Question 1

The first step for an auditor who concludes an illegal act exists is to:

Accepted Answer

The first step for an auditor upon concluding an illegal act exists is to assess the impact of the illegal act on the financial statements. This is crucial to determine how the act affects the financial statements' fairness and accuracy.

Question 2

The difference between an error in the financial statements as compared to fraud is:

Accepted Answer

An error in the financial statements is an unintentional mistake, while fraud is an intentional act designed to deceive another party. Additionally, not all errors lead to a qualification of the auditors' opinion, and fraudulent financial reporting may or may not be material in amount.

Question 3

All of the following tend to be rationalizations for fraud except for:

Accepted Answer

The answer of All of the following tend to be...

Question 4

Which of the following is not part of the fraud triangle?

Accepted Answer

The fraud triangle consists of three elements: incentives, opportunity, and rationalization. Materiality, although important in accounting and financial statement preparation, is not a part of the fraud triangle.

Question 5

The AICPA issued eight Statements on Auditing Standards (SAS 104-111) that address risk assessment with respect to:

Accepted Answer

The eight Statements on Auditing Standards (SAS 104-111) issued by the AICPA address risk assessment in the design and performance of audit procedures to respond to assessed risks. They do not specifically address the expectation gap or the role of the audit committee in preventing fraud.

Question 6

The fraud at Tyco included each of the following acts except for:

Accepted Answer

The answer of The fraud at Tyco included each of...

Question 7

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

Accepted Answer

The auditor's responsibility to report findings of fraud requires them to communicate both material and immaterial amounts of fraud detected to the audit committee. Reporting to the SEC is required only for material fraud, but communication of both material and immaterial fraud is necessary for the proper governance and control of the entity. Therefore, choice B is the best answer.

Question 8

Auditors are responsible to detect and correct errors when they are:

Accepted Answer

Auditors are responsible for detecting and correcting errors that are material, meaning they have the potential to affect the decision-making of users of the financial statements. Immaterial errors do not need to be corrected as they do not impact the overall picture of the financial statements. Detecting errors due to illegal acts is also the responsibility of auditors, but it is not the only factor that determines whether an error needs to be corrected. Additionally, management is responsible for correcting errors whenever possible, but it is not the sole responsibility of auditors.

Question 9

The purpose of the fraud triangle is to identify:

Accepted Answer

The fraud triangle is a tool used to identify the factors that lead to intentional misstatements or omissions of financial information. It includes the presence of opportunity, rationalization, and incentive. The focus is on identifying potential fraud risks in the financial statements.

Question 10

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed.The auditor should withdraw from the engagement if the

Accepted Answer

The answer of An auditor concludes that a client has...

Question 11

What is the motive behind the PCAOB Integrated Audit Concept?

Accepted Answer

The motive behind the PCAOB Integrated Audit Concept is to improve the quality and integrity of both internal controls over financial reporting and independent financial statement audits.

Question 12

PCAOB Auditing Standard No.4 requires that the external auditors should take each of the following steps when reporting on whether a material weakness still exists in the internal controls except for:

Accepted Answer

PCAOB Auditing Standard No.4 does not require management to conduct an audit of internal controls. The other three steps (evaluating management's acceptance of responsibility, their assertion of effectiveness, and their obtainment of sufficient evidence) are all required under the standard.

Question 13

Each of the following represents a pressure that might lead to fraud except for:

Accepted Answer

Inadequate internal controls do not represent a pressure that leads to fraud. They represent a vulnerability that can be exploited by individuals who are under pressure to commit fraud. The other options are pressures that can lead individuals to commit fraud in order to achieve their goals or meet expectations.

Question 14

All of the following are in a position to commit fraud except for:

Accepted Answer

External auditors are not typically in a position to commit fraud as their role is to provide an independent assessment of the financial statements and the effectiveness of internal controls. However, they can still potentially manipulate the financial statements if they are colluding with management or have a conflict of interest. Therefore, options A, B, and D are incorrect since all of these groups have the potential to commit fraud.

Question 15

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when:

Accepted Answer

The Private Securities Litigation Reform Act imposes additional requirements when the illegal act has a material effect on the financial statements, senior management and the board have not acted properly to correct for the act, and the failure to correct for the action is reasonably expected to warrant a departure from the standard audit report, therefore all of the above are additional requirements.

Question 16

Backdating options refers to:

Accepted Answer

Backdating options refers to changing the grant date of the options to a lower price, which reduces reported earnings. This is typically done to benefit company executives or insiders. It is illegal and unethical. Option exercise dates cannot be changed. Option grants cannot be retroactive.

Question 17

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1987-1997 periods when business failures due to accounting fraud were high and found that:

Accepted Answer

Top management, particularly the CEO, was often found to be involved in accounting fraud during this period.

Question 18

The eight risk assessment auditing standards issued by the AICPA identify the following types of misstatements:

Accepted Answer

The eight risk assessment auditing standards issued by the AICPA identify known and likely misstatements, as well as risks of material misstatement due to error or fraud. The standards do not specifically address "unknown" misstatements, and while all material misstatements are a concern, not all material misstatements may be identified during the risk assessment. Therefore, option C is the best choice as it accurately reflects the types of misstatements identified by the standards.

Question 19

The misappropriation of assets refers to:

Accepted Answer

The misappropriation of assets refers to intentionally using or taking company assets for personal reasons, which could include theft, embezzlement, or other types of fraud. Deliberate overstatement of financial statements and omission of disclosures are separate issues related to financial reporting and do not necessarily involve misappropriation of assets.

Question 20

Members of the audit committee are responsible for each of the following except for:

Accepted Answer

The responsibility of rendering an audit opinion after examining the entity's financial statements and internal controls lies with the external auditors. The audit committee's role is to oversee and provide independent oversight of the financial reporting process, evaluate the external auditors' performance, assess whether management has set the appropriate ethical tone for the organization, and discuss financial reporting matters of concern with the external auditors. However, the audit committee is not responsible for rendering an audit opinion.

Quiz 5: Audit Responsibilities and Accounting Fraud