WGU C254 questions with verified answers
(NS) What is the incentive to committing fraud on the Selling of Finished
Products? Ans✓✓✓ (NS) If a company understates the amount of Sales of
Finished Products, then it will not have to keep as much in an allowance account
for Warranty (service) Liability.
A Contingent Liability is an actual Liability reported on the Financial Statements
(T/F) Ans✓✓✓ False.
A Contingent Liability does not become a full-fledged liability on the Financial
Statements until the likelihood of repayment is "reasonably probable." Until then,
the Contingent Liability is simply disclosed.
A good ending question to an interview would be an open-ended, non-
threatening and general question about potential issues of which they might be
aware. (T/F) Ans✓✓✓ True.
A higher Acid Test Ratio is better. (T/F) Ans✓✓✓ True.
A Variable Interest Entity (VIE) can be: Ans✓✓✓ Equity Investments, Leases,
Forward Contracts
According to FASB ASC 450: Contingencies, when do contingent liabilities need to
be recorded (versus simply disclosed or not even mentioned) on the financial
statements? Ans✓✓✓ When the likelihood of loss or repayment reasonably
probable
,According to the financial statement fraud detection framework, fraud is rarely
detected by: Ans✓✓✓ 4. 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. (T/F) 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
After the beginning of the 20th century, auditors began to deny that it was their
responsibility to detect fraud. They even stopped counting inventories and "took
the managers' word for it." (T/F) Ans✓✓✓ True.
An excellent way to actively search for analytical symptoms is to Ans✓✓✓
compare internal trends with industry averages, trends of similar firms, or even
company financial statement data with non-financial statement data.
Analytical Fraud symptoms include: Ans✓✓✓ Unexplained inventory shortages
or adjustments
Deviations from specifications
Increased scrap
Excess purchases
Too many debit or credit memos
Significant increases or decreases in account balances, ratios, or relationships
, Auditors are responsible for providing reasonable assurance that all material
related party transactions have been properly disclosed. (T/F) Ans✓✓✓ True.
GAAP and GAAS require auditors to provide this assurance.
Autocratic Management Ans✓✓✓ occurs when supervisors and managers do not
listen to, or have a receptive attitude towards their subordinates' input or
suggestions.
Beyond internal controls design, implementation and effectiveness assessments,
the Sarbanes Oxley act provided for Ans✓✓✓ Section 302 of SOX requires that
the company's "principal officers" (typically the Chief Executive Officer and Chief
Financial Officer) certify and approve the integrity of their company financial
reports.
Changes in behavior can be an excellent indicator of a first-time offender of fraud.
(T/F) Ans✓✓✓ True.
Control Activities Ans✓✓✓ The five types of control activities are segregation of
duties, system of authorizations, physical controls, independent checks and
documents and records.
Control activities include: Ans✓✓✓ Adequate segregation of duties, proper
procedures for authorization, and adequate documents and records are all
considered to be control activities. For more information, see topic 9.
Control Environment Ans✓✓✓ ex. Good Hiring practices
(NS) What is the incentive to committing fraud on the Selling of Finished
Products? Ans✓✓✓ (NS) If a company understates the amount of Sales of
Finished Products, then it will not have to keep as much in an allowance account
for Warranty (service) Liability.
A Contingent Liability is an actual Liability reported on the Financial Statements
(T/F) Ans✓✓✓ False.
A Contingent Liability does not become a full-fledged liability on the Financial
Statements until the likelihood of repayment is "reasonably probable." Until then,
the Contingent Liability is simply disclosed.
A good ending question to an interview would be an open-ended, non-
threatening and general question about potential issues of which they might be
aware. (T/F) Ans✓✓✓ True.
A higher Acid Test Ratio is better. (T/F) Ans✓✓✓ True.
A Variable Interest Entity (VIE) can be: Ans✓✓✓ Equity Investments, Leases,
Forward Contracts
According to FASB ASC 450: Contingencies, when do contingent liabilities need to
be recorded (versus simply disclosed or not even mentioned) on the financial
statements? Ans✓✓✓ When the likelihood of loss or repayment reasonably
probable
,According to the financial statement fraud detection framework, fraud is rarely
detected by: Ans✓✓✓ 4. 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. (T/F) 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
After the beginning of the 20th century, auditors began to deny that it was their
responsibility to detect fraud. They even stopped counting inventories and "took
the managers' word for it." (T/F) Ans✓✓✓ True.
An excellent way to actively search for analytical symptoms is to Ans✓✓✓
compare internal trends with industry averages, trends of similar firms, or even
company financial statement data with non-financial statement data.
Analytical Fraud symptoms include: Ans✓✓✓ Unexplained inventory shortages
or adjustments
Deviations from specifications
Increased scrap
Excess purchases
Too many debit or credit memos
Significant increases or decreases in account balances, ratios, or relationships
, Auditors are responsible for providing reasonable assurance that all material
related party transactions have been properly disclosed. (T/F) Ans✓✓✓ True.
GAAP and GAAS require auditors to provide this assurance.
Autocratic Management Ans✓✓✓ occurs when supervisors and managers do not
listen to, or have a receptive attitude towards their subordinates' input or
suggestions.
Beyond internal controls design, implementation and effectiveness assessments,
the Sarbanes Oxley act provided for Ans✓✓✓ Section 302 of SOX requires that
the company's "principal officers" (typically the Chief Executive Officer and Chief
Financial Officer) certify and approve the integrity of their company financial
reports.
Changes in behavior can be an excellent indicator of a first-time offender of fraud.
(T/F) Ans✓✓✓ True.
Control Activities Ans✓✓✓ The five types of control activities are segregation of
duties, system of authorizations, physical controls, independent checks and
documents and records.
Control activities include: Ans✓✓✓ Adequate segregation of duties, proper
procedures for authorization, and adequate documents and records are all
considered to be control activities. For more information, see topic 9.
Control Environment Ans✓✓✓ ex. Good Hiring practices
