Question 1

In the ZZZZ best case, Barry Minkow was sentenced to 5 years for his involvement in

Accepted Answer

The answer of In the ZZZZ best case, Barry Minkow...

Question 2

Larry is the controller of ABC Industries and has a difference of opinion on an accounting matter with the CFO. Larry is told that the very survival of the company depends on his going along with the proposed accounting treatment that has been approved by the CEO and increases earnings 20 percent above what Larry believes it should be. If Larry goes along with the CFO, he is reasoning at what stage in Kohlberg's model:

Accepted Answer

Stage 3 of Kohlberg's model is characterized by behavior driven by social approval and the desire to maintain relationships. If Larry goes along with the CFO, he is prioritizing the company's survival and approval from the CEO and CFO over his own ethical judgment.

Question 3

The primary issue discussed in the Krispy Kreme case was:

Accepted Answer

The primary issue in the Krispy Kreme case was the use of "round trip" transactions to accelerate the recording of earnings, which involved manipulating financial results to meet earnings targets.

Question 4

Which is not part of the required links of the chain of command that the controller should follow to inform of a material misstatement in the financial statements?

Accepted Answer

The external auditor is not a part of the company's chain of command and should not be informed directly by the controller. The controller should report any material misstatements to the CFO, who then informs the CEO and the audit committee of the Board of Directors. The external auditor is informed by the audit committee, not the controller.

Question 5

In the Imperial Valley Thrift & Loan case, each of the following were reasons for the going concern issue except for:

Accepted Answer

The answer of In the Imperial Valley Thrift & Loan...

Question 6

PCAOB Auditing Standard No.16 require the auditor to communicate with the audit committee all but?

Accepted Answer

PCAOB Auditing Standard No.16 requires auditors to communicate significant accounting policies, critical accounting practices, and significant unusual transactions, but not the specific procedures used in evaluating evidence.

Question 7

A study conducted of financial statement restatements during the period of 2007 through 2009 indicated a decline in the number of restatements that were attributed to each of the following except for:

Accepted Answer

The answer of A study conducted of financial statement restatements...

Question 8

If a company is seeking out views of different accounting firms until they find one with a desired accounting treatment, it would be called _____.

Accepted Answer

When a company seeks out views of different accounting firms until they find one with a desired accounting treatment, it is known as "opinion shopping." This practice can be considered unethical as it may lead to biased or inaccurate financial reporting. Low-balling refers to underestimating the cost of a service to secure a contract, while under bidding is submitting a lower bid than competitors to win a contract. Option pricing is a method used to value options contracts.

Question 9

Which of the following is not a consideration in determining a measure of materiality?

Accepted Answer

The importance of the audit committee in the organization is not a consideration in determining a measure of materiality. Materiality is typically determined based on factors such as the size of the item or account, the nature of the transaction, and the potential impact on financial statements. The risks of material misstatements due to fraud, as well as quantitative and qualitative assessments of differences in accounting opinions with client management, are all important considerations in determining materiality.

Question 10

XYZ Company requires that its internal auditor must bring all accounting and financial reporting matters of concern to the CFO and CEO before going to the audit committee. The weakness in internal controls is most likely to lead to which element of the fraud triangle when instances of fraud occur

Accepted Answer

The answer of XYZ Company requires that its internal auditor...

Question 11

In which of the following circumstances would a qualified opinion be appropriate?

Accepted Answer

A qualified opinion is appropriate when the financial statements are not in conformity with generally accepted accounting principles, but the deviation does not have a pervasive effect on the financial statements. Option B would result in an adverse opinion, and options C and D would result in a disclaimer of opinion or withdrawal from the engagement, respectively.

Question 12

In the Computer Associates case, each of the following allegations were made against the company except for the following:

Accepted Answer

The allegations against Computer Associates involved financial manipulation, such as backdating contracts and extending quarters, but not the misuse of company resources by top management.

Question 13

Which of the following is an example of opinion shopping by a company?

Accepted Answer

Opinion shopping refers to the practice of seeking out auditors who provide favorable opinions. In Choice B, the company is changing auditors specifically because they want a different accounting treatment than what is required by the external auditor. This implies that they are looking for an auditor who will provide a more favorable opinion, which is an example of opinion shopping. Choices A, C, and D do not necessarily involve seeking out a more favorable opinion.

Question 14

Management's attitude toward aggressive financial statement reporting and its emphasis on meeting projected profit numbers would significantly influence an entity's control environment when

Accepted Answer

When management is dominated by one shareholder with little other governance, there is a higher risk of aggressive financial reporting due to lack of checks and balances, significantly influencing the control environment.

Question 15

An ethical dilemma for professional accountants is when a conflict exists between each of the following except for:

Accepted Answer

The CEO and board of directors are both part of the same organization and are expected to have aligned interests. Therefore, a conflict between them would be less of an ethical dilemma compared to conflicts between the auditor and client or different accounting members of management, which could involve ethical violations such as independence, objectivity, and integrity. Option D is incorrect because conflicts between any of these parties can potentially create ethical dilemmas for professional accountants.

Question 16

Which of the following is not an element of COSO Enterprise Risk Management?

Accepted Answer

Improving deployment of information technology is not one of the elements of the COSO Enterprise Risk Management framework. The five elements of the framework include: 1) Governance and Culture, 2) Strategy and Objective-Setting, 3) Performance, 4) Review and Revision, and 5) Information, Communication and Reporting.

Question 17

The framework of COSO Enterprise Risk Management is to

Accepted Answer

The framework of COSO Enterprise Risk Management is designed to incorporate enhanced corporate governance into internal control principles, with the goal of improving overall organizational performance and reducing the risk of adverse events. While audit sampling procedures and substantive testing are important components of effective internal controls, they are not the primary focus of the COSO ERM framework.

Question 18

Which of the following is not an essential area of fraud considerations assessed by the auditors?

Accepted Answer

While auditors may assess whether fraud was committed, it is not their role to determine whether management did so intentionally or deliberately. Auditors primarily focus on assessing the possibility of fraud, identifying risks of fraud, and evaluating the characteristics of fraud.

Question 19

Which of the following is not true of "reasonable assurance"?

Accepted Answer

Reasonable assurance does not provide a guarantee that all material misstatements have been identified. While auditors exercise due care and follow GAAS, the audit opinion can only provide reasonable assurance that the financial statements are free from material misstatements.

Question 20

Because of the risk of material misstatement, an audit of financial statements in accordance with GAAS should be planned and performed with

Accepted Answer

Professional skepticism is necessary in an audit as it involves an attitude of questioning and critical assessment of evidence obtained during the audit. This is important to identify potential material misstatements in the financial statements. Objective judgment, due care, and internal controls are also important in an audit, but professional skepticism is the most relevant choice in this scenario.

Quiz 5: Fraud in Financial Statements and Auditor Responsibilities