C254 WGU Practice Review Questions And Answers

C254 WGU Practice Review Questions
And Answers

______________oinotheoacidotestoratioo(QAo÷oCL)oandoCurrentoRatioo(CAo÷oCL)owitho_____
_______oinotheoratiosoAccountsoPayable/CostoofoGoodsoSoldo(APo÷oCOGS)oandoAccountso
Payable/Inventoryoareomostoindicativeoofofraud.

Decreases;oDecreases
Increases;oIncreases
Increases;odecreases
Decreases;oIncreaseso-oCORRECTooANSWER-Increases;odecreases

_________________omeanso"reasonotoobelieveothatofraudomayobeooccurring.oWheno____
______________oexistsoandoconditionsowarrant,oanoinvestigationoshouldotakeoplace.



IllegaloActivity
Fraud
Dishonesty
Predicationo-oCORRECTooANSWER-Predication

"Reportedocostoofogoodsosoldobalancesothatoappearotooolowooroareonotoincreasingofastoenou
gh"oisowhatotypeoofosymptom?


Accountingoandodocumentary
Behavioral
Analytical
Controlo-oCORRECTooANSWER-Analytical

"Unusualoorosuspicious-
lookingopurchaseoorders,oinvoices,oshippingodocs,oand/ororeceivingodocs"oisowhatotypeoofos
ymptom?

Behavioral
Accountingoandodocumentary
Tipsoandocomplaints

,Analyticalo-oCORRECTooANSWER-Accountingoandodocumentary

AoCompanyowillonotousuallyobeofoundoguiltyoofofraudoforomisleadingostatementsoaboutotheoC
ompanyoifotheostatementsowereomadeobyoaonewsooutletobutoareobasedoonoinformationoobtai
nedofromotheoCompany.o-oCORRECTooANSWER-False

False.oTheoMedicaloFraudoexamplesomentionedoareocasesowhereothisoformoofodisclosureofr
audoexisted.

AoCompanyowillonotousuallyobeofoundoguiltyoofofraudoforomisleadingostatementsoaboutotheoC
ompanyoifotheostatementsowereomadeobyoaonewsooutletobutoareobasedoonoinformationoobtai
nedofromotheoCompany.o-oCORRECTooANSWER-
False.oTheoMedicaloFraudoexamplesomentionedoareocasesowhereothisoformoofodisclosureofr
audoexisted.

Aogoodoendingoquestionotooanointerviewowouldobeoanoopen-ended,onon-
threateningoandogeneraloquestionoaboutopotentialoissuesoofowhichotheyomightobeoaware.o-
oCORRECTooANSWER-True




AoPonzioschemeoisobestodescribedoas

BernieoMadoffodescribedohisoactionsoasothatoofoaoPonzioinvestmentobecauseoCharlesoPonzi
oisobelievedotoobeotheogreatestoinvestoroofoallotimes.




CharlesoPonziowasoaofictitiousocharacterocreatedoforotheomovieoMatchstickoMenothatodepict
edocraftyoinvestmentoschemes.

AoPonzioschemeoisoaofraudulentoinvestmentooperationowhereotheooperator,oanoindividualooro
organization,opaysoreturnsotooitsooldoinvestorsofromocapitaloprovidedobyonewoinvestors,orath
erothanofromoprofitoearnedobyotheoorganization.

AnyofraudoorocorruptionoactobecauseoCharlesoPonziowasotheofirstofraudsteroeverodocument
edobyotheoSecuritiesoandoExchangeoCommission.o-oCORRECTooANSWER-
AoPonzioschemeoisoaofraudulentoinvestmentooperationowhereotheooperator,oanoindividualooro
organization,opaysoreturnsotooitsooldoinvestorsofromocapitaloprovidedobyonewoinvestors,orath
erothanofromoprofitoearnedobyotheoorganization.

AoVariableoInterestoEntityo(VIE)ocanobe

-Equityoinvestments
-Leases
-Forwardocontracts
-Alloofotheoaboveo-oCORRECTooANSWER-Alloofotheoabove

AccordingotooFASBoASCo450:oContingencies,owhenodoocontingentoliabilitiesoneedotoobeorec
ordedo(versusosimplyodisclosedooronotoevenomentioned)oonotheofinancialostatements?

,Firmsomustoalwaysorecordoorodiscloseoanyocontingentoliability
Whenotheolikelihoodoofolossoororepaymentoisoremote
Whenotheolikelihoodoofolossoororepaymentoisoprobable
Whenotheolikelihoodoofolossoororepaymentoreasonablyoprobableo-oCORRECTooANSWER-
Whenotheolikelihoodoofolossoororepaymentoisoprobable

AccordingotooPincus,oAsene,oandoWright,ochecklistsoduringoauditsoconstrainoauditorsofromo
reasoningostrategically.o-oCORRECTooANSWER-True

AccordingotooSASo99,onotorelyingoonoaocompany'sointernalocontrolsowhenoevaluatingoaohigh
ofraud-riskoareaoincreasesoauditor'sopossibilityoofomissingofraud.o-oCORRECTooANSWER-

False
Byonotorelyingoonointernalocontrolso(pretendingotheyodon'toexist),oweodigofurtherothanoweonor
mallyowouldoandothusoincreaseotheopossibilityoofodetectingofraud

AccordingotooSASo99,owhyoisobrainstormingoimportantotooauditors?
oToocomprehendotheoregistrationoprocessoofopublicoaccountingofirms

oToocloseotheoexpectationogapoofofinancialostatementsoreporting

oTooavoidooverreactingotootheoredoflagsothatooccuroinotheoaudit

oToodocumentofindingsoamongoauditorsotooincreaseotheolikelihoodoofodetectingofraudo-

oCORRECTooANSWER-Tooavoidooverreactingotootheoredoflagsothatooccuroinotheoaudit




Accordingotootheofinancialostatementofraudodetectionoframework,ofraudoisorarelyodetectedob
yowhichoofotheofollowing:
-Breakingodownoandoanalyzingointernalocontrols
Learningomanagement'somotivations
-Analyzingotheofinancialostatements
-Understandingotheoinherentorisksoofoaospecificoindustryo-oCORRECTooANSWER-
Analyzingotheofinancialostatements

Afteroanoauditorofindsosymptomsoofofraud,otheoauditoroshouldonotoalterotheoauditoapproachos
ooasotoomakeosureoproperodocumentationoisorecorded.o-oCORRECTooANSWER-False
Properodocumentationotechniquesoshouldoalreadyobeoaohabit,oregardlessoofotheomethodoofo
testingoandoinvestigating.oAlso,oalteringotheoauditoapproachoaddsotheoelementoofosurpriseor
equiredobyoSASo99

AICPAoandotheoCohenoCommissiono(theocommissionoonoauditor'soresponsibility)ofoughtoov
erosomethingospecificoconcerningotheofalloofoEquityoFundingoinotheo1970's.oThisoconflictohig
hlightedoaomajorocommunicationoissueobetweenoauditorsoandofinancialostatementousersodu
ringomuchoofotheo20thocentury.oWhatowasothisoconflictoabout?

Howomuchoresponsibilityoshouldotheoauditorotakeowhenoendeavoringotoodetecto(orofailsotood
etect)ofraud

, Theoseverityoofopunishmentotopomanagementoofotheocompanyowithofraudoshouldobeosubject
edotoowhenotheyoperpetrateofraud

Theoauditorsoconsistentlyoweren'todetectingofraudodueotooimproperotraining

Theopublicofeltothatoauditorsoneededotoobeomoreoofoaoconsultantothanoanythingoelse,obutotheo
AICPAodisagreedowithothiso-oCORRECTooANSWER-
Howomuchoresponsibilityoshouldotheoauditorotakeowhenoendeavoringotoodetecto(orofailsotood
etect)ofraud

Alertingovendorsoandocontractorsotoocompanyopoliciesooftenoresultsoin:

Lossoofointerestoinotheoorganizationobyovendors
Heightenedoincidenceooforecurrentoreverse-vendorofraud.
Discoveryoofocurrentofraudsoandotheopreventionoofofutureofrauds
Strainedovendor/purchaserorelationshipso-oCORRECTooANSWER-
Discoveryoofocurrentofraudsoandotheopreventionoofofutureofrauds.

Everyoneowantsotoodealoinoanoenvironmentoofohighoethicsoandointegrity.oWhenovendorsoand
ocontractorsoclearlyounderstandoyouroexpectations,otheyoareofarolessolikelyotooengageoinopay

ingobribesoorootherotypesoofofraudulentobehavior.

Alloofotheofollowingoareocommonomethodsotoocommitounderstatementoofoliabilityofraud,oexce
pt:

Understateoaccruedoliabilities.
Recognizingounearnedorevenueoasoearnedorevenue.
Understateoaccountsopayable.
Over-recordingofutureoobligations.o-oCORRECTooANSWER-Over-
recordingofutureoobligations.

Inoorderotoocommitounderstatementoofoliabilityofraud,oaoperpetratorowouldoneedotoounder-
recordofutureoobligations,onotoover-recordothemo(seeotopico6oforomoreoinformation).

America'socapitalomarketsoareotheoenvyoofotheoworldobecauseoofotheiroefficiency,oliquidity,oa
ndoresiliency.oWhatoroleodoofinancialostatementsoplayoinoAmericanocapitalomarkets?

Financialostatementsodon'toreallyoplayoaoroleoinoAmericanofinancialomarkets;otheyoareotooou
nreliableoandofraudoisoaoguarantee.

Theyoareodesignedotooshowotheobestosideoofocompany,oandothereforeoareomoreousedoforom
arketingotactics

Theyopreventomonopoliesobyopubliclyodisclosingotradeosecretsoandocompetitiveoprocedure
s.