CPA Auditing and Attestation (AUD) : Audit Risk Evidence

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

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Example Questions

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Example Question #1 :The Fraud Triangle

James Jones is the bookkeeper of Prestige Yachts, a Yacht builder for high net worth individuals. The company owner decides to “do more with less” and requires James to record the accounts receivables and maintain the bank reconciliation. James decides to cash checks for outstanding accounts and will replace them as soon as he gets the money. He expects this to happen soon. Using the fraud triangle, this is an example of:

Possible Answers:

Justification

Determination

Opportunity

Rationalization

Correct answer:

Opportunity

Explanation:

This is an example of an opportunity. The firm has inappropriate segregation of duties creating an opportunity for the employee to both defraud the firm and cover up the act.

Example Question #1 :The Fraud Triangle

James Jones is the bookkeeper of Prestige Yachts, a Yacht builder for high net worth individuals. James sees the owner continually overcharging on options and giving himself raises. James hasn’t had a raise in years. James decides to cash checks for outstanding accounts and will replace them as soon as he gets the money. Using the fraud triangle, this is an example of

Possible Answers:

means

determination

justification

motive

Correct answer:

motive

Explanation:

This is an example of a motive. The employee witnesses the employer overcharging customers and having not had a raise to justify the fraud based on motive.

Example Question #2 :The Fraud Triangle

The auditors rely on the fraud triangle as one's means of developing

Possible Answers:

a list of potential employees that might commit fraud

a risk assessment

as evidence in a lawsuit

a criticism of management to the audit committed

Correct answer:

a risk assessment

Explanation:

The fraud triangle is used in the planning stage of the audit to assess risk. Risk is assessed in terms of each area of the fraud triangle and the auditor designs tests of the internal control system based on these areas.

Example Question #3 :The Fraud Triangle

Of the following statements about the fraud triangle, which is true?

Possible Answers:

Nonobservation of all three factors indicates no fraud

The CPA should determine whether and to what extent the factors are present as a part of the final review stage of the audit

The fraud risk factors should be discussed by engagement personnel during planning

The existence of all three factors indicates that fraud has occurred

Correct answer:

The fraud risk factors should be discussed by engagement personnel during planning

Explanation:

During the planning stage of an audit, the engagement team must discuss the potential for misstatement due to fraud as well as the three factors.

Example Question #1 :一个udit Risk Evidence

When planning an audit, the CPA auditor should document in the work papers the risk assessment of material misstatement of the financial statements due to fraud. Of the following, which should be included in the work paper documentation if the factors are identified and present?

Possible Answers:

Discussion of the risk factor with the client

在vestigation of the risk factors

Those risk factors identified

一个copy of the report of the risk factor to the company legal counsel

Correct answer:

Those risk factors identified

Explanation:

During the planning stage of an audit, the engagement team must discuss the potential for misstatement due to fraud as well as the three factors. The team must also document the factors if identified.

Example Question #6 :The Fraud Triangle

一个n example of fraud could include all of the following except:

Possible Answers:

Knowingly providing an auditor with incorrect accounting information

在accurate accounting estimates

在tentionally misstating financial statements

Misappropriation of assets

Correct answer:

在accurate accounting estimates

Explanation:

在accurate accounting estimates would likely be classified as an error rather than fraud. Fraud requires an intentional act, whereas an error is unintentional.

Example Question #1 :一个udit Risk Evidence

The three conditions generally present when fraud occurs include:

Possible Answers:

avoidance

management oversight

在ternal Control

motivation

Correct answer:

motivation

Explanation:

Motivation to commit fraud is typically one of the elements present when fraud occurs. Internal control is a system used to help prevent fraud. Management oversight is an element of internal control.

Example Question #2 :一个udit Risk Evidence

一个ccording to AU 316; “Management has a unique ability to perpetrate fraud because”

Possible Answers:

They pick the auditors

They can override controls

They are not responsible for internal control

They are not accountable to ownership

Correct answer:

They can override controls

Explanation:

一个U 316 indicates that management is in a unique position to be able to override internal controls. This is considered a control risk.

Example Question #1 :一个udit Risk Evidence

Managers and/or employees may attempt to conceal the fraud by:

Possible Answers:

blaming other employees

ignoring auditors

none of the above

colluding with other employees

Correct answer:

colluding with other employees

Explanation:

一个udit collusion is a situation where two or more individuals work together to override a system of internal controls. Internal control systems are built around the concept of segregation of duties. Where collusion exists, segregation of duties is overridden.

Example Question #4 :Fraud Incentives

Of the following characteristics, which would most likely raise an auditor's concern about the risk of material misstatement arising from fraud?

Possible Answers:

Monthly bank recs usually include several deposits in transit

Management displays a significant disregard for regulations and authority

Equipment is sold at a loss before being fully depreciated

Lack of turnover of employees in the accounting department

Correct answer:

Management displays a significant disregard for regulations and authority

Explanation:

虚假财务报告包括了意图ional misstatement or omission of amounts or disclosures in financial statements and are designed to deceive users of the financial statements. This reaction from management would indicate a higher risk of fraud than a management with public respect and diligence of regulations and authority. Of the remaining options, these are not necessarily indicative of fraud or a higher risk of fraud.

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