Question 1

Mary Martini's team has been asked to tackle three ongoing frauds and her partner has asked her to follow up only on the financial reporting fraud. Which of the following items will she be pursuing?

Accepted Answer

A

Question 2

An example of an attitude or rationalization used to justify a fraud is high volume of transactions close to year-end.

Accepted Answer

This is a common attitude or rationalization used to justify a fraud, as high volume of transactions close to year-end can be seen as an attempt to improve financial performance and meet targets. However, this can also be a red flag for potential fraudulent activity, as it may indicate an attempt to manipulate financial statements.

Question 3

Fraud is an intentional act to obtain an unjust or illegal advantage through the use of deception.

Accepted Answer

Fraud involves intentionally deceiving someone in order to gain an unfair or illegal advantage, so the statement is true.

Question 4

Kaz Nowakowski performed several procedures, including observation and inspection of the company's plans and business strategies. He also made inquiries of those individuals that were involved in the governance of the company, the internal auditors, and operating personnel. These procedures will help Kaz to

Accepted Answer

The answer of Kaz Nowakowski performed several procedures, including observation...

Question 5

Auditors must gain an understanding of their client at the outset of every audit.

Accepted Answer

Auditors are required to gain an understanding of their client's business and operations, including its internal control system, before commencing an audit engagement. This understanding enables the auditor to plan the audit effectively and assess the risks of material misstatement. It also helps the auditor design appropriate audit procedures and evaluate the results of the audit.

Question 6

Saad Zuberov is a rookie auditor who has asked you about financial reporting frauds and how they differ from misappropriation of assets frauds. Identify for Saad Zuberov which one of the following frauds consists of misappropriation of assets.

Accepted Answer

Misappropriation of assets involves theft or misuse of an organization's assets, such as cash or inventory, whereas improper asset valuation and unrecorded liabilities are types of financial reporting frauds.

Question 7

Will Durant was meeting with his manager to plan audit strategy in order to determine the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances. Determining the audit strategy occurs during which phase of the audit?

Accepted Answer

The answer of Will Durant was meeting with his manager...

Question 8

Application controls are policies and procedures that relate to many applications.

Accepted Answer

Application controls refer to specific policies and procedures related to individual applications, such as input validation, access controls, and error handling.

Question 9

The planning stage of an audit involves the performance of detailed tests of controls and substantive testing of transactions and accounts.

Accepted Answer

The planning stage of an audit involves gaining an understanding of the entity and its environment, assessing the risks of material misstatement, and designing audit procedures to address those risks. While preliminary analytical procedures may be performed during this stage, detailed tests of controls and substantive testing of transactions and accounts occur during the execution stage of the audit.

Question 10

Mario Moreau was at a client's offices and was preparing his work for the following day. He was considering the risk that a material misstatement due to significant error or fraud could occur in the client's financial statements. Which of the three main stages of the audit was he performing?

Accepted Answer

Mario Moreau is considering the risk of material misstatement due to significant error or fraud, which is a key component of the planning stage of an audit. During this stage, the auditor identifies risk areas, develops an audit plan, and sets materiality thresholds.

Question 11

When Sheila Copes, CGA audited a new client she asked questions about what the client does, how the client functions, the ownership structure of the client and its sources of financing. She was getting an understanding of the client at the

Accepted Answer

Sheila Copes was getting an understanding of the client at the entity level by asking questions about its operations, ownership, and financing. The industry and economy levels would involve broader analysis beyond this particular client. Therefore, the best choice is A) entity level.

Question 12

A client's corporate governance structure is assessed when planning an audit.

Accepted Answer

The assessment of a client's corporate governance structure is important for auditors to gain an understanding of how the organization operates, identifies and manages risks, and sets ethical standards. It also helps the auditor to evaluate the quality of financial reporting and identify potential areas of fraud or mismanagement.

Question 13

Under the going concern assumption, assets are valued on the basis that they will continue to be used for the purpose of conducting a business.

Accepted Answer

Under the going concern assumption, assets are assumed to have a long-term value and are therefore valued on the basis that they will be used for the purpose of conducting a business into the foreseeable future. This assumption is important for financial reporting as it provides a consistent basis for the valuation of assets and liabilities, and enables investors and creditors to make informed decisions about the financial health and prospects of a company.

Question 14

During the planning stage of a grocery chain, Seren Dagdeviren tried to determine which procedures would be appropriate. Which of these procedures, if any, would you use in the planning phase of the audit?

Accepted Answer

The answer of During the planning stage of a grocery...

Question 15

Misappropriation of assets fraud involves intentionally misstating items or omitting important facts from the financial statements.

Accepted Answer

Misappropriation of assets fraud involves the theft or misuse of an organization's assets, not the intentional misstatement or omission of facts from financial statements, which is more accurately described as fraudulent financial reporting.

Question 16

An auditor is not concerned with transactions and events being recorded in the correct accounting period.

Accepted Answer

An auditor is concerned with transactions and events being recorded in the correct accounting period as it affects the accuracy of financial statements. Incorrect recording of transactions can lead to misstatement of income, expenses, assets, and liabilities, which can misrepresent the financial position of the company.

Question 17

Claudia Martel knows that financial reporting fraud transactions require disclosure. However, she is not sure whether related party transactions require disclosure. You advise her that related party transactions require

Accepted Answer

The answer of Claudia Martel knows that financial reporting fraud...

Question 18

Mitigating factors that reduce going concern risk include the ability to raise additional funds through the sale of shares.

Accepted Answer

The ability to raise additional funds through the sale of shares is a mitigating factor that can reduce going concern risk. It helps ensure that the company has access to necessary funds to continue operating and meet its financial obligations.

Question 19

When Sean Green started the preliminary risk identification process at a local dairy during the planning stage of the audit he endeavoured to gather sufficient appropriate evidence. Which of the following elements were involved in the preliminary risk identification?

Accepted Answer

The answer of When Sean Green started the preliminary risk...

Question 20

The more competitive an audit client's industry, the less pressure is placed on the client's profits.

Accepted Answer

The more competitive an audit client's industry, the more pressure is placed on the client's profits. This is because competition drives down prices and reduces profit margins, making it harder for companies to maintain profitability. As a result, companies in competitive industries may be more likely to engage in aggressive accounting practices or other financial misconduct in order to boost their earnings and satisfy investors. This can create additional risks and concerns for auditors, who must be vigilant in their assessments of these clients' financial statements.

Quiz 3: Risk Assessment I