Audit Chapter 6 Quiz

C) Inquiry and inspection of records.

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? A) Confirmation and reperformance. B) Analytical procedures and reperformance. C) Inquiry and inspection of records. D) Observation and inspection of records.

B) observation and inquiry.

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the activities by: A) analytical procedures and confirmation. B) observation and inquiry. C) inquiry and analytical procedures. D) confirmation and observation.

B) a bank lockbox system.

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using: A) employee fidelity bonds. B) a bank lockbox system. C) independently prepared mailroom prelists. D) daily check summaries.

C) Negligence on the part of executive management.

In order for auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which of the following is not a characteristic of fraud? A) Intentional deception. B) Taking unfair or dishonest advantage of other people. C) Negligence on the part of executive management. D) Perpetration for the benefit or detriment of the organization.

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

In the audit of cash the auditor obtains a bank cutoff statement primarily to: A) obtain direct confirmation of the client's bank balances as of year-end. B) obtain sufficient information to reconcile the client's bank account as of year-end. C) identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash. D) test the propriety of items appearing on the client's year-end bank reconciliation.

B) all of the these choices are correct.

When auditing financial statements and finding indications of a possible misappropriation of assets, independent auditors should: A) determine the methods by which the misappropriation was carried out. B) all of the these choices are correct. C) determine which accounts are affected and the amount by which they are overstated or understated. D) investigate fully to determine the total amount of the misappropriation. E) identify a person(s) who are likely responsible for the misappropriation and obtain evidence about some other fraud indications in their work.

A) Lack of training.

Which of the following is not considered one of the three factors increasing the probability of fraud? A) Lack of training. B) Opportunity. C) Motive. D) Rationalization.

B) Lack of training.

Which of the following is not considered one of the three factors increasing the probability of fraud? A) Motive. B) Lack of training. C) Opportunity. D) Rationalization.

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

Which of the following management policies would increase the probability of fraud in a company? A) Diversifying authority throughout divisions and subsidiaries in the organization. B) Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work. C) Measuring performance and awarding bonuses based on short-term operating results. D) Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts.

C) All of these statements are correct.

Which of the following statements is correct with respect to the elements of the "fraud triangle"? A) Fraud is most common when these three factors exist together. B) Motive is a cause that pressures people into action. C) All of these statements are correct. D) Opportunity refers to a situation that allows someone with motive to carry out fraud. E) A lack of integrity describes a person who does not stick to the social or organizational ethical code.