Fraud

Define fraudulent financial reporting and give 2 examples that illustrate fraudulent financial reporting

Define misappropriation of assets and give 2 examples of misappropriation of assets.

Distinguish misappropriate of assets from fraudulent financial reporting

Which of the following best defines fraud in a financial statement auditing context?

• Fraud is either an intentional or unintentional misstatement of the financial statements, depending on materiality.

• Fraud is an unintentional misstatement of the financial statements.

• Fraud is either an intentional or unintentional misstatement of the financial statements, depending on consistency.

• Fraud is an intentional misstatement of the financial statements.

Most cases of fraudulent reporting involve

• inadequate disclosures.

• an overstatement of liabilities.

• an overstatement of income.

• an overstatement of expenses.

Misappropriation of assets is normally perpetrated by

• employees at lower levels of the organization.

• management of the company.

• the internal auditors.

• members of the board of directors.

Fraudulent financial reporting

• always involves inadequate disclosures.

• can involve understating net income in order to reduce income taxes.

• can be intentional or unintentional.

• all of the answers choices.

Which of the following is an accurate statement regarding the misappropriation of assets?

• In most cases, the amounts involved are material to the financial statements.

• Asset misappropriation schemes are less common than fraudulent financial statement schemes.

• Misappropriation of assets can easily increase in size over time and can lead to significant reputational harm.

• Management should not be concerned about minor misappropriations.

Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?

• ineffective oversight of financial reporting by the board of directors

• lack of controls related to the calculation and approval of accounting estimates

• high turnover of accounting, internal audit, and information technology staff

• management's set of ethical values

Which of the following is a factor that relates to incentives or pressures to commit fraudulent financial reporting?

• excessive pressure for management to meet debt repayment requirements

• management's practice of making overly aggressive forecasts

• high turnover of accounting, internal audit, and information technology staff

• significant accounting estimates involving subjective judgments