Which of the following is an example of fraudulent financial reporting?
ji ji ji ji ji ji ji ji ji ji
a. An employee diverts customer payments to his personal use, concealing his
ji ji ji ji ji ji ji ji ji ji ji
actions by debiting an expense account, thus overstating expenses.
ji ji ji ji ji ji ji ji ji
b. Company management falsifies the inventory count, thereby overstating
ji ji ji ji ji ji ji ji
ending inventory and understating cost of sales.
ji ji ji ji ji ji ji
c. An employee steals inventory, and the shrinkage is recorded as a cost of goods
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
sold.
ji
d. An employee borrows small tools from the company and neglects to return
ji ji ji ji ji ji ji ji ji ji ji ji
them; the cost is reported as a miscellaneous operating expense. - (correct
ji ji ji ji ji ji ji ji ji ji ji ji
answer) -b. Company management falsifies the inventory count, thereby
ji ji ji ji ji ji ji ji ji
overstating ending inventory and understating cost of sales.
ji ji ji ji ji ji ji ji
Which of the following concepts are pervasive in the application of generally
ji ji ji ji ji ji ji ji ji ji ji
accepted auditing standards, particularly the standards of fieldwork and
ji ji ji ji ji ji ji ji ji
reporting?
ji ji
A. Internal Control
ji ji
B. Expected Misstatement
ji ji
C. Control Risk
ji ji
D. Materiality and Audit risk - (correct answer) -D. Materiality and audit risk
ji ji ji ji ji ji ji ji ji ji ji ji
The existence of audit risk is recognized by the statement in the auditor's
ji ji ji ji ji ji ji ji ji ji ji ji
standard report that the auditor
ji ji ji ji ji
A. Obtains reasonable assurance about whether the financial statements are free
ji ji ji ji ji ji ji ji ji ji
of material misstatement
ji ji ji
B. Assesses the accounting principles used and also evaluates the overall
ji ji ji ji ji ji ji ji ji ji
financial statement presentation
ji ji ji
C. Realizes that some matters, either individually or in the aggregate, are
ji ji ji ji ji ji ji ji ji ji ji
important while other matters are not important.
ji ji ji ji ji ji ji
,D. Is responsible for expressing an opinion on the financial statements, which are
ji ji ji ji ji ji ji ji ji ji ji ji
the responsibility of management. - (correct answer) -A. Obtains reasonable
ji ji ji ji ji ji ji ji ji ji
assurance about whether the financial statements are free of material
ji ji ji ji ji ji ji ji ji ji
misstatement
ji
Risk of material misstatement refers to a combination of which two "client"
ji ji ji ji ji ji ji ji ji ji ji
components of the audit risk model?
ji ji ji ji ji ji ji
A. Audit risk and inherent risk
ji ji ji ji ji
B. Audit risk and control risk
ji ji ji ji ji
C. Inherent risk and control risk
ji ji ji ji ji
D. Control risk and detection risk - (correct answer) -C. Inherent risk and control
ji ji ji ji ji ji ji ji ji ji ji ji ji
risk
ji
As lower acceptable levels of both audit risk and materiality are established, the
ji ji ji ji ji ji ji ji ji ji ji ji
auditor should plan more work on individual accounts to
ji ji ji ji ji ji ji ji ji
A. Find smaller errors
ji ji ji
B. Find larger errors
ji ji ji
C. Increase the tolerable misstatements in the accounts
ji ji ji ji ji ji ji
D. decrease the risk of overreliance - (correct answer) -A. find smaller errors
ji ji ji ji ji ji ji ji ji ji ji ji
When is a duty to disclose fraud to parties other than the client's senior
ji ji ji ji ji ji ji ji ji ji ji ji ji
management and its audit committee most likely to exist?
ji ji ji ji ji ji ji ji ji
A. When the amount is material
ji ji ji ji ji
B. When the fraud results in the misappropriation of assets rather than
ji ji ji ji ji ji ji ji ji ji ji
fraudulent financial reporting
ji ji ji
C. In response to inquiries from a successor auditor
ji ji ji ji ji ji ji ji
D. When a line manager rather than a lower-level employee commits the
ji ji ji ji ji ji ji ji ji ji ji
fraudulent act - (correct answer) -C. In response to inquiries from a successor
ji ji ji ji ji ji ji ji ji ji ji ji ji
auditor
ji
Which of the following characteristics most likely would heighten an auditor's
ji ji ji ji ji ji ji ji ji ji
concern about the risk of intentional manipulation of financial statements?
ji ji ji ji ji ji ji ji ji ji
A. Turnover of senior accounting personnel is low
ji ji ji ji ji ji ji
, B. Insiders recently purchased additional shares of the entity's stock
ji ji ji ji ji ji ji ji ji
C. Management places substantial emphasis on meeting earnings projections
ji ji ji ji ji ji ji ji
D. The rate of change in the entity's industry is slow - (correct answer) -C.
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
Management places substantial emphasis on meeting earnings projections
ji ji ji ji ji ji ji ji
Which of the following is a misappropriation of assets?
ji ji ji ji ji ji ji ji
A. Classifying inventory held for resale as supplies
ji ji ji ji ji ji ji
B. Investing cash and earning a 3 percent rate of return as opposed to paying off a
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
loan with an interest rate of 7 percent
ji ji ji ji ji ji ji ji
C. An employee of a consumer electronics store steals 12 CD players.
ji ji ji ji ji ji ji ji ji ji ji
D. Management estimates bad debt expense as 2 percent of sales when it actually
ji ji ji ji ji ji ji ji ji ji ji ji ji
expects bad debts equal to 10 percent of sales. - (correct answer) -C. An employee
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
of a consumer electronics store steals 12 CD players.
ji ji ji ji ji ji ji ji ji
Auditing standards require auditors to make certain inquiries of management
ji ji ji ji ji ji ji ji ji
regarding fraud. Which of the following inquiries is required?
ji ji ji ji ji ji ji ji ji ji
A. Whether management has ever intentionally violated the securities laws
ji ji ji ji ji ji ji ji ji
B. Whether management has any knowledge of fraud that has been perpetrated
ji ji ji ji ji ji ji ji ji ji ji
on or within the entity
ji ji ji ji ji
C. Management's attitudes toward regulatory authorities
ji ji ji ji ji
D. Management's attitude about hiring ethical employees. - (correct answer) -B.
ji ji ji ji ji ji ji ji ji ji
Whether management has any knowledge of fraud that has been perpetrated on
ji ji ji ji ji ji ji ji ji ji ji ji
or within the entity
ji ji ji ji
Which of the following is an example of fraudulent financial reporting?
ji ji ji ji ji ji ji ji ji ji ji
A. Company management falsifies inventory count tags, thereby overstating
ji ji ji ji ji ji ji ji
ending inventory and understating cost of sales.
ji ji ji ji ji ji ji ji
B. An employee diverts customer payments to his personal use, concealing his
ji ji ji ji ji ji ji ji ji ji ji
actions by debiting an expense account, thus overstating expenses.
ji ji ji ji ji ji ji ji ji ji
C. An employee steals inventory, and the shrinkage is recorded as a cost of goods
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
sold.
ji
ji ji ji ji ji ji ji ji ji ji
a. An employee diverts customer payments to his personal use, concealing his
ji ji ji ji ji ji ji ji ji ji ji
actions by debiting an expense account, thus overstating expenses.
ji ji ji ji ji ji ji ji ji
b. Company management falsifies the inventory count, thereby overstating
ji ji ji ji ji ji ji ji
ending inventory and understating cost of sales.
ji ji ji ji ji ji ji
c. An employee steals inventory, and the shrinkage is recorded as a cost of goods
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
sold.
ji
d. An employee borrows small tools from the company and neglects to return
ji ji ji ji ji ji ji ji ji ji ji ji
them; the cost is reported as a miscellaneous operating expense. - (correct
ji ji ji ji ji ji ji ji ji ji ji ji
answer) -b. Company management falsifies the inventory count, thereby
ji ji ji ji ji ji ji ji ji
overstating ending inventory and understating cost of sales.
ji ji ji ji ji ji ji ji
Which of the following concepts are pervasive in the application of generally
ji ji ji ji ji ji ji ji ji ji ji
accepted auditing standards, particularly the standards of fieldwork and
ji ji ji ji ji ji ji ji ji
reporting?
ji ji
A. Internal Control
ji ji
B. Expected Misstatement
ji ji
C. Control Risk
ji ji
D. Materiality and Audit risk - (correct answer) -D. Materiality and audit risk
ji ji ji ji ji ji ji ji ji ji ji ji
The existence of audit risk is recognized by the statement in the auditor's
ji ji ji ji ji ji ji ji ji ji ji ji
standard report that the auditor
ji ji ji ji ji
A. Obtains reasonable assurance about whether the financial statements are free
ji ji ji ji ji ji ji ji ji ji
of material misstatement
ji ji ji
B. Assesses the accounting principles used and also evaluates the overall
ji ji ji ji ji ji ji ji ji ji
financial statement presentation
ji ji ji
C. Realizes that some matters, either individually or in the aggregate, are
ji ji ji ji ji ji ji ji ji ji ji
important while other matters are not important.
ji ji ji ji ji ji ji
,D. Is responsible for expressing an opinion on the financial statements, which are
ji ji ji ji ji ji ji ji ji ji ji ji
the responsibility of management. - (correct answer) -A. Obtains reasonable
ji ji ji ji ji ji ji ji ji ji
assurance about whether the financial statements are free of material
ji ji ji ji ji ji ji ji ji ji
misstatement
ji
Risk of material misstatement refers to a combination of which two "client"
ji ji ji ji ji ji ji ji ji ji ji
components of the audit risk model?
ji ji ji ji ji ji ji
A. Audit risk and inherent risk
ji ji ji ji ji
B. Audit risk and control risk
ji ji ji ji ji
C. Inherent risk and control risk
ji ji ji ji ji
D. Control risk and detection risk - (correct answer) -C. Inherent risk and control
ji ji ji ji ji ji ji ji ji ji ji ji ji
risk
ji
As lower acceptable levels of both audit risk and materiality are established, the
ji ji ji ji ji ji ji ji ji ji ji ji
auditor should plan more work on individual accounts to
ji ji ji ji ji ji ji ji ji
A. Find smaller errors
ji ji ji
B. Find larger errors
ji ji ji
C. Increase the tolerable misstatements in the accounts
ji ji ji ji ji ji ji
D. decrease the risk of overreliance - (correct answer) -A. find smaller errors
ji ji ji ji ji ji ji ji ji ji ji ji
When is a duty to disclose fraud to parties other than the client's senior
ji ji ji ji ji ji ji ji ji ji ji ji ji
management and its audit committee most likely to exist?
ji ji ji ji ji ji ji ji ji
A. When the amount is material
ji ji ji ji ji
B. When the fraud results in the misappropriation of assets rather than
ji ji ji ji ji ji ji ji ji ji ji
fraudulent financial reporting
ji ji ji
C. In response to inquiries from a successor auditor
ji ji ji ji ji ji ji ji
D. When a line manager rather than a lower-level employee commits the
ji ji ji ji ji ji ji ji ji ji ji
fraudulent act - (correct answer) -C. In response to inquiries from a successor
ji ji ji ji ji ji ji ji ji ji ji ji ji
auditor
ji
Which of the following characteristics most likely would heighten an auditor's
ji ji ji ji ji ji ji ji ji ji
concern about the risk of intentional manipulation of financial statements?
ji ji ji ji ji ji ji ji ji ji
A. Turnover of senior accounting personnel is low
ji ji ji ji ji ji ji
, B. Insiders recently purchased additional shares of the entity's stock
ji ji ji ji ji ji ji ji ji
C. Management places substantial emphasis on meeting earnings projections
ji ji ji ji ji ji ji ji
D. The rate of change in the entity's industry is slow - (correct answer) -C.
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
Management places substantial emphasis on meeting earnings projections
ji ji ji ji ji ji ji ji
Which of the following is a misappropriation of assets?
ji ji ji ji ji ji ji ji
A. Classifying inventory held for resale as supplies
ji ji ji ji ji ji ji
B. Investing cash and earning a 3 percent rate of return as opposed to paying off a
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
loan with an interest rate of 7 percent
ji ji ji ji ji ji ji ji
C. An employee of a consumer electronics store steals 12 CD players.
ji ji ji ji ji ji ji ji ji ji ji
D. Management estimates bad debt expense as 2 percent of sales when it actually
ji ji ji ji ji ji ji ji ji ji ji ji ji
expects bad debts equal to 10 percent of sales. - (correct answer) -C. An employee
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji
of a consumer electronics store steals 12 CD players.
ji ji ji ji ji ji ji ji ji
Auditing standards require auditors to make certain inquiries of management
ji ji ji ji ji ji ji ji ji
regarding fraud. Which of the following inquiries is required?
ji ji ji ji ji ji ji ji ji ji
A. Whether management has ever intentionally violated the securities laws
ji ji ji ji ji ji ji ji ji
B. Whether management has any knowledge of fraud that has been perpetrated
ji ji ji ji ji ji ji ji ji ji ji
on or within the entity
ji ji ji ji ji
C. Management's attitudes toward regulatory authorities
ji ji ji ji ji
D. Management's attitude about hiring ethical employees. - (correct answer) -B.
ji ji ji ji ji ji ji ji ji ji
Whether management has any knowledge of fraud that has been perpetrated on
ji ji ji ji ji ji ji ji ji ji ji ji
or within the entity
ji ji ji ji
Which of the following is an example of fraudulent financial reporting?
ji ji ji ji ji ji ji ji ji ji ji
A. Company management falsifies inventory count tags, thereby overstating
ji ji ji ji ji ji ji ji
ending inventory and understating cost of sales.
ji ji ji ji ji ji ji ji
B. An employee diverts customer payments to his personal use, concealing his
ji ji ji ji ji ji ji ji ji ji ji
actions by debiting an expense account, thus overstating expenses.
ji ji ji ji ji ji ji ji ji ji
C. An employee steals inventory, and the shrinkage is recorded as a cost of goods
ji ji ji ji ji ji ji ji ji ji ji ji ji ji
sold.
ji
