CA Inter Audit Lec 61 & 62

240.5

Misappropriation of assets may occur because there is-

• a) Adequate record keeping with respect to assets

• b) Known history of violations of securities   laws.

• c) Lack of complete and timely reconciliations of assets

• d) Dispute between shareholders in a closely held entity

240.6

Misstatements in the financial statements can arise either from fraud or error. The auditor is concerned with fraud that causes a material misstatement in the financial statements which may further be classified as fraudulent financial reporting or misappropriation of assets. 

There are certain events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud which may be termed as fraud risk factors. Which of the following is an example of fraud risk factor relating to misstatements arising from misappropriation of assets?

• a) Known history of violations of laws and regulations.

• b) Management failing to remedy known significant deficiencies in internal control on a timely basis.

• c) Inventory items that are small in size, but of high value or in high demand.

• d) An interest by management in employing inappropriate means to minimize reported earnings for tax- motivated reasons.

240.10

Events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud are called as :

• a) Fraud risk factors

• b) misappropriation of assets

• c) Fraud opportunities

• d) eventual frauds

240.4

If as a result of a misstatement resulting from fraud, the auditor encounters exceptional circumstances that bring into question his performing the audit, he shall-

• a) Withdraw from the engagement immediately

• b) Report to Audit team regarding withdrawal ability to continue

• c) Determine the professional and legal responsibilities applicable in the circumstances.

• d) Ask the management for his withdrawal

240.7

Which of the following is an example of inflating cash payments?

• a) Making payments against purchase vouchers.

• b) Teeming and lading

• c) Not accounting for cash sales fully.

• d) Making payments against inflated vouchers.

C5OC.1

Which of the following is not an example of inflation of payments:

• a) Making payments against fictitious vouchers.

• b) Adjusting unauthorized or fictitious rebates, allowances, discounts, etc. to customer’ accounts and misappropriating amount paid by them.

• c) Making payments against vouchers, the amounts whereof have been inflated.

• d) Manipulating totals of wage rolls either by including therein names of dummy workers or by inflating them in any other manner.

C5OC.2

The auditor finds that there is something unusual about the balances outstanding in the receivables.

Date wise verification of the bank reconciliation performed by the auditor has resulted in mismatch in

dates in most of the receivable ledger. The auditor has identified a pattern in the mismatches. He

suspects that there might be a misappropriation of cash and the detection of this misappropriation is

being prevented by crediting the amount received subsequently to the account of customer who paid

earlier. What is the kind of fraud that the auditor has faced in the above case?

• a) Teeming and Lading.

• b) Cash skimming.

• c) Defalcation of cash by inflating cash payment.

• d) Misappropriation of receivables.

Incs.33.1

"Which among the following is NOT a fraud risk factor leading to a fraud in an organization?

• a) Incentive or pressure to commit fraudulent financial reporting

• b) A perceived opportunity to commit fraud

• c) Individuals being able to rationalize the act of committing a fraudulent act

• d) Taking undue advantage of the inefficient internal control in the organization"

Incs.46.4

“……………..refers to events or conditions that indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud:-

• a) Fraud Risk Factors

• b) Misappropriation of assets

• c) Incentives/ Pressures

• d) Fraud

Incs.36.2

"The Fraud Risk Factor behind committing of Fraud by Mr. X in the above case was:-

• a) Incentives or Pressure

• b) Rationalization

• c) Perceived Opportunity

• d) Adventure