C254 WGU PRACTICE REVIEW QUESTIONS WITH CORRECT ANSWERS

In the past (early 20th century time-frame), what was the general consensus of the principal purpose of audits (including among auditors)? To detect fraud To certify for the public that management is qualified to run the entity To evaluate that companies, follow GAAP Investigative and analytical purposes CORRECT ANSWER To detect fraud Why has there been so much frustration between the general public and auditors regarding fraud detection? The auditors were not sufficiently trained in GAAP rules and regulations to identify fraud risks properly. The public felt searching for fraud was pointless and was costing their investments too much money; if fraudsters want to hide things, they will succeed. The auditors were taking short cuts and trying to make as large a profit as possible and therefore weren't performing as they should have. The public wants all cases of fraud detected, while auditors felt they only needed to be "reasonably certain" of its absence. CORRECT ANSWER The public wants all cases of fraud detected, while auditors felt they only needed to be "reasonably certain" of its absence. True or False 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. CORRECT ANSWER True AICPA and the Cohen Commission (the commission on auditor's responsibility) fought over something specific concerning the fall of Equity Funding in the 1970's. This conflict highlighted a major communication issue between auditors and financial statement users during much of the 20th century. What was this conflict about? How much responsibility should the auditor take when endeavoring to detect (or fails to detect) fraud