C254 WGU Practice Review UPDATED
Exam Questions and 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 - Correct Answer- To 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. - Correct Answer- The 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. - Correct Answer- True
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 - Correct Answer- How 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. - Correct Answer- False
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 - Correct Answer- It 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. - Correct Answer- True
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was addressed as "errors
and irregularities." - Correct Answer- False
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. - Correct Answer- True
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.
, Create consultatory standards for auditors to follow; an excellent consultant, when given the
reins to improve the company, will undoubtedly uncover the well-hidden cases of fraud. -
Correct Answer- Eliminate the gap between financial statement users' expectations and
auditors' assurances.
True or False
One of the unique, yet key, provisions of SAS 99 establishes that auditors refrain from trying
to think like a "fraudster," and think more analytically. - Correct Answer- False
It requires audit teams to envision themselves as the fraudster; the more creative their
brainstorming, the better.
True or False
Inquiring several simple questions of management in the beginning is now sufficient under
SAS No. 99. - Correct Answer- False
Fraud should be considered through the whole process, as should necessary questions and
clarifications asked of management.
When brainstorming possible fraud risks, it is important to avoid what kind of group
dynamic?
Non-hierarchal system where everyone's ideas count
Thoughts of criminal-like behavior.
Groupthink
Free-flowing ideas - Correct Answer- Groupthink
Which of the following now needs to be documented (but wasn't required in the past) in audit
work papers, according to SAS No. 99?
Testing of internal controls
Testing of journal entries
Exam Questions and 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 - Correct Answer- To 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. - Correct Answer- The 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. - Correct Answer- True
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 - Correct Answer- How 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. - Correct Answer- False
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 - Correct Answer- It 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. - Correct Answer- True
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was addressed as "errors
and irregularities." - Correct Answer- False
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. - Correct Answer- True
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.
, Create consultatory standards for auditors to follow; an excellent consultant, when given the
reins to improve the company, will undoubtedly uncover the well-hidden cases of fraud. -
Correct Answer- Eliminate the gap between financial statement users' expectations and
auditors' assurances.
True or False
One of the unique, yet key, provisions of SAS 99 establishes that auditors refrain from trying
to think like a "fraudster," and think more analytically. - Correct Answer- False
It requires audit teams to envision themselves as the fraudster; the more creative their
brainstorming, the better.
True or False
Inquiring several simple questions of management in the beginning is now sufficient under
SAS No. 99. - Correct Answer- False
Fraud should be considered through the whole process, as should necessary questions and
clarifications asked of management.
When brainstorming possible fraud risks, it is important to avoid what kind of group
dynamic?
Non-hierarchal system where everyone's ideas count
Thoughts of criminal-like behavior.
Groupthink
Free-flowing ideas - Correct Answer- Groupthink
Which of the following now needs to be documented (but wasn't required in the past) in audit
work papers, according to SAS No. 99?
Testing of internal controls
Testing of journal entries
