capitulo 5 estica
Which of the following are included in the objectives of reporting?
Identify inadequate informative disclosures in the footnotes to the financial statements. Determine if the financial statements were prepared in accordance with GAAP. Identify inconsistencies in application of accounting principles between current and prior period.
Rationalizations given for fraud include:
It is a temporary fix Keep the stock price high Aggressive accounting is acceptable
What rationalization did Dennis Kozlowski use in the Tyco fraud?
My predecessors did it
Emphasis of matter issues that might be addressed in the audit report include:
Outstanding litigation Going concern Subsequent events
When should the auditor issue a modified opinion?
The auditor is unable to obtain sufficient evidence indicating the financial statements are free from material misstatement. The auditor obtains evidence indicating the financial statements are materially misstated.
What is the purpose of the auditor's assessment of the control environment?
assess whether management's operating style is effective assess whether top management ethical values are understood
The disconnect between the actual role of the external auditor in detecting fraud and the public expectation of the external auditor to detect fraud is referred to as the ____________ _________________
expectation gap Blank 1: expectations or expectation Blank 2: gap
True or false: Auditors should only communicate material fraud to those charged with governance
false
In the Medicis Pharmaceutical Case, the deficiencies in EY's audit were caused by
over reliance on management representations failure to follow GAAS
In the Qwest Communications Case, the fraud was caused by management's
pressure on employees to meet earnings targets
The Medicis Pharmaceutical Case is a good example of an audit failure caused by a lack of
professional skepticism due care
Auditors are responsible for: (Select all that apply)
reporting material errors to the audit committee. detecting material errors in the financial statements.
The auditor's assessment of fair presentation includes whether the:
statements and notes are informative of matters that may affect user understanding of the statements. accounting principles used comply with GAAP. statements reflect transactions and events within reasonable limits.
SOX Section 302 require
the CFO and CEO of a public company to certify the financial statements
An auditor's ability to exercise professional skepticism depends on:
A critical assessment of audit evidence Approaching the audit with a questioning mind
Which management attitudinal risk factors indicate fraudulent financial reporting may exist?
A practice by management of committing to analysts, creditors, and other third parties to achieve aggressive or unrealistic forecasts. Management failing to correct known significant deficiencies or material weaknesses in internal control on a timely basis.
As part of its oversight mission, the PCAOB aims to improve the quality of U.S. public company audits by evaluating auditors' assessment of companies'_______________ , as required by SOX.
Blank 1: ICFR
Fraud always entails a(n) _____decision. (Enter one word per blank)
Blank 1: deliberate or intentional
Audit committee communications should include critical accounting policies and practices and critical accounting ________
Blank 1: estimates
The appropriateness of estimates in the financial statements depends on _________________ ___________________________
Blank 1: management, management's, or professional Blank 2: judgments, judgment, judgements, or judgement
Discussions with predecessor auditors about accounting and financial reporting differences with management are part of__________ ____________.
Blank 1: risk Blank 2: assessment
How can a risk management culture be improved?
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?
Communications with the predecessor auditor Assessing the integrity of key management personnel
What should be included in management representations?
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
For each Critical Audit Matter (CAM), the auditor should (select all that apply)
Describe how the CAM was addressed in the audit Identify the CAM
What is the purpose of assessing audit risk and materiality?
Determine nature, timing, and extent of auditing procedures
Due care requires
Diligence and competence
The ethical standard that typically drives fraud is
Egoism
Internal controls can help to reduce fraud involving cash receipts by
Eliminating opportunities to commit fraud Segregating responsibilities
Misappropriation of assets can be reduced by:
Establishing internal controls to safeguard assets
Which estimates should be communicated to the audit committee in addition to critical accounting estimates?
Estimates with a high degree of subjectivity
Audit committee responsibilities for fraud risk assessment include:
Evaluate management's identification of fraud risks
How should an auditor meet a level of reasonable assurance?
Exercise a level of care to avoid charges of negligence
As stated in the audit report, the auditors' responsibilities include:
Express an opinion on the financial statements Conduct an audit in accordance with GAAS An overview of judgments made and conclusions reached An overview of how the audit was performed
The former CEO at Qwest Communications, Joseph Nacchio, often displayed which red flag in the fraud triangle?
Focused only on meeting revenue targets
How did Michael Hudson, the former assistant treasurer at Frisch's Restaurant commit fraud?
Forged vendor statements Programmed the company payroll computer to pay himself additional funds
When should auditors bring matters relating to fraud to the attention of the appropriate level of management?
Fraud may cause a material misstatement in the financial statements After a minor misappropriation of assets is discovered
Michael Hudson, the former assistant treasurer at Fricsh's Restaurant, exhibited which pressure that should have been a red flag in the fraud triangle?
Had a gambling problem
To meet the general responsibilities related to the quality of professionals who perform an audit, an auditor should:
Have adequate technical training and proficiency Maintain independence in mental attitude Exercise due care in the performance of the audit and preparation of the report
Which financial or profitability risk factors might motivate fraud? (Check all that apply).
Inability to generate cash flows Recurring operating losses
Rationalizations given for fraud include: (Check all that apply).
Keep the stock price high Aggressive accounting is acceptable It is a temporary fix
Auditors render an independent opinion on the financial statements prepared by
Management
Auditors can't guarantee that fraud will be detected because:
Management may hide it from auditors
What is the most common form of management fraud?
Management's manipulation of financial statements
When should a qualified opinion be issued?
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
Factors that might lead to fraud include:
Personal pressures Internal budget pressures Meet financial analysts' earnings projections Egoism
How should an auditor consider audit risk and materiality?
Planning of the audit and designing audit procedures Evaluate whether the financial statements present fairly financial results Determine whether the statements are in conformity with GAAP
Match each condition for fraud with the proper example. Instructions Pressure Pressure drop zone empty. Opportunity Opportunity drop zone empty. Rationalization
Pressure matches Choice Meet financial analysts' earnings estimates Opportunity matches Choice Ineffective internal controls Rationalization matches Choice One-time request
Pervasive effects on the financial statements require
Professional judgment by the auditor
Having a questioning mind and making a critical assessment of audit evidence relate to what?
Professional skepticism
Falsification of financial statements and the failure an audit compromises
Public trust of the auditor
Match the opinion with the criteria Instructions Qualified Adverse Disclaimer
Qualified matches Misstatements are material Adverse matches Misstatements are material and pervasive Disclaimer matches Insufficiency of audit evidence
What conditions generally exist when fraud occurs by management? (Check all that apply).
Rationalizing the fraud act Opportunity to commit fraud Pressure or incentive to commit fraud
What is the goal of the audit committee's evaluation of fraud risk and management's oversight responsibilities?
Serve as a deterrent to senior management engaging in fraud Ensure that management fulfills its responsibilities
When should an auditor give an unmodified opinion?
Statements present fairly financial position, results of operations, and cash flows
Audit procedures selected are designed to:
Support auditor judgments Satisfy risk assessment concerns Obtain evidential matter
The link between the ICFR and audit of financial statements is
The audit of ICFR should be integrated with the audit of financial statements
Which of the following are factors for disclosing Critical Audit Matters?
The auditor's assessment of the risk of material misstatement The degree of auditor judgment related to areas in the financial statements The nature and extent of audit effort required to address the matter
When should an auditor give a modified opinion?
The financial statements are materially misstated
A common reason why management has the opportunity to commit fraud is
They can override internal controls
Dennis Kozlowski's rationalization for committing fraud at Tyco was
To keep up with the masters of the universe
The objectives of audit procedures and evidence quality standards include
gathering sufficient evidence obtaining sufficient understanding of internal controls adequate planning of audit work
The objectives of reporting is to
guide auditors in rendering the audit report
Reasonable assurance in an audit
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
issue a modified opinion.
The free market for stocks and bonds can only exist if there is sharing of reliable financial information, strengthened by information that is _____ and .______
transparent and unbiased Blank 1: transparent Blank 2: unbiased
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
An error is due to a(n) _____ misstatement or omission in the financial statements.
unintentional