audit 2

When the auditor identifies risk at the assertion level,

• A) the auditor may need to obtain audit evidence that is more reliable and relevant.

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• B) the auditor may choose to conduct substantive testing during interim periods rather than at the end of the period

• C) the auditor may decrease the sample size.

• D) both a and b

Auditing standards specifically require auditors to identify ________ as a fraud risk in most audits

• A) overstated assets

  
  

• B) understated liabilities

• C) revenue recognition

• D) overstated expenses

Company management is often under pressure to increase revenue and/or net income. One approach is to use a "bill and hold" arrangement. This is an example of which of the following?

• A) significant accounting estimates

• B) fictitious revenue recorded

• C) premature revenue recognized

• D) alteration of cutoff documents

A company is concerned with the theft of cash after the sale has been recorded. One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping?

• A) reduce the customer's account by recording a sales return

  
  

• B) write off the customer's account

• C) apply the payment from another customer to the customer's account

• D) reduce the customer's account by recording a sales allowance

Analytical procedures can be very effective in detecting inventory fraud. Which of the following analytical procedures would not be useful in detecting fraud?

• A) gross margin percentage

  
  

• B) inventory turnover

• C) cost of sales percentage

• D) accounts receivable turnover

Two of the most useful warning signals that can indicate that revenue fraud is occurring are

• A) analytical procedures and documentary discrepancies.

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• B) analytical procedures and misappropriation of assets

• C) documentary discrepancies and vague responses to inquiries.

• D) missing audit evidence and vague responses to inquiries.

When dealing with revenue frauds,

• 1. A) the most egregious form of revenue fraud involves premature revenue recognition.

  
  

• B) premature revenue recognition involves recognizing the revenue after the accounting standards requirements have been met.

• C) premature revenue recognition is the same as cutoff errors.

• D) side agreements can modify the terms of the sales transaction and should be analyzed carefully.

Fictitious revenues

• A) increase accounts receivable turnover.

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• B) understate the gross margin percentage

• C) lower accounts receivable turnover.

• D) have no impact on the gross margin percentage.

When analyzing accounts for fraud risk,

• A) companies will generally attempt to overstate accounts payable and net income.

• B) the inventory account is generally not susceptible to fraud since the auditor must verify the existence of the inventory.

• C) payroll is rarely a significant risk for fraudulent financial reporting.

• D) fixed assets are rarely stolen because of their large size

Which of the following is least likely to uncover fraud

• A) external auditors

  
  

• B) internal auditors

• C) internal controls

• D) management