Fraud Examination Albrecht Ch 3 Questions and Complete Solutions 100% Correct

Fraud Examination Albrecht Ch 3 Questions and Complete Solutions 100% Correct According to the financial statement fraud detection framework, fraud is rarely detected by which of the following: a. Understanding the inherent risks of a specific industry b. Analyzing the financial statements c. Breaking down and analyzing internal controls d. Learning management's motivations - Ans: Analyzing the financial statements Fearful of offending company personnel and being intimidated by company management are two reasons that an auditor could fail to react properly to negative evidence. - Ans: True An active board of directors and audit committee drastically decreases the opportunity for management to commit fraud. - Ans: True Of all the four corners of the fraud exposure rectangle, auditors traditionally focused on which part (and thus failed to evaluate the other three corners)? a. Management and Directors b. Organization and Industry c. Financial Results and Operating Characteristics d. Relationships with the entities - Ans: Financial Results and Operating Characteristics Financial statement fraud occurs over 85 percent of the time, from collusion occurring among middle managers, to low management, thus fooling auditors and top management. - Ans: False The importance of examining directors and management is to determine their exposure to, and motivation for committing fraud is immaterial - Ans: FALSE - Management always as access to all three corner of the fraud triangle (attitude, opportunity, and incentive) The frauds at Computer Systems (CEO was Robert Reed Rogers) and Lincoln Savings and Loan (Charles Keating) had what auditor failures in common? a. Were too incompetent to properly perform the audit b. Failed to sample properly c. Failed to evaluate the company's relationships with other entities d. Did not look into management's background - Ans: Did not look into management's background Looking at management's motivations for committing fraud is analyzing the incentive portion of the fraud triangle. - Ans: True By reviewing how involved the boards of directors are in decision-making processes and having a capable, involved internal audit committee, which aspect of management is being evaluated? a. Ability to influence decisions b. Their backgrounds c. Management Turnover d. Their motivations - Ans: Ability to influence decisions SAS 99 has the new requirement of auditors to ask management if they are committing, or are aware of, any instances of fraud. - Ans: True Which of the following are areas of questions auditors should consider when analyzing management's exposure to potentially perpetrate fraud? a. Significant declines in customer demand and client sales b. High degree of competition and market saturation accompanied by declining margins c. High employee turnover d. All of the above - Ans: All of the above According to Pincus, Asene, and Wright, checklists during audits constrain auditors from reasoning strategically. - Ans: True In the topic, the framework for detecting financial statement fraud is critically important because: a. Each type of fraud is unique (e.g., revenue recognition, asset overstatement) and thus each type of fraud requires a unique detection framework. b. Many of the approaches used to detect fraud exposures are similar, regardless of organization or fraud scheme. c. The role of the auditor and the tools and techniques auditors use vary according to fraud and this topic is important because it emphasizes those differences. d. All of the Above. - Ans: Many of the approaches used to detect fraud exposures are similar, regardless of organization or fraud scheme. A Variable Interest Entity (VIE) can be a. Equity investments b. Leases c. Forward contracts d. All of the above - Ans: All of the above If, as an auditor, you discover a unique relationship between the client CEO and a bank president with whom the company has loans, and you investigate further, what part of the Fraud Exposure Rectangle are you investigating? a. Management and Directors b. Financial Results and Operating Characteristics c. Relationships with other Entities d. Organization and Industry - Ans: Management and Directors Recognizing intangible assets and intercompany transactions occurring at strategic times should be more closely examined by the auditor. - Ans: True Why would the relationships between lawyers and firms be examined closely? a. Lawyers pursue business simply for the money b. Lawyers advocate for their clients and will support them until it is blatantly obvious fraud occurred c. Lawyers are almost always hiding material misstatements d. Lawyers are knowledgeable about the law and not how accounting procedures are done - Ans: Lawyers advocate for their clients and will support them until it is blatantly obvious fraud occurred When a firm changes lawyers they are required to file an 8-K just like with a change of auditors. - Ans: False Since they do not have the same disclosure requirements, that is why it is important to look more closely when a change of legal representation occurs. Having an unduly complex organizational structure should mostly be categorized as a symptom of a. Fraud b. Poor internal controls c. Incompetent internal controls d. None of the above - Ans: Fraud Fraud is less likely to occur when there are family relations involved with management and other members of the company. - Ans: False Families are usually complex, and complications