits. accounting principles are appropriate even if they lack general acceptance. statements and notes are informative of matters that may affect user understanding of the statements. detailed information in the statements is properly disclosed. accounting principles used comply with GAAP.

statements reflect transactions and events within reasonable limits. statements and notes are informative of matters that may affect user understanding of the statements. accounting principles used comply with GAAP.

SOX Section 302 require Multiple choice question. Management has communicated with the auditors about financial statement deficiencies the CFO and CEO of a public company to certify the financial statements Violations of SOX have been reported to the SEC COSO internal control requirements have been met

the CFO and CEO of a public company to certify the financial statements

True or false: The auditor's assessment of fair presentation depends on whether the information presented in the statements is classified and summarized in a reasonable manner. True false question.TrueFalse

true

An error is due to a(n) _____ misstatement or omission in the financial statements. Multiple choice question. intentional unintentional material

unintentional