C254 WGU PRACTICE FINAL EXAM | (LATEST EXAM 2026)
STRUCTURED QUESTIOND WITH CORRECT ANSWERS
In the past (early 20th century time-frame), what was the general consensus
of the principal purpose of audits (including among auditors)?
To detect fraud
To certify for the public that management is qualified to run the entity
To evaluate that companies follow GAAP
Investigative and analytical purposes - ANSWERTo detect fraud
Why has there been so much frustration between the general public and
auditors regarding fraud detection?
The auditors were not sufficiently trained in GAAP rules and regulations to
identify fraud risks properly.
The public felt searching for fraud was pointless and was costing their
investments too much money; if fraudsters want to hide things, they will
succeed.
,The auditors were taking short cuts and trying to make as large a profit as
possible and therefore weren't performing as they should have.
The public wants all cases of fraud detected, while auditors felt they only
needed to be "reasonably certain" of its absence. - ANSWERThe public wants
all cases of fraud detected, while auditors felt they only needed to be
"reasonably certain" of its absence.
True or False
Auditors can only say, with 100% certainty, that there is no fraud if they
examine every transaction. Otherwise, there will always be some measure of
doubt. - ANSWERTrue
AICPA and the Cohen Commission (the commission on auditor's
responsibility) fought over something specific concerning the fall of Equity
Funding in the 1970's. This conflict highlighted a major communication issue
between auditors and financial statement users during much of the 20th
century. What was this conflict about?
How much responsibility should the auditor take when endeavoring to detect
(or fails to detect) fraud
The severity of punishment top management of the company with fraud
should be subjected to when they perpetrate fraud
The auditors consistently weren't detecting fraud due to improper training
,The public felt that auditors needed to be more of a consultant than anything
else, but the AICPA disagreed with this - ANSWERHow much responsibility
should the auditor take when endeavoring to detect (or fails to detect) fraud
True or False
In the beginning of the 20th century, everyone believed that the main
purpose of audits was to detect fraud. However, at this time, Standards on
Audit Procedures (SAP's) began to come forth, making it official that auditors
really were responsible for fraud, and that fraud detection was a priority
second to none. - ANSWERFalse
SAP No. 1 actually began to define audits as more than just fraud detection.
Since then, audits never had has their principal purpose fraud detectio
What did Audit Standard No. 99 do that previous standards didn't?
Created a special SEC task force to aggressively attach/investigate all "high
risk" public companies
It establishes black and white standards to evaluate whether the auditor did
their job correctly, especially in their search for fraud.
Requires all auditors to publish their work papers so financial statement users
can evaluate for themselves if the auditors were thorough enough or not.
Established the purpose of audits to be a more consultatory in nature than
verifying GAAP rules and fraud detection - ANSWERIt establishes black and
white standards to evaluate whether the auditor did their job correctly,
especially in their search for fraud.
, True or False
Despite many attempts to close the "expectation gap" between auditors and
the public, the AICPA wasn't successful until SAS No. 99. - ANSWERTrue
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was
addressed as "errors and irregularities." - ANSWERFalse
True or False
Audit standards involving auditors' responsibility in fraud detection has been
to "reasonably assure" the lack of fraud in financial statements, but didn't
clearly articulate the breadth and scope of their responsibility until SAS No.
99, thus causing the "expectation gap" between the public and CPA auditors.
- ANSWERTrue
The AICPA has had one major goal in issuing auditing standards about fraud,
but never really met its goal until SAS No. 99. What was that goal?
Eliminate the gap between financial statement users' expectations and
auditors' assurances.
Eliminate the need for auditors to detect fraud and focus on evaluating
internal controls and verify that all GAAP rules and regulations have been
followed.
Establish a formula/solution identifying potential red flags so auditors, if
doing their job properly, can't fail to detect fraud.
STRUCTURED QUESTIOND WITH CORRECT ANSWERS
In the past (early 20th century time-frame), what was the general consensus
of the principal purpose of audits (including among auditors)?
To detect fraud
To certify for the public that management is qualified to run the entity
To evaluate that companies follow GAAP
Investigative and analytical purposes - ANSWERTo detect fraud
Why has there been so much frustration between the general public and
auditors regarding fraud detection?
The auditors were not sufficiently trained in GAAP rules and regulations to
identify fraud risks properly.
The public felt searching for fraud was pointless and was costing their
investments too much money; if fraudsters want to hide things, they will
succeed.
,The auditors were taking short cuts and trying to make as large a profit as
possible and therefore weren't performing as they should have.
The public wants all cases of fraud detected, while auditors felt they only
needed to be "reasonably certain" of its absence. - ANSWERThe public wants
all cases of fraud detected, while auditors felt they only needed to be
"reasonably certain" of its absence.
True or False
Auditors can only say, with 100% certainty, that there is no fraud if they
examine every transaction. Otherwise, there will always be some measure of
doubt. - ANSWERTrue
AICPA and the Cohen Commission (the commission on auditor's
responsibility) fought over something specific concerning the fall of Equity
Funding in the 1970's. This conflict highlighted a major communication issue
between auditors and financial statement users during much of the 20th
century. What was this conflict about?
How much responsibility should the auditor take when endeavoring to detect
(or fails to detect) fraud
The severity of punishment top management of the company with fraud
should be subjected to when they perpetrate fraud
The auditors consistently weren't detecting fraud due to improper training
,The public felt that auditors needed to be more of a consultant than anything
else, but the AICPA disagreed with this - ANSWERHow much responsibility
should the auditor take when endeavoring to detect (or fails to detect) fraud
True or False
In the beginning of the 20th century, everyone believed that the main
purpose of audits was to detect fraud. However, at this time, Standards on
Audit Procedures (SAP's) began to come forth, making it official that auditors
really were responsible for fraud, and that fraud detection was a priority
second to none. - ANSWERFalse
SAP No. 1 actually began to define audits as more than just fraud detection.
Since then, audits never had has their principal purpose fraud detectio
What did Audit Standard No. 99 do that previous standards didn't?
Created a special SEC task force to aggressively attach/investigate all "high
risk" public companies
It establishes black and white standards to evaluate whether the auditor did
their job correctly, especially in their search for fraud.
Requires all auditors to publish their work papers so financial statement users
can evaluate for themselves if the auditors were thorough enough or not.
Established the purpose of audits to be a more consultatory in nature than
verifying GAAP rules and fraud detection - ANSWERIt establishes black and
white standards to evaluate whether the auditor did their job correctly,
especially in their search for fraud.
, True or False
Despite many attempts to close the "expectation gap" between auditors and
the public, the AICPA wasn't successful until SAS No. 99. - ANSWERTrue
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was
addressed as "errors and irregularities." - ANSWERFalse
True or False
Audit standards involving auditors' responsibility in fraud detection has been
to "reasonably assure" the lack of fraud in financial statements, but didn't
clearly articulate the breadth and scope of their responsibility until SAS No.
99, thus causing the "expectation gap" between the public and CPA auditors.
- ANSWERTrue
The AICPA has had one major goal in issuing auditing standards about fraud,
but never really met its goal until SAS No. 99. What was that goal?
Eliminate the gap between financial statement users' expectations and
auditors' assurances.
Eliminate the need for auditors to detect fraud and focus on evaluating
internal controls and verify that all GAAP rules and regulations have been
followed.
Establish a formula/solution identifying potential red flags so auditors, if
doing their job properly, can't fail to detect fraud.
