CHAPTER 1 MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) The audit objective that all transactions and accounts that should be presented in the financial statements are in fact included is related to which of the PCAOB assertions? A) Existence. B) Rights and obligations. C) Completeness. D) Valuation.
2) Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of: A) presentation and disclosure. B) completeness. C) rights and obligations. D) existence.
3) During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management's assertion of: A) existence or occurrence. B) completeness. C) valuation or allocation. D) presentation and disclosure.
4) The confirmation of an account payable balance selected from the general ledger provides primary evidence regarding which management assertion?
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A) Completeness. B) Valuation. C) Allocation. D) Existence.
5) What type of evidence would provide the highest level of assurance in an attestation engagement? A) Evidence secured solely from within the entity. B) Evidence obtained from independent sources. C) Evidence obtained indirectly. D) Evidence obtained from multiple internal inquiries.
6) Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance? A) The entity has rights to the inventory. B) Inventory is properly valued. C) Inventory is properly presented in the financial statements. D) Inventory is complete.
7) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test? A) Valuation and allocation. B) Completeness. C) Rights and obligations. D) Presentation and disclosure.
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8) An auditor has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the: A) control environment factors that affect the organizational structure. B) correlation of detection risk and inherent risk. C) effectiveness of the entity's internal control activities. D) possible effects on the entity's financial statements.
9) Which of the following types of audit evidence provides the least assurance of reliability? A) Receivable confirmations received from the client's customers. B) Prenumbered receiving reports completed by the client's employees. C) Prior months' bank statements obtained from the client. D) Municipal property tax bills prepared in the client's name.
10) Which of the following is a management assertion regarding account balances at the period end? A) Transactions and events that have been recorded have occurred and pertain to the entity. B) Transactions and events have been recorded in the proper accounts. C) The entity holds or controls the rights to assets, and liabilities are obligations of the entity. D) Amounts and other data related to the transactions and events have been recorded appropriately.
11) A practitioner is engaged to express an opinion on management's assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance?
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A) Statement of Auditing Standards. B) Statements on Standards for Attestation Engagements. C) Statements on Standards for Accounting and Review Services. D) Statements on Standards for Consulting Services.
12) In auditing the long-term debt account, an auditor's procedures most likely would focus primarily on management's assertion of: A) existence. B) completeness. C) allocation. D) rights and obligations.
13) An auditor selected items for test counts from the client's warehouse during the physical inventory observation. The auditor then traced these test counts into the detailed inventory listing that ultimately agreed to the financial statements. This procedure most likely provided evidence concerning management's assertion of: A) completeness. B) valuation. C) presentation and disclosure. D) existence. E) rights and obligations.
14) An auditor selected items from the client's detailed inventory listing (that agreed to the financial statements). During the physical inventory observation, the auditor then found each item selected and counted the number of units on hand. Assuming that the amount on hand was the same as the amount in the client's detailed inventory listing, this procedure most likely would provide evidence concerning management's assertion of:
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A) completeness. B) valuation. C) presentation and disclosure. D) existence. E) rights and obligations.
15) According to PCAOB Auditing Standard No. 2201 ( AS 2201), the auditor should identify significant accounts and disclosures and their relevant assertions. Which of the following financial statement assertions is not explicitly identified in AS 2201? A) Completeness. B) Valuation or allocation. C) Accuracy. D) Existence or occurrence. E) All of these are assertions identified in AS 2201.
16) When testing the completeness assertion for a liability account, an auditor ordinarily works from the: A) financial statements to the potentially unrecorded items. B) potentially unrecorded items to the financial statements. C) accounting records to the supporting evidence. D) trial balance to the subsidiary ledger.
17) If an auditor is performing procedures related to the information that is contained in the client's pension footnote, he/she is most likely to obtain evidence concerning management's assertion about: A) rights and obligations. B) existence. C) valuation. D) presentation and disclosure.
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18) Which of the following questions would be inappropriate for an auditor to ask a client when exhibiting an appropriate level of professional skepticism while completing an audit procedure related to the internal control system? A) What can go wrong in this process? B) Which of your employees is a fraudster? C) What else is important to know about this process? D) What happens when a key employee goes on vacation?
19) To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a decision-making process? A) Identify audit evidence relevant to the verification of assertions management makes in its unaudited financial statements and notes. B) Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient, competent evidence about assertions management makes in financial statements and notes. C) Recognize the financial assertions made in management's financial statements and footnotes. D) Evaluate the evidence produced by the performance of procedures and decide whether management's assertions conform to generally accepted accounting principles and reality.
20) Which of the following is an underlying condition that in part creates the demand by users for reliable information? A) Economic transactions that are numerous and complex. B) Decisions that are time-sensitive. C) Users separated from accounting records by distance and time. D) Financial decisions that are important to investors and users. E) All of the these choices are correct.
21) Which of the following is not included in the American Accounting Association (AAA) definition of auditing? Version 1
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A) Potential conflict of interest. B) Systematic process. C) Assertions about economic actions. D) Established criteria.
22) What is the term used to identify the risk that the client's financial statements may be materially false and misleading? A) Business risk. B) Information risk. C) Client risk. D) Risk assessment.
23) Which of the following is not a recommendation usually made following the completion of an operational audit? A) Economic and efficient use of resources. B) Effective achievement of business objectives. C) Attesting to the fairness of the financial statements. D) Compliance with company policies.
24) In order to be considered as external auditors with respect to government agencies, GAO auditors must be: A) organizationally independent. B) empowered as the accounting and auditing agency by the U.S. Congress. C) funded by the federal government. D) guided by standards similar to GAAS.
25)
Which of the following is the essential purpose of the audit function?
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A) Detection of fraud. B) Examination of individual transactions to certify as to their validity. C) Determination of whether the client's financial statement assertions are fairly stated. D) Assurance of the consistent application of correct accounting procedures.
26) The audit objective that all the transactions and accounts presented in the financial statements represent real assets, liabilities, revenues, and expenses is related most closely to which of the PCAOB assertions? A) Existence or occurrence. B) Rights and obligations. C) Completeness. D) Presentation and disclosure.
27) The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB) transaction assertions? A) Occurrence. B) Completeness. C) Cutoff. D) Accuracy.
28) The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB transaction assertions? A) Occurrence. B) Completeness. C) Accuracy. D) Classification.
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29) The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions? A) Existence. B) Rights and obligations. C) Completeness. D) Valuation.
30) The audit objective that all balances include all items that should be recorded in that account is related most closely to which one of the ASB balance assertions? A) Existence. B) Rights and obligations. C) Completeness. D) Valuation.
31) The audit objective that footnotes in the financial statements should be clear and expressed such that the information is easily conveyed to the readers of the financial statements is related most closely with which of the ASB presentation and disclosure assertions? A) Occurrence. B) Rights and obligations. C) Comprehensibility. D) Understandability.
32) The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations. The auditor reviewed all work orders that were capitalized as part of the equipment costs. Which of the following is the ASB transaction assertion most closely related to the auditor's testing?
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A) Occurrence. B) Completeness. C) Accuracy. D) Classification.
33) The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations. When looking at the ending balance for the fixed asset account the auditor examined all work orders, purchased materials, labor cost reports, and applied overhead that were capitalized as part of the equipment costs. Which of the following is the ASB balance assertion most closely related to the auditor's testing? A) Existence. B) Completeness. C) Rights and obligations. D) Valuation.
34) Which of the following best describes the primary role and responsibility of independent external auditor? A) Produce a company's annual financial statements and notes. B) Express an opinion on the fairness of a company's annual financial statements and footnotes. C) Provide business consulting advice to audit clients. D) Obtain an understanding of the client's internal control structure and give management a report about control problems and deficiencies.
35) Which of the following best describes the main reason independent auditors report on management's financial statements?
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A) Management fraud may exist and it is likely to be detected by independent auditors. B) The management that prepares the statements and the persons who use the statements may have conflicting interests. C) Misstated account balances may be corrected as the result of the independent audit work. D) The management that prepares the statements may have a poorly designed system of internal control.
36) The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of: A) quality control. B) generally accepted auditing standards, which include the concept of materiality. C) the auditor's evaluation of the audited company's internal control. D) the applicable financial reporting framework (i.e., GAAP in the United States).
37)
Assurance services involve all of the following, except: A) relevance as well as the reliability of information. B) nonfinancial information as well as traditional financial statements. C) providing absolute rather than reasonable assurance. D) electronic databases as well as printed reports.
38) Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of: A) objective judgment. B) independent integrity. C) professional skepticism. D) impartial conservatism.
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39)
Which of the following best describes assurance services?
A) Independent professional services that report on the client's financial statements. B) Independent professional services that improve the quality of information for decision makers. C) Independent professional services that report on specific written management assertions. D) Independent professional services that improve the operations of the client.
40) Which of the following is not a PCAOB assertion about inventory related to presentation and disclosure? A) Inventory is properly classified as a current asset on the balance sheet. B) Inventory is properly stated at its cost on the balance sheet. C) Major inventory categories and their valuation bases are adequately disclosed in notes. D) All of these are PCAOB presentation and disclosure assertions about inventory.
41) Which of the following is not an ASB assertion about inventory related to presentation and disclosure? A) Inventory is properly classified as a current asset on the balance sheet. B) Inventory is properly stated at cost on the balance sheet. C) Major inventory categories and their valuation bases are adequately disclosed in notes. D) All of these are ASB presentation and disclosure assertions about inventory.
42)
In performing an attestation engagement, a CPA typically:
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A) supplies litigation support services. B) assesses control risk at a low level. C) expresses a conclusion on an assertion about some type of subject matter. D) provides management consulting advice.
43)
An attestation engagement is one in which a CPA is engaged to:
A) issue, or does issue, a report on subject matter or an assertion about the subject matter that is the responsibility of another party. B) provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed. C) testify as an expert witness in accounting, auditing or tax matters, given certain stipulated facts. D) assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance.
44) The underlying conditions that create demand by users for reliable information include all of the following, except: A) transactions are numerous and complex. B) users lack professional skepticism. C) users are separated from accounting records by distance and time. D) financial decisions are important to investors and users. E) decisions are time-sensitive.
45) Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of: A) presentation. B) completeness. C) rights. D) existence.
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46) Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of: A) completeness. B) existence. C) presentation. D) valuation. E) rights and obligations.
47) Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of: A) completeness. B) existence. C) presentation. D) valuation. E) rights and obligations.
48) The probability that the information circulated by a company will be false or misleading is referred to as: A) business risk. B) information risk. C) assurance risk. D) audit risk.
49) The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements. Certification means that the company CEO and CFO must sign a statement indicating:
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A) they have read the financial statements. B) they are not aware of any false or misleading statements (or any key omitted disclosures). C) they believe that the financial statements present an accurate picture of the company's financial condition. D) All of the these choices are correct.
50) The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as: A) substantial equivalency. B) quid pro quo. C) relicensing. D) re-examination.
51)
The risk an entity will fail to meet its objectives is referred to as: A) business risk. B) information risk. C) assurance risk. D) audit risk.
52)
The four basic requirements for becoming a CPA in most states are:
A) education, the CPA Examination, experience, and substantial equivalency. B) the CPA Examination, experience, continuing professional education, and a state certificate. C) continuing professional education, the CPA Examination, experience, and an AICPA certificate. D) education, the CPA Examination, experience, and a state certificate.
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53) The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies is referred to as A) environmental auditing. B) financial auditing. C) compliance auditing. D) operational auditing.
54) The accounting, auditing, and investigating agency of the U.S. Congress, headed by the U.S. Comptroller General, is known as A) the Federal Bureau of Investigation (FBI). B) the U.S. General Accountability Office (GAO). C) the Internal Revenue Service (IRS). D) the United States Legislative Auditors (USLA).
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 55) What are the differences between the American Accounting Association and AICPA definitions and objectives of auditing?
56)
What is operational auditing and by whom is it performed?
57)
What is information risk? What is business risk?
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CHAPTER 6 MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) When auditing financial statements and finding indications of a possible misappropriation of assets, independent auditors should: A) investigate fully to determine the total amount of the misappropriation. B) determine which accounts are affected and the amount by which they are overstated or understated. C) determine the methods by which the misappropriation was carried out. D) identify a person(s) who are likely responsible for the misappropriation and obtain evidence about some other fraud indications in their work. E) all of the these choices are correct.
2) When an employee embezzles company funds from an electric utility company for the purpose of paying expenses of an anti-nuclear protest organization, the fraudster's motive is said to be: A) psychotic. B) egocentric. C) ideological. D) economic.
3) Which of the following management policies would increase the probability of fraud in a company? A) Diversifying authority throughout divisions and subsidiaries in the organization. B) Measuring performance and awarding bonuses based on short-term operating results. C) Giving employees performance feedback that considers positive and constructive praise along with critical and negative observations on their work. D) Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts.
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4) An auditor has identified the controller's review of the bank reconciliation as a control to test. In connection with this test, the auditor interviews the controller to understand the specific data reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs. Which of the following types of audit procedures do these actions illustrate? A) Observation and inspection of records. B) Confirmation and reperformance. C) Inquiry and inspection of records. D) Analytical procedures and reperformance.
5)
Each of the following is a type of known misstatement,
except:
A) an inaccuracy in processing data. B) the misapplication of accounting principles. C) differences between management and the auditor's judgment regarding estimates. D) a difference between the classification of a reported financial statement element and the classification according to generally accepted accounting principles.
6) Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriation of assets? A) A large number of bearer bonds on hand. B) A large number of inventory items with low sales prices. C) A large number of transactions processed in a short period of time. D) A large number of fixed assets with easily identifiable serial numbers.
7) A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows:
Employee Clerk 1 Clerk 2
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Clerk 3 Treasurer
Posts entered vendor invoices to accounts payable ledger for payment and mails checks. Review the vendor invoices and signs each check.
Which of the following would indicate a weakness in the company's internal controls? A) Clerk 1 opens all of the incoming mail. B) Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. C) Clerk 3 mails the checks and remittances after they have been signed. D) The treasurer uses a stamp for signing checks.
8) An auditor is considering whether the omission of the confirmation of investments impairs the auditor's ability to support a previously expressed unmodified opinion. The auditor need not perform this omitted procedure if: A) the results of alternative procedures that were performed compensate for the omission. B) the auditor's assessed level of detection risk is low. C) the omission is documented in a communication with the audit committee. D) no individual investment is material to the financial statements taken as a whole.
9) Which of the following is not considered one of the three factors increasing the probability of fraud? A) Motive. B) Lack of training. C) Opportunity. D) Rationalization.
10) Which of the following is ordinarily considered an "extended procedure" during the independent audit of financial statements?
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A) Send positive confirmations on recorded customer accounts receivable balances. B) Perform physical observation and test count during the client's inventory taking. C) Measure the time lag between the date of recording cash receipts in the books to the date of deposit credit in the bank. D) Conduct interviews with the client's sales billing personnel to learn about sales recording control activities.
11) If the amount of a check is altered by an employee after it has cleared the bank, the change can be detected by: A) comparing the amount written on the check face to the amount written in the cash disbursements journal. B) comparing the magnetic imprint of the amount paid to the amount written on the check face. C) examining the endorsement on the back of the check. D) comparing the check number on the face of the check to the check number in the cash disbursements journal.
12) Which of the following would be consistent with an employee taking cash receipts from customers on account? A) The total of the accounts receivable subsidiary ledger balances is less than the accounts receivable control account. B) The total of the accounts receivable subsidiary ledger balances is greater than the accounts receivable control account. C) Total cash receipts from customers for the month are less than credit sales for the month. D) Total cash receipts from customers for the month are greater than credit sales for the month.
13)
An audit plan of substantive procedures for cash would not include:
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A) request a cutoff bank statement be mailed to the client. B) request client to prepare bank reconciliations. C) prepare a schedule of interbank transfers for a period of ten business days before and after year-end date. D) obtain a written client representation concerning compensating balance agreements.
14)
In the audit of cash the auditor obtains a bank cutoff statement primarily to:
A) identify old outstanding checks that the client may exclude from the year-end bank reconciliation in order to misappropriate cash. B) obtain sufficient information to reconcile the client's bank account as of year-end. C) obtain direct confirmation of the client's bank balances as of year-end. D) test the propriety of items appearing on the client's year-end bank reconciliation.
15) Auditors ordinarily send an electronic confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balances. A purpose of this procedure is to: A) provide the data necessary to prepare a proof of cash. B) request that a cutoff bank statement and related checks be sent to the auditor. C) detect questionable bank activities that may otherwise not be discovered. D) seek information about contingent liabilities and security agreements.
16) To gather evidence regarding the bank's balance in a bank reconciliation, an auditor would examine all of the following except the: A) cutoff bank statement. B) general ledger. C) bank confirmation. D) year-end bank statement.
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17) An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using: A) employee fidelity bonds. B) independently prepared mailroom prelists. C) daily check summaries. D) a bank lockbox system.
18)
Which of the following sets of information does an auditor usually confirm on one form? A) Accounts payable and purchase commitments. B) Cash in bank and collateral for loans. C) Inventory on consignment and contingent liabilities. D) Accounts receivable and accrued interest receivable.
19) An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the: A) check register for the last month is reviewed. B) cutoff bank statement is reconciled. C) bank confirmation is reviewed. D) search for unrecorded liabilities is performed.
20) An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the activities by: A) confirmation and observation. B) observation and inquiry. C) analytical procedures and confirmation. D) inquiry and analytical procedures.
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21) To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: A) supported by a vendor's invoice. B) stamped "paid" by the check signer. C) prenumbered and accounted for. D) approved for authorized purchases.
22) In order for auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which of the following is not a characteristic of fraud? A) Intentional deception. B) Taking unfair or dishonest advantage of other people. C) Perpetration for the benefit or detriment of the organization. D) Negligence on the part of executive management.
23) An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if: A) the illegal act is a violation of generally accepted accounting principles. B) the client does not take the remedial action that the auditor considers necessary. C) the illegal act was committed during a prior year that was not audited. D) the auditor has already assessed control risk at the maximum level.
24) An auditor would least likely initiate a discussion with a client's audit committee concerning:
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A) the methods used to account for significant unusual transactions. B) the maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated. C) indications of fraud and illegal acts committed by a corporate officer that were discovered by the auditor. D) disagreements with management as to accounting principles that were resolved during the current year's audit.
25) Which of the following statements is correct with respect to the elements of the "fraud triangle"? A) Motive is a cause that pressures people into action. B) Opportunity refers to a situation that allows someone with motive to carry out fraud. C) A lack of integrity describes a person who does not stick to the social or organizational ethical code. D) Fraud is most common when these three factors exist together. E) All of these statements are correct.
26) Narbona, CPA, is reviewing controls over cash received through a bank night depository. Which controls would she find most important? A) Responsibilities are rotated for processing night depository receipts among employees of the various departments. B) Dual control (joint custody) is established over the contents of the night depository box from the time of removal until initial recording is completed. C) Vacations are required for all employees engaged in night depository activities. D) All deposit tickets related to night deposits are numbered.
27) Your client is in the process of acquiring another company. You have been requested to verify that cash for the company being acquired is properly stated. The audit technique that will yield the most persuasive evidence is:
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A) examination of the company's escrow account. B) interview with the company's treasurer and cash manager. C) preparation and review of standard bank confirmation inquiries. D) analytical computations comparing current cash in the bank with previous accounting periods.
28)
A proof of cash: A) is required by GAAS. B) can be used to test the transactions process. C) is most helpful when control risk for cash is low. D) always detects lapping.
29) When counting cash on hand the auditor must exercise simultaneous control over all cash and other negotiable assets to prevent: A) theft. B) irregular endorsement. C) replacement or substitution of stolen assets. D) deposits in transit.
30) As payments are received, one mailroom employee is assigned the responsibility of prelisting receipts and preparing the deposit slip prior to forwarding the receipts, deposit slip, and remittance advices to accounts receivable for posting. Accounts receivable personnel re-foot the deposit slip, stamp a restrictive endorsement on the back of each check, and then forward the receipts and deposit slip to the treasury department. Evaluate the internal control of the described process. Which of the following is a reasonable assessment of internal control in this process?
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A) Adequate internal control. B) Inadequate internal control because mailroom employees should not have access to cash. C) Inadequate internal control because treasury employees should prepare the deposit slip. D) Inadequate internal control because of a lack of separation of duties.
31) Which of the following should be performed by the persons opening the mail and recording payments? A) Restrictive endorsement on all checks. B) Entering of payment information into customer accounts. C) The preparation of the deposit slip and the delivery of the checks to the bank. D) The segregation of all payments made on accounts listed as past due.
32) At the end of each business day, Safe Company sends its bank a listing of all checks written during the day including the check number, payee, and amount. When a check is sent to the bank for payment the bank compares the payee and the amount with the listing provided by Safe Company. This system is called: A) PayChex. B) Pay-As-You-Go. C) Positive Pay. D) Pay Master.
33) The mail which includes payments should be opened by two people. This control is called: A) separation of duties. B) joint custody. C) anti-collusion. D) lapping.
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34) Most fraud investigators utilize the fraud triangle theory. A new theory called the fraud diamond has been proposed. Which of the following is an element of the fraud diamond and is not an element of the fraud triangle? A) Motive. B) Opportunity. C) Capability. D) Liquidity.
ESSAY. Write your answer in the space provided or on a separate sheet of paper. 35) When you examine canceled checks returned in the bank statement by a client's bank, how could you tell whether the amount on the check had been skillfully raised (increased, say, from $75.00 to $7,500 in the amount box, and altered in the written line from "Seventy-five dollars" to "Seventy-five hundred dollars") after the check was cleared by the bank? (An employee might do this to "support" a $7,500 cash disbursement journal entry.)
36) After checks are signed for vendor invoices, why should vouchers be marked "paid" or otherwise mutilated?
37)
List, and briefly describe, the three factors that increase the probability of fraud.
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38) What kind of error or fraud could happen if the inventory warehouse manager also had responsibility for making the physical inventory count and reconciling discrepancies to the perpetual inventory records?
39)
Describe how a lockbox works and indicate the advantages of such a system.
40) Ed's wife Diane owns a printing business in town. Ed works in the accounts payable department of Jiffy Abs Vitamin Company. Diane prints invoices for work supposedly done for Jiffy Abs (no actual work was performed) and Ed places in the invoice in the approved for payment invoice pile. Jiffy Abs pays these invoices and sends Diane a check. 1.Name two internal controls that might prevent or detect these fraudulent payments. 2.Name two audit procedures that might detect this fraud.
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