WGU C254 Fraud & Forensic Accounting |101
questions with verified answers
_________________ means "reason to believe that fraud may be occurring."
When __________________ exists and conditions warrant, an investigation
should take place. Ans✓✓✓ Predication
A good ending question to an interview would be an open-ended,
nonthreatening, and general question about potential issues of which they might
be aware. Ans✓✓✓ True
A variable interest entity (VIE) can be which of the following? Ans✓✓✓ Equity
investments
Leases
Forward contracts
According to Pincus, Asene, and Wright, checklists during audits constrain
auditors from reasoning strategically. Ans✓✓✓ True
According to SAS 99, not relying on a company's internal controls when evaluating
a high-fraud-risk area increases the auditor's chance of missing fraud. Ans✓✓✓
By not relying on internal controls (pretending they don't exist), we dig further
than we normally would and thus increase the possibility of detecting fraud.
According to the financial statement fraud detection framework, fraud is rarely
detected by which of the following? Ans✓✓✓ Analyzing the financial statements
,After an auditor finds symptoms of fraud, the auditor should not alter the audit
approach so as to make sure proper documentation is recorded. Ans✓✓✓ False
Proper documentation techniques should already be a habit, regardless of the
method of testing and investigating. Also, altering the audit approach adds the
element of surprise required by SAS 99.
AICPA and the Cohen Commission (the commission on auditors' responsibilities)
fought over something specific concerning the fall of Equity Funding in the 1970s.
This conflict highlighted a major communication issue between auditors and
financial statement users during much of the 20th century. What was this conflict
about? Ans✓✓✓ How much responsibility the auditor should take when
endeavoring to detect (or having failed to detect) fraud
America's capital markets are the envy of the world because of their efficiency,
liquidity, and resiliency. What role do financial statements play in American
capital markets? Ans✓✓✓ They present a fair picture of the financial position
and results of the organization.
An active board of directors and audit committee drastically decreases the
opportunity for management to commit fraud. Ans✓✓✓ True
Asking several simple questions of management at the beginning of the audit is
now sufficient under SAS No. 99. Ans✓✓✓ False
Fraud should be considered through the whole process, as should necessary
questions and clarifications asked of management.
At 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
, (SAPs) began to come forth, making it official that auditors really were responsible
for fraud and that fraud detection was a priority second to none. Ans✓✓✓ False
SAP No. 1 actually began to define audits as more than just fraud detection. Since
then, the principal purpose of audits has never been fraud detection.
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. Ans✓✓✓
True
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.
Ans✓✓✓ True
Auditors can usually quickly detect fraud because when it's committed, it's
obvious. Ans✓✓✓ False
Most of the time, only symptoms, indicators, and red flags are observable
Auditors should not establish good rapport with management because it could
cause a conflict of interest if they become too close. Ans✓✓✓ False
Research by Leinicke, Ostrosky, Rexroad, Baker, and Beckman in 2005 showed
that good rapport encourages open and two-way communication and allows for
the auditor to identify specific behavior changes.
Barry Minkow (a convicted fraudster) said: "Receivables are a wonderful thing—
you create a receivable and you have ________________." Ans✓✓✓ Revenue
questions with verified answers
_________________ means "reason to believe that fraud may be occurring."
When __________________ exists and conditions warrant, an investigation
should take place. Ans✓✓✓ Predication
A good ending question to an interview would be an open-ended,
nonthreatening, and general question about potential issues of which they might
be aware. Ans✓✓✓ True
A variable interest entity (VIE) can be which of the following? Ans✓✓✓ Equity
investments
Leases
Forward contracts
According to Pincus, Asene, and Wright, checklists during audits constrain
auditors from reasoning strategically. Ans✓✓✓ True
According to SAS 99, not relying on a company's internal controls when evaluating
a high-fraud-risk area increases the auditor's chance of missing fraud. Ans✓✓✓
By not relying on internal controls (pretending they don't exist), we dig further
than we normally would and thus increase the possibility of detecting fraud.
According to the financial statement fraud detection framework, fraud is rarely
detected by which of the following? Ans✓✓✓ Analyzing the financial statements
,After an auditor finds symptoms of fraud, the auditor should not alter the audit
approach so as to make sure proper documentation is recorded. Ans✓✓✓ False
Proper documentation techniques should already be a habit, regardless of the
method of testing and investigating. Also, altering the audit approach adds the
element of surprise required by SAS 99.
AICPA and the Cohen Commission (the commission on auditors' responsibilities)
fought over something specific concerning the fall of Equity Funding in the 1970s.
This conflict highlighted a major communication issue between auditors and
financial statement users during much of the 20th century. What was this conflict
about? Ans✓✓✓ How much responsibility the auditor should take when
endeavoring to detect (or having failed to detect) fraud
America's capital markets are the envy of the world because of their efficiency,
liquidity, and resiliency. What role do financial statements play in American
capital markets? Ans✓✓✓ They present a fair picture of the financial position
and results of the organization.
An active board of directors and audit committee drastically decreases the
opportunity for management to commit fraud. Ans✓✓✓ True
Asking several simple questions of management at the beginning of the audit is
now sufficient under SAS No. 99. Ans✓✓✓ False
Fraud should be considered through the whole process, as should necessary
questions and clarifications asked of management.
At 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
, (SAPs) began to come forth, making it official that auditors really were responsible
for fraud and that fraud detection was a priority second to none. Ans✓✓✓ False
SAP No. 1 actually began to define audits as more than just fraud detection. Since
then, the principal purpose of audits has never been fraud detection.
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. Ans✓✓✓
True
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.
Ans✓✓✓ True
Auditors can usually quickly detect fraud because when it's committed, it's
obvious. Ans✓✓✓ False
Most of the time, only symptoms, indicators, and red flags are observable
Auditors should not establish good rapport with management because it could
cause a conflict of interest if they become too close. Ans✓✓✓ False
Research by Leinicke, Ostrosky, Rexroad, Baker, and Beckman in 2005 showed
that good rapport encourages open and two-way communication and allows for
the auditor to identify specific behavior changes.
Barry Minkow (a convicted fraudster) said: "Receivables are a wonderful thing—
you create a receivable and you have ________________." Ans✓✓✓ Revenue
