Question 1<\/p>\n
Proper segregation of functional responsibilities calls for separation of:<\/p>\n
Answer<\/p>\n
authorization, execution, and payment.<\/p>\n
authorization, recording, and custody.<\/p>\n
custody, execution, and reporting.<\/p>\n
authorization, payment, and recording.<\/p>\n
Question 2<\/p>\n
Management must disclose material weaknesses in internal control in its audit report:<\/p>\n
Answer<\/p>\n
whenever the weakness is deemed significant to a single class of transactions.<\/p>\n
whenever the weakness is significant to overall financial reporting objectives.<\/p>\n
if the weakness exists at the end of the year.<\/p>\n
only if the auditor identifies the weakness as significant.<\/p>\n
Question 3<\/p>\n
An act of two or more employees to steal assets and cover their theft by misstating the accounting records would be referred to as:<\/p>\n
Answer<\/p>\n
collusion.<\/p>\n
a material weakness.<\/p>\n
a control deficiency.<\/p>\n
a significant deficiency.<\/p>\n
Question 4<\/p>\n
Reasonable assurance allows for:<\/p>\n
Answer<\/p>\n
low likelihood that material misstatements will not be prevented or detected by internal controls.<\/p>\n
no likelihood that material misstatements will not be prevented or detected by internal control.<\/p>\n
moderate likelihood that material misstatements will not be prevented or detected by internal control.<\/p>\n
high likelihood that material misstatements will not be prevented or detected by internal control.<\/p>\n
Question 5<\/p>\n
Which of the following components of the control environment define the existing lines of responsibility and authority?<\/p>\n
Answer<\/p>\n
Organizational structure<\/p>\n
Management philosophy and operating style<\/p>\n
Human resource policies and practices<\/p>\n
Management integrity and ethical values<\/p>\n
Question 6<\/p>\n
Which of the following is not one of the three primary objectives of effective internal control?<\/p>\n
Answer<\/p>\n
Reliability of financial reporting<\/p>\n
Efficiency and effectiveness of operations<\/p>\n
Compliance with laws and regulations<\/p>\n
Assurance of elimination of business risk<\/p>\n
Question 7<\/p>\n
When assessing whether the financial statements are auditable, the auditor must consider:<\/p>\n
Answer<\/p>\n
that the integrity of management and the adequacy of accounting records are the two primary factors determining auditability.<\/p>\n
that the integrity of management and the adequacy of risk management are the two primary factors determining auditability.<\/p>\n
that if all of the transaction information is available only in electronic form without a visible audit trail, the company cannot be audited.<\/p>\n
the control risk before determining if the entity is auditable.<\/p>\n
Question 8<\/p>\n
In performing the audit of internal control over financial reporting the auditor emphasizes internal control over class of transactions because:<\/p>\n
Answer<\/p>\n
the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing.<\/p>\n
the class of transaction is where most fraud schemes occur.<\/p>\n
account balances are less important to the auditor then the changes in the account balances.<\/p>\n
classes of transactions tests are the most efficient manner to compensate for inherent risk.<\/p>\n
Question 9<\/p>\n
A five-step approach can be used to identify deficiencies, significant deficiencies, and material weaknesses. The first step in this approach is:<\/p>\n
Answer<\/p>\n
identify the absence of key controls.<\/p>\n
consider the possibility of compensating controls.<\/p>\n
determine potential misstatements that could result.<\/p>\n
identify existing controls.<\/p>\n
Question 10<\/p>\n
Sarbanes-Oxley requires management to issue an internal control report that includes two specific items. Which of the following is one of these two requirements?<\/p>\n
Answer<\/p>\n
A statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting<\/p>\n
A statement that management and the board of directors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting<\/p>\n
A statement that management, the board of directors, and the external auditors are jointly responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting<\/p>\n
A statement that the external auditors are solely responsible<\/p>\n
Question 11<\/p>\n
To issue a report on internal control over financial reporting for a public company, an auditor must:<\/p>\n
Answer<\/p>\n
evaluate management’s assessment process.<\/p>\n
independently assess the design and operating effectiveness of internal control.<\/p>\n
evaluate management’s assessment process and independently assess the design and operating effectiveness of internal control.<\/p>\n
test controls over significant account balances.<\/p>\n
Question 12<\/p>\n
Narratives, flowcharts, and internal control questionnaires are three common methods of:<\/p>\n
Answer<\/p>\n
testing the internal controls.<\/p>\n
documenting the auditor’s understanding of internal controls.<\/p>\n
designing the audit manual and procedures. <\/p>\n
documenting the auditor’s understanding of a client’s organizational structure.<\/p>\n
Question 13<\/p>\n
When considering internal controls, an important point to consider is that:<\/p>\n
Answer<\/p>\n
auditors can ignore controls affecting internal management information.<\/p>\n
auditors are concerned with the client’s internal controls over the safeguarding of assets if they affect the financial statements.<\/p>\n
management is responsible for understanding and testing internal control over financial reporting.<\/p>\n
companies must use the COSO framework to establish internal controls.<\/p>\n
Question 14<\/p>\n
Which of the following deficiency exists if a necessary control is missing or not properly formulated?<\/p>\n
Answer<\/p>\n
Control<\/p>\n
Significant<\/p>\n
Design<\/p>\n
Operating<\/p>\n
Question 15<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Which of management’s assertions with respect to implementing internal controls is the auditor primarily concerned?<\/p>\n
Answer<\/p>\n
Efficiency of operations<\/p>\n
Reliability of financial reporting<\/p>\n
Effectiveness of operations<\/p>\n
Compliance with applicable laws and regulations<\/p>\n
Question 16<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
When analyzing accounts for fraud risk:<\/p>\n
companies will generally attempt to overstate accounts payable and net income.<\/p>\n
the inventory account is generally not susceptible to fraud since the auditor must verify the existence of the inventory.<\/p>\n
payroll is rarely a significant risk for fraudulent financial reporting.<\/p>\n
fixed assets are rarely stolen because of their large size<\/p>\n
Question 17<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Auditing standards specifically require auditors to identify ________ as a fraud risk in most audits.<\/p>\n
overstated assets<\/p>\n
understated liabilities<\/p>\n
improper revenue recognition<\/p>\n
overstated expenses<\/p>\n
Question 18<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Misappropriation of assets is normally perpetrated by:<\/p>\n
Answer<\/p>\n
members of the board of directors.<\/p>\n
employees at lower levels of the organization.<\/p>\n
management of the company.<\/p>\n
the internal auditors <\/p>\n
Question 19<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Most cases of fraudulent reporting involve:<\/p>\n
Answer<\/p>\n
inadequate disclosures.<\/p>\n
an overstatement of income.<\/p>\n
an overstatement of liabilities.<\/p>\n
an overstatement of expenses<\/p>\n
Question 20<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Which of the following questions is the auditor not required to ask company management when assessing fraud risk?<\/p>\n
Answer<\/p>\n
Does management have knowledge of any fraud or suspected fraud within the company?<\/p>\n
What are the nature of the fraud risks identified by management?<\/p>\n
Is management using all assets effectively?<\/p>\n
What internal controls have been implemented to address the fraud risks <\/p>\n
Question 21<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Two of the most useful warning signals that can indicate that revenue fraud is occurring are:<\/p>\n
Answer<\/p>\n
analytical procedures and documentary discrepancies.<\/p>\n
analytical procedures and misappropriation of assets.<\/p>\n
documentary discrepancies and vague responses to inquiries.<\/p>\n
missing audit evidence and vague responses to inquiries<\/p>\n
Question 22<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Fraud is more prevalent in smaller businesses and not-for-profit organizations because it is more difficult for them to maintain:<\/p>\n
Answer<\/p>\n
adequate separation of duties.<\/p>\n
adequate compensation.<\/p>\n
adequate financial reporting standards.<\/p>\n
adequate supervisory boards<\/p>\n
Question 23<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Which of the following is a factor that relates to incentives to misappropriate assets?<\/p>\n
Answer<\/p>\n
Significant accounting estimates involving subjective judgments<\/p>\n
Significant personal financial obligations<\/p>\n
Management’s practice of making overly aggressive forecasts<\/p>\n
High turnover of accounting, internal audit and information technology staff <\/p>\n
Question 24<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
A company is concerned with the theft of cash after the sale has been recorded. One way in which fraudsters conceal the theft is by a process called “lapping.” Which of the following best describes lapping?<\/p>\n
Answer<\/p>\n
Reduce the customer’s account by recording a sales return<\/p>\n
Write off the customer’s account<\/p>\n
Apply the payment from another customer to the customer’s account<\/p>\n
Reduce the customer’s account by recording a sales allowance <\/p>\n
Question 25<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings.<\/p>\n
Answer<\/p>\n
income smoothing<\/p>\n
cookie jar reserves<\/p>\n
cash<\/p>\n
sales <\/p>\n
Question 26<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Which of the following is least likely to uncover fraud?<\/p>\n
Answer<\/p>\n
External auditors<\/p>\n
Internal auditors<\/p>\n
Internal controls<\/p>\n
Management <\/p>\n
Question 27<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
When assessing the risk for fraud, the auditor must be cognizant of the fact that:<\/p>\n
Answer<\/p>\n
the existence of fraud risk factors means fraud exists.<\/p>\n
analytical procedures must be performed on revenue accounts.<\/p>\n
horizontal analysis is not useful in helping to determine unusual financial statement relationships.<\/p>\n
the auditor cannot make inquiries about fraud to company personnel who have no financial statement responsibilities.<\/p>\n
Question 28<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Fraud awareness training should be:<\/p>\n
Answer<\/p>\n
broad and all-encompassing.<\/p>\n
extensive and include details for all functional areas.<\/p>\n
specifically related to the employee’s job responsibility.<\/p>\n
focused on employees understanding the importance of ethics<\/p>\n
Question 29<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Auditors need to exhibit professional skepticism when auditing a client. This auditing standard is best expressed by which of the following?<\/p>\n
Answer<\/p>\n
The auditor neither assumes dishonesty or honesty of management.<\/p>\n
The auditor assumes dishonesty of management.<\/p>\n
The auditor assumes honesty of management.<\/p>\n
The auditor assumes management lacks integrity<\/p>\n
Question 30<\/p>\n
2 out of 2 points<\/p>\n
Correct<\/p>\n
Company management is often under pressure to increase revenue and\/or net income. One approach is to use a “bill and hold” arrangement. This is an example of which of the following?<\/p>\n
Answer<\/p>\n
Significant accounting estimates<\/p>\n
Fictitious revenue recorded<\/p>\n
Premature revenue recognized<\/p>\n
Alteration of cutoff documents <\/p>\n","protected":false},"excerpt":{"rendered":"
Question 1 Proper segregation of functional responsibilities calls for separation of: Answer authorization, execution, and payment. authorization, recording, and custody. custody, execution, and reporting. authorization, payment, and recording. Question 2 Management must disclose material weaknesses in internal control in its Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-50194","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/50194","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=50194"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/50194\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=50194"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=50194"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=50194"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}