ISA 305 CH 3 Exam #Questions with correct answers
Fraud - ✔✔The theft, concealment, or conversion to personal gain of another
person's money, assets, or information.
Misappropriation of assets - ✔✔Theft of any item of value; often called
defalcation or internal theft. Most commonly, theft of cash or inventory.
Misstatement of financial records - ✔✔Falsification of accounting reports, often
referred to as earnings management or fraudulent financial reporting.
Three conditions of the fraud triangle - ✔✔Incentive, opportunity, and
rationalization.
Management fraud - ✔✔Conducted by upper level managers; usually in the form
of fraudulent financial reporting.
How managers benefit from fraudulent reporting - ✔✔Increased stock price leads
to greater return on shares, improved financial statements enhance potential for
mergers or hide misbehavior, enhanced chance of promotion, increased salary or
bonus, delayed cash flow problems/bankruptcy.
4 characteristics of management fraud - ✔✔1. It's intended to enhance financial
statements, 2. it's conducted or encouraged by top managers, 3. It involves
complex manipulations, 4. it involves management override of controls in place.
Employee fraud - ✔✔Conducted by non-management employees usually in the
form of stealing cash or inventory for personal gain.
, 5 common types of employee fraud - ✔✔1. inventory theft, 2. cash receipts theft,
3. accounts payable fraud, 4. payroll fraud, 5. expense account fraud.
Most common type of employee fraud - ✔✔Cash receipts theft
Skimming - ✔✔A highly used technique for cash receipts theft, where
organization's cash is stolen before it is entered into the system.
Larceny - ✔✔Theft of cash after it is recorded in the accounting system. Less
common because it is easy to notice.
Collusion - ✔✔Two or more people working together to commit fraud. Most
difficult to prevent or detect because it involves the overriding of controls such as
segregation of duties are in place.
Industrial espionage - ✔✔The theft of proprietary company information by
digging through the trash of the targeted company.
Software piracy - ✔✔Unlawful copying of software programs.
Two sources of computer fraud - ✔✔Internal and external to the company
3 Concerns of internal computer fraud - ✔✔Input manipulation, program
manipulation, output manipulation.
Fraud - ✔✔The theft, concealment, or conversion to personal gain of another
person's money, assets, or information.
Misappropriation of assets - ✔✔Theft of any item of value; often called
defalcation or internal theft. Most commonly, theft of cash or inventory.
Misstatement of financial records - ✔✔Falsification of accounting reports, often
referred to as earnings management or fraudulent financial reporting.
Three conditions of the fraud triangle - ✔✔Incentive, opportunity, and
rationalization.
Management fraud - ✔✔Conducted by upper level managers; usually in the form
of fraudulent financial reporting.
How managers benefit from fraudulent reporting - ✔✔Increased stock price leads
to greater return on shares, improved financial statements enhance potential for
mergers or hide misbehavior, enhanced chance of promotion, increased salary or
bonus, delayed cash flow problems/bankruptcy.
4 characteristics of management fraud - ✔✔1. It's intended to enhance financial
statements, 2. it's conducted or encouraged by top managers, 3. It involves
complex manipulations, 4. it involves management override of controls in place.
Employee fraud - ✔✔Conducted by non-management employees usually in the
form of stealing cash or inventory for personal gain.
, 5 common types of employee fraud - ✔✔1. inventory theft, 2. cash receipts theft,
3. accounts payable fraud, 4. payroll fraud, 5. expense account fraud.
Most common type of employee fraud - ✔✔Cash receipts theft
Skimming - ✔✔A highly used technique for cash receipts theft, where
organization's cash is stolen before it is entered into the system.
Larceny - ✔✔Theft of cash after it is recorded in the accounting system. Less
common because it is easy to notice.
Collusion - ✔✔Two or more people working together to commit fraud. Most
difficult to prevent or detect because it involves the overriding of controls such as
segregation of duties are in place.
Industrial espionage - ✔✔The theft of proprietary company information by
digging through the trash of the targeted company.
Software piracy - ✔✔Unlawful copying of software programs.
Two sources of computer fraud - ✔✔Internal and external to the company
3 Concerns of internal computer fraud - ✔✔Input manipulation, program
manipulation, output manipulation.
