Auditing Pre-Test Questions
Course Introduction
Auditing is a comprehensive course that examines the principles and methodologies involved in the examination and evaluation of financial statements and internal controls of organizations. The course covers the professional standards and ethical responsibilities of auditors, planning and conducting audit engagements, risk assessment, evidence collection, and audit reporting. Emphasis is placed on the application of auditing techniques to ensure the reliability and integrity of financial information, as well as on understanding the regulatory environment, including the role of external and internal auditors. Students will engage in case studies and practical exercises to develop critical thinking and analytical skills essential for successful auditing practice.
Recommended Textbook
Forensic Accounting and Fraud Examination 1st Edition by Mary Jo Kranacher
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Chapter 1: Core Foundation Related to Fraud Examination and
Financial Forensics
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Q1) M/C Fraud deterrence begins:
A) with the employer's internal controls.
B) in the employee's mind.
C) with the fraud examination.
D) with regulatory and legal actions such as PCAOB Auditing Standard No. 5, AICPA Statement on Auditing Standards SAS No. 99, and the Sarbanes-Oxley Act.
Answer: B
Q2) The fraud theory approach involves the following steps, in the order of their occurrence is:
A) create hypotheses, analyze available data, test the hypotheses, refine and amend the hypothesis, and draw conclusions.
B) analyze available data, create hypotheses, test the hypotheses, refine and amend the hypothesis, and draw conclusions.
C) create hypotheses, test the hypotheses, analyze available data, refine and amend the hypothesis, and draw conclusions.
D) None of the above are in proper order.
Answer: B
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Chapter 2: Careers in Fraud Examination and Financial
Forensics
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Sample Questions
Q1) White-collar criminals are losing their fear of the Federal Bureau of Investigation FBI primarily because:
A) the agency's job has shifted its entire terrorism issues.
B) the agency has lost much of its brain trust to the private sector.
C) the economic woes of the country have nothing to do with white-collar crime.
D) All of the above are correct responses.
Answer: A
Q2) As a result of events such as the passing of the Sarbanes-Oxley Act of 2002 SOX Act and the Emergency Economic Stabilization Act of 2008 EESA professionals practicing in the traditional areas of tax, audit, management, information systems, government, not-for-profit, external independent, and internal audit are expected to have a greater understanding of fraud and financial forensics.
A)True
B)False
Answer: True
Q3) Why are manhole covers round?
Answer: Manhole covers are round because other shaped covers can be maneuvered to fall through the hole e.g., try a square box.
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Chapter 3: Who Commits Fraud and Why: Criminology and Ethics
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Q1) In general, increasing the perception of detection may be the best way to deter employee theft, while increasing the sanctions that are imposed on occupational fraudsters will have a limited effect.
A)True
B)False
Answer: True
Q2) Which is considered the lowest threshold for ethical decision making?
A) A professional code of ethics of an accounting organization.
B) Codes of conduct or directives about what is best for society.
C) The law.
D) Codes of conduct guided by trust in the underlying values that guide society. Answer: C
Q3) The amount of damages proven under negligence may be relatively uncertain.
A)True
B)False
Answer: False
Q4) Cressey called embezzlers "temptation violators."
A)True
B)False Answer: False
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Chapter 4: Complex Frauds and Financial Crimes
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Q1) Explain the difference between mail and wire fraud. Which do you think might be easier to detect? Why?
Q2) What is the difference between mail and wire fraud:
A) Mail fraud consists of written material;, wire fraud is electronic and written
B) Mail fraud consists of using the US Postal system; wire fraud consists of the use of non US Postal system services
C) Mail fraud applies whenever the US Postal system is involved ,including intrastate mail service; wire fraud consists of transmissions to foreign or interstate locales
D) All of the above
Q3) Organized crime activities differ from terrorist activities in that terrorists exist to bring direct harm to the US.
A)True
B)False
Q4) High net worth individuals are likely to use private banks.
A)True
B)False
Q5) Describe the stages of money laundering and for each stage, provide an example.
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Chapter 5: Cybercrime: Computer and Internet Fraud
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Q1) Computers offer cyber criminals efficient ways to hide fraudulent activities.
A)True
B)False
Q2) Computer crime and computer fraud are synonyms.
A)True
B)False
Q3) The "computer as a symbol" involves using a computer to intercept data transmission.
A)True
B)False
Q4) Computer crime involves the attempt to access data illegally.
A)True
B)False
Q5) Cyber-crime involves the use of cell phones.
A)True
B)False
Q6) An employee, having authorized access to a work computer, commits fraud while using the computer. This is an example of a computer crime.
A)True
B)False
Page 7
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Chapter 6: Legal, Regulatory, and Professional Environment
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Sample Questions
Q1) PCAOB Auditing Standard No. 3 AS3, Audit Documentation, requires that audit engagement documentation should include a list of all EXCEPT:
A)significant fraud risk factors.
B)the auditors response.
C)the results of the auditors related procedures.
D)List of the internal controls.
Q2) Probable cause is the standard by which law enforcement may make an arrest, conduct a personal or property search, or obtain a warrant.
A)True
B)False
Q3) Legal privileges are protections against certain types of testimony. Which of the following is not a legal privilege?
A) Attorney-client privilege
B) Librarian-patron privilege
C) Attorney work-product privilege
D) Physician-patient privilege
Q4) In the criminal justice system, how is probation different from parole?
Q5) What remedies are available through the civil and criminal justice systems?
Q6) What is the discovery process and how does it work?
Page 8
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Chapter 7: Fraud Detection: Red Flags and Targeted Risk Assessment
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Q1) The public perception of independent auditors, particularly with regard to asset misappropriation, corruption, and misstated financial statements, is that:
A) independent auditors have overcome the "expectations gap."
B) an independent auditor's responsibility is to provide reasonable assurance that the financial statements are free from material misstatement whether by error or fraud.
C) independent auditors are responsible for fraud detection.
D) audited financial statements are free of estimates and misstatements.
Q2) An auditor's opinion of:
A) "unqualified" indicates that there are major problems with the financial statements presented by management.
B) "unqualified" indicates that the independent auditors believe the financial statements presented by management are fairly presented.
C) "qualified" indicates that the independent auditors believe the financial statements presented by management meet the guidance of U.S. GAAP.
D) All of the choices are correct..
Q3) How is materiality determined?
Q4) What are the main components of the fraud risk assessment process?
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Chapter 8: Detection and Investigations
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Q1) Intent is usually demonstrated by showing which of the following:
A) The act
B) The concealment
C) The cover-up
D) All of the above
Q2) Wiping a computer is a form of alteration.
A)True
B)False
Q3) Lifestyle audits, conducted by the IRS, are a means of determining tax evasion.
A)True
B)False
Q4) A fraudster erases files from his hard drive. This is an example of data alteration.
A)True
B)False
Q5) Searching for changes in behavior patterns prior to and after a crime is a form of invigilation.
A)True
B)False
Q6) Data mining software
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Chapter 9: Effective Interviewing and Interrogation
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Q1) What are some suggested approaches for conducting interviews?
Q2) Taking extensive notes does not distract interviewers from their main responsibility to watch and listen.
A)True
B)False
Q3) An attorney will often request that the fraud professional or forensic accountant attend the deposition of key witnesses who have knowledge of, or should have knowledge of, the financial transactions and how they are reflected in the books and records.
A)True
B)False
Q4) Interrogations, or admission-seeking interviews, are reserved for obtaining confessions from those believed to be culpable for the acts under examination. A)True
B)False
Q5) Dishonest people typically have tolerant attitudes toward illegal or unethical conduct.
A)True B)False
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Chapter 10: Using Information Technology for Fraud
Examination and Financial Forensics
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Q1) What role do graphics play in an investigation?
Q2) One of the major functions of data security and privacy tools such as Privacy Suite is to:
A) Copy files
B) Rename files
C) Overwrite files
D) Recycle files
Q3) ACL and IDEA are examples of commercially available data mining software.
A)True
B)False
Q4) Verifying multiples of a number in data extraction and analysis software could be used to discover all EXCEPT:
A) Recalculation of invoice totals
B) Reimbursement rates for mileage
C) Paycheck amounts for hours worked
D) Embezzled petty cash
Q5) Record validation can include reasonableness checks, sequences checks, and other checks.
A)True
B)False
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Chapter 11: Cash Receipt Schemes and Other Asset
Misappropriations
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Q1) Another way to conceal cash larceny is to use reversing transactions, such as false voids or refunds, which cause the register tape to reconcile to the amount of cash on hand after the theft.
A)True
B)False
Q2) "Death by a thousand cuts" involves stealing cash one thousand dollars at a time.
A)True
B)False
Q3) How are noncash assets misappropriated?
Q4) The use of a company office supplies for personal use would be:
A) Permissible in most circumstances
B) A misuse of assets
C) A purchasing scheme
D) Allowable under Sarbanes-Oxley
Q5) List three proactive computer audit steps for detecting skimming from page 304306.
Q6) What types of company assets are typically misused?
Page 13
Q7) In cash larceny schemes, what methods may be used to conceal these schemes at the point of sale?
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Chapter 12: Cash Disbursement Schemes
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Q1) Pay and return schemes depend on which of the following controls being absent:
A) Separation of duties between the payment requestor and the mailroom
B) Separation of duties between the mailroom and cash receipts
C) Separation of duties between the vendor and the payment requestor
D) None of the above
Q2) A shell company is:
A) A fictitious company
B) Is controlled by a fraudster
C) Is used to conceal fraudulent invoices
D) All of the above
Q3) One way of diverting revenue for personal gain is to charge an amount higher than the price list and keep the difference.
A)True
B)False
Q4) Mischaracterized expense schemes include:
A) Paying for entertainment of corporate clients
B) Paying for expenses incurred on behalf of your employees
C) Paying for expenses from an account you control
D) All of the above
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Chapter 13: Corruption and the Human Factor
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Q1) A conflict of interest occurs when an employee, manager, or executive has an economic or personal interest in a transaction that adversely affects the organization.
A)True
B)False
Q2) What is a fail safe way to eliminate fraud in the workplace?
A) Pay people competitive salaries
B) Mandate annual financial disclosure for all employees
C) Strong internal controls
D) Eliminate people
Q3) In an underbilling scheme the perpetrator sells goods or services above fair market value to a vendor in which he or she has a hidden interest.
A)True
B)False
Q4) What types of abuses may occur at the pre-solicitation stage of the bidding process?
Q5) What is meant by a conflict of interest?
Q6) How can conflicts of interest be prevented and detected?
Q7) Describe the features of an effective fraud reporting program within a company.
Q8) How do bribery and illegal gratuities differ?
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Chapter 14: Financial Statement Fraud
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Q1) Current ratio is computed by:
A) Current liabilities / current assets
B) Current assets / current liabilities
C) Total assets / total liabilities
D) Total liabilities / total assets
Q2) ________ occur when a company does business with another entity whose management or operating policies can be controlled or significantly influenced by the company or by some other party in common.
A) Related-party transactions
B) Illicit transactions
C) Family transactions
D) Adversarial transactions
Q3) A woman shoots her husband. Then she holds him underwater for over five minutes. Finally, she hangs him. But five minutes later they both go out together and enjoy a wonderful dinner together. How can this be?
Q4) Management has an obligation to disclose to the shareholders any acts of fraud committed by officers, executives, and others in positions of trust.
A)True
B)False
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Chapter 15: Consulting, Litigation Support, and Expert
Witnesses: Damages, Valuations, and Other Engagements
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Q1) In Jones and Laughlin vs. Pfeifer, the Supreme Court allowed an option for projection earnings and the appropriate discount rate:
A) Case-by-case method
B) Below market discount method
C) Total-offset method
D) All of the above
Q2) Some of the methods that can be used to develop estimates of lost sales and incremental expenses include:
A) The Before and After Method
B) The Benchmark "Yardstick" Method
C) Either A or B
D) Neither A nor B
Q3) How many outs are there in an inning?
Q4) Professional standards for expert witnessing require independence, as described in the AICPA code of conduct.
A)True
B)False
Q5) What is included as an expert's work product?
Q6) What are the different types of commercial damages?
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Chapter 16: Remediation and Litigation Advisory Services
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Q1) With the Daubert Rule, the basis of foundation for the opinion may not be based on "junk science." Just because a person qualifies as an expert, that person cannot offer any opinion unless that opinion is reasonably grounded in scientific fact.
A)True
B)False
Q2) What three attributes must the plaintiff demonstrate in a civil framework?
Q3) Corporate governance is the set of processes, customs, and policies that affect the way an organization is directed.
A)True
B)False
Q4) The control environment also excludes:
A) Integrity and ethical values
B) A passive board of directors and audit committee
C) Periodic assessment of the organizational structure
D) Human resource policies and practices that facilitate a good control environment
Q5) What is meant by corporate governance and why is it important?
Q6) What is the difference between fact witnesses and expert witnesses?
Q7) What is a deposition and why is it used?
Page 18
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