Matching questions
1-64 of 64
Click a definition to match it with a term
"When committing fraud, which is easier to manipulate: income or cash flows?
Cash flows
Income"
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, Income
Most financial statement frauds result in increased income but do not
affect cash flows. As a result, the following ratio is very helpful in detecting
and studying financial statement fraud:
NOI (Net Operating Income) - CFO (Cash Flows from Operations
NOI
While there are timing differences in most companies, causing slight
differences in income and cash flows from operations, the numerator
should be approximately zero or slightly negative, since depreciation and
amortization expense are subtracted from income, but not cash flows from
operations. Experience has shown that companies committing financial
statement fraud do not pay nearly as much attention to quarterly results
(probably because they are not audited) as they do annual results.
"Why was SAP No. 1 such a landmark statement regarding audits of financial
statements?
It pulled in third parties to help auditors in detecting fraud (e.g., forensic auditors).
It was the first time the profession used the word fraud (previously, everyone used the
wording "errors and irregularities").
It was a visual change in the profession's willingness to take responsibility for fraud
detection during audits.
It deliberately placed responsibility for fraudulent activities in on the shoulders of top
management."
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It was a visual change in the profession's willingness to take responsibility
for fraud detection during audits.
,"When is a contingent liability supposed to be recognized on the books (a contingent
liability is the potential for a payout based on a court case or some other future
event)?
If the likelihood of loss or payment is probable
If the likelihood of loss or payment is possible
If the likelihood of loss or payment is remote"
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If the likelihood of loss or payment is probable
FASB ASC 450, Contingencies, requires contingent liabilities to be
recorded as liabilities on the balance sheet if the likelihood of loss or
payment is ""probable."" If likelihood of loss is reasonably possible, the
contingent liability should be discussed in the footnotes to the financial
statements. If probability of payment is ""remote,"" no mention of the
liability need be made in the financial statements.
"According to the COSO report on fraud, firms that engaged in fraudulent behavior:
RARELY changed auditors between the last clean financial statements and the last
fraudulent financial statements.
NEVER changed auditors between the last clean financial statements and the last
fraudulent financial statements.
OFTEN changed auditors between the last clean financial statements and the last
fraudulent financial statements.
ALWAYS changed auditors between the last clean financial statements and the last
fraudulent financial statements."
Give this one a try later!
, OFTEN changed auditors between the last clean financial statements and
the last fraudulent financial statements.
"Which of the following is a common consequence following a financial statement
fraud?
Firm experienced bankruptcy
Firm was delisted from stock exchanges
Material asset sales followed the discovery of the fraud
All of the above"
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All of the above
Consequences associated with financial statement fraud were severe for
both the companies and individuals involved. Companies engaged in fraud
often experienced bankruptcy, delisting from stock exchanges, and/or
material assets sales following the discovery of the fraud.
"SAS No. 99 (the most recent statement issued by the ASB regarding auditor
responsibility to detect fraud) did not change auditor responsibility to plan and
perform the audit to obtain reasonable assurance that the financial statements are
free of material misstatement. It DID provide guidance on how to fulfill that
responsibility. Which of the following is a direct instruction to auditors?
Make inquiries of management
Consider the results of the analytical procedures performed in planning the audit
Proceed with professional skepticism
All of the above are direct instructions to auditors in fulfilling their responsibility to
detect fraud"
Give this one a try later!
1-64 of 64
Click a definition to match it with a term
"When committing fraud, which is easier to manipulate: income or cash flows?
Cash flows
Income"
Give this one a try later!
, Income
Most financial statement frauds result in increased income but do not
affect cash flows. As a result, the following ratio is very helpful in detecting
and studying financial statement fraud:
NOI (Net Operating Income) - CFO (Cash Flows from Operations
NOI
While there are timing differences in most companies, causing slight
differences in income and cash flows from operations, the numerator
should be approximately zero or slightly negative, since depreciation and
amortization expense are subtracted from income, but not cash flows from
operations. Experience has shown that companies committing financial
statement fraud do not pay nearly as much attention to quarterly results
(probably because they are not audited) as they do annual results.
"Why was SAP No. 1 such a landmark statement regarding audits of financial
statements?
It pulled in third parties to help auditors in detecting fraud (e.g., forensic auditors).
It was the first time the profession used the word fraud (previously, everyone used the
wording "errors and irregularities").
It was a visual change in the profession's willingness to take responsibility for fraud
detection during audits.
It deliberately placed responsibility for fraudulent activities in on the shoulders of top
management."
Give this one a try later!
It was a visual change in the profession's willingness to take responsibility
for fraud detection during audits.
,"When is a contingent liability supposed to be recognized on the books (a contingent
liability is the potential for a payout based on a court case or some other future
event)?
If the likelihood of loss or payment is probable
If the likelihood of loss or payment is possible
If the likelihood of loss or payment is remote"
Give this one a try later!
If the likelihood of loss or payment is probable
FASB ASC 450, Contingencies, requires contingent liabilities to be
recorded as liabilities on the balance sheet if the likelihood of loss or
payment is ""probable."" If likelihood of loss is reasonably possible, the
contingent liability should be discussed in the footnotes to the financial
statements. If probability of payment is ""remote,"" no mention of the
liability need be made in the financial statements.
"According to the COSO report on fraud, firms that engaged in fraudulent behavior:
RARELY changed auditors between the last clean financial statements and the last
fraudulent financial statements.
NEVER changed auditors between the last clean financial statements and the last
fraudulent financial statements.
OFTEN changed auditors between the last clean financial statements and the last
fraudulent financial statements.
ALWAYS changed auditors between the last clean financial statements and the last
fraudulent financial statements."
Give this one a try later!
, OFTEN changed auditors between the last clean financial statements and
the last fraudulent financial statements.
"Which of the following is a common consequence following a financial statement
fraud?
Firm experienced bankruptcy
Firm was delisted from stock exchanges
Material asset sales followed the discovery of the fraud
All of the above"
Give this one a try later!
All of the above
Consequences associated with financial statement fraud were severe for
both the companies and individuals involved. Companies engaged in fraud
often experienced bankruptcy, delisting from stock exchanges, and/or
material assets sales following the discovery of the fraud.
"SAS No. 99 (the most recent statement issued by the ASB regarding auditor
responsibility to detect fraud) did not change auditor responsibility to plan and
perform the audit to obtain reasonable assurance that the financial statements are
free of material misstatement. It DID provide guidance on how to fulfill that
responsibility. Which of the following is a direct instruction to auditors?
Make inquiries of management
Consider the results of the analytical procedures performed in planning the audit
Proceed with professional skepticism
All of the above are direct instructions to auditors in fulfilling their responsibility to
detect fraud"
Give this one a try later!
