ACC 550 EXAM 2: 2025/2026, WITH
CORRECT/ACCURATE ANSWERS
What is the most costly type of fraud? - CORRECT ANSWERS-
Financial Reporting Fraud
What does SAB No. 99 say about Materiality? - CORRECT
ANSWERS- 1) Materiality not based solely on quantitative factors
2) Consider quantitative AND qualitative factors
3) Netting misstatements
4) Intentional immaterial misstatements
What are qualitative factors used to determine materiality? -
CORRECT ANSWERS- 1) Arises from an item capable of precise
measurement or whether it arises from an estimate and, if so, the
degree of imprecision inherent in the estimate
2) Masks a change in earnings or other trends
3) Hides a failure to meet analysts' consensus expectations
4) Changes a loss into income or vice versa
5) Concerns a segment or other portion of the registrant's
business that has been identified as playing a significant role in
the registrant's operations or profitability
6) Affects the registrant's compliance with regulatory
requirements
,7) Affects the registrant's compliance with loan covenants or
other contractual requirements
8) Effect of increasing management's compensation
9) Concealment of an unlawful transaction
What is the rollover view with misstatements? - CORRECT
ANSWERS- Quantifies a misstatement based on the amount of
the error originating in the current year income statement
What is the iron curtain view with misstatements? - CORRECT
ANSWERS- Quantifies a misstatement based on the effects of
correcting the misstatement existing in the balance sheet at the
end of the current year, irrespective of the misstatement's year(s)
of origination
What is required communications for management regarding
misstatements? - CORRECT ANSWERS- 1) Factual, Judgmental,
Projected misstatements
2) Uncorrected misstatements included in management
representation letter
What is required communications for those charged with
governance regarding misstatements? - CORRECT ANSWERS- 1)
Corrected misstatements, as result of audit
2) Uncorrected misstatements - individually/aggregate
3) Implications of not correcting
4) Effect on opinion
,5) Prior periods
What are options if a client does not correct misstatements? -
CORRECT ANSWERS- 1) Qualify or adverse opinion
2) Withdrawal from engagement
After everything, what should you document with misstatements?
- CORRECT ANSWERS- 1) Amount below which is clearly trivial
2) All misstatements as result of audit - corrected and
uncorrected
3) Conclusion about uncorrected misstatements and basis for
opinion
What is the distinguishing factor between fraud and error? -
CORRECT ANSWERS- "...whether the underlying action that
results in the misstatement of the financial statements is
intentional or unintentional"
Are auditors responsible for the detection of fraud? - CORRECT
ANSWERS- "An auditor conducting an audit in accordance with
ISA's is responsible for obtaining reasonable assurance that the
financial statements taken as a whole are free from material
misstatement, whether caused by fraud or error."
Majority of significant financial statement fraud involves -
CORRECT ANSWERS- Senior Management
, Responses to address risk of management override - CORRECT
ANSWERS- 1) Review accounting estimates for biases
2) Evaluate business rationale for significant unusual transactions
3) Test appropriateness of journal entries and other
adjustments...
Three classifications of journal entries - CORRECT ANSWERS- 1)
Standard, recurring entries
2) Non-standard entries
3) "Top-side" entries
What types of journal should you select for testing? - CORRECT
ANSWERS- 1) Unrelated, unusual or seldom-used accounts
2) Made by individuals who typically do not make entries
3) Recorded at end of period
4) Made at unusual times
5) Round numbers or consistent ending numbers
6) Unusual combinations of debits and credits
What is materiality? - CORRECT ANSWERS- The omission or
misstatement of an item in a financial report is material if, in the
light of surrounding circumstances, the magnitude of the item is
such that it is probable that the judgment of a reasonable person
relying upon the report would have been changed or influenced
by the inclusion or correction of the item
CORRECT/ACCURATE ANSWERS
What is the most costly type of fraud? - CORRECT ANSWERS-
Financial Reporting Fraud
What does SAB No. 99 say about Materiality? - CORRECT
ANSWERS- 1) Materiality not based solely on quantitative factors
2) Consider quantitative AND qualitative factors
3) Netting misstatements
4) Intentional immaterial misstatements
What are qualitative factors used to determine materiality? -
CORRECT ANSWERS- 1) Arises from an item capable of precise
measurement or whether it arises from an estimate and, if so, the
degree of imprecision inherent in the estimate
2) Masks a change in earnings or other trends
3) Hides a failure to meet analysts' consensus expectations
4) Changes a loss into income or vice versa
5) Concerns a segment or other portion of the registrant's
business that has been identified as playing a significant role in
the registrant's operations or profitability
6) Affects the registrant's compliance with regulatory
requirements
,7) Affects the registrant's compliance with loan covenants or
other contractual requirements
8) Effect of increasing management's compensation
9) Concealment of an unlawful transaction
What is the rollover view with misstatements? - CORRECT
ANSWERS- Quantifies a misstatement based on the amount of
the error originating in the current year income statement
What is the iron curtain view with misstatements? - CORRECT
ANSWERS- Quantifies a misstatement based on the effects of
correcting the misstatement existing in the balance sheet at the
end of the current year, irrespective of the misstatement's year(s)
of origination
What is required communications for management regarding
misstatements? - CORRECT ANSWERS- 1) Factual, Judgmental,
Projected misstatements
2) Uncorrected misstatements included in management
representation letter
What is required communications for those charged with
governance regarding misstatements? - CORRECT ANSWERS- 1)
Corrected misstatements, as result of audit
2) Uncorrected misstatements - individually/aggregate
3) Implications of not correcting
4) Effect on opinion
,5) Prior periods
What are options if a client does not correct misstatements? -
CORRECT ANSWERS- 1) Qualify or adverse opinion
2) Withdrawal from engagement
After everything, what should you document with misstatements?
- CORRECT ANSWERS- 1) Amount below which is clearly trivial
2) All misstatements as result of audit - corrected and
uncorrected
3) Conclusion about uncorrected misstatements and basis for
opinion
What is the distinguishing factor between fraud and error? -
CORRECT ANSWERS- "...whether the underlying action that
results in the misstatement of the financial statements is
intentional or unintentional"
Are auditors responsible for the detection of fraud? - CORRECT
ANSWERS- "An auditor conducting an audit in accordance with
ISA's is responsible for obtaining reasonable assurance that the
financial statements taken as a whole are free from material
misstatement, whether caused by fraud or error."
Majority of significant financial statement fraud involves -
CORRECT ANSWERS- Senior Management
, Responses to address risk of management override - CORRECT
ANSWERS- 1) Review accounting estimates for biases
2) Evaluate business rationale for significant unusual transactions
3) Test appropriateness of journal entries and other
adjustments...
Three classifications of journal entries - CORRECT ANSWERS- 1)
Standard, recurring entries
2) Non-standard entries
3) "Top-side" entries
What types of journal should you select for testing? - CORRECT
ANSWERS- 1) Unrelated, unusual or seldom-used accounts
2) Made by individuals who typically do not make entries
3) Recorded at end of period
4) Made at unusual times
5) Round numbers or consistent ending numbers
6) Unusual combinations of debits and credits
What is materiality? - CORRECT ANSWERS- The omission or
misstatement of an item in a financial report is material if, in the
light of surrounding circumstances, the magnitude of the item is
such that it is probable that the judgment of a reasonable person
relying upon the report would have been changed or influenced
by the inclusion or correction of the item
