Forensic Accounting Question
Bank
Course Introduction
Forensic Accounting is a specialized field that combines accounting, auditing, and investigative skills to examine financial records and detect fraud, embezzlement, and other white-collar crimes. The course covers the principles and techniques used to analyze financial statements, uncover hidden assets, and support legal proceedings with credible evidence. Students will learn about the legal environment of forensic accounting, fraud prevention and detection methods, litigation support, and the ethical responsibilities of forensic accountants. Through case studies and practical exercises, the course prepares students to assist in criminal investigations, civil disputes, and regulatory compliance.
Recommended Textbook
Auditing and Assurance Services A Systematic Approach 9th Edition by William F. Messier
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1528 Verified Questions
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Chapter 1: An Introduction to Assurance and Financial Statement Auditing
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46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/56022
Sample Questions
Q1) During the first phase of an audit, a CPA most likely would
A) Identify specific internal control activities that are likely to prevent fraud.
B) Evaluate the reasonableness of the company's accounting estimates.
C) Evaluate the integrity of management.
D) Inquire of the company's attorney as to whether any unrecorded claims are probable or asserted.
Answer: C
Q2) Information asymmetry seldom occurs.
A)True
B)False
Answer: False
Q3) Decision makers demand reliable information that is provided by accountants.
A)True
B)False
Answer: True
Q4) Auditing is a type of attest service.
A)True
B)False
Answer: True
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Chapter 2: The Financial Statement Auditing Environment
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Sample Questions
Q1) 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 cynicism.
B) Independent differentialism.
C) Professional skepticism.
D) Impartial conservatism.
Answer: C
Q2) Who bears ultimate responsibility for the financial statements?
A) Management of the organization, equally with the external auditor that audits the statements.
B) Management and the shareholders of the organization.
C) The external auditor that audits the statements.
D) Management of the organization.
Answer: D
Q3) The primary audit context with which an auditor is concerned is the auditee's industry or business.
A)True
B)False
Answer: True
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Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
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74 Verified Questions
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Sample Questions
Q1) A written understanding between the auditor and the client concerning the auditor's responsibility for the discovery of illegal acts is usually set forth in a(n)
A) Client representation letter.
B) Letter of audit inquiry.
C) Management letter.
D) Engagement letter.
Answer: D
Q2) Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?
A) Potential for fraud.
B) The company is close to violating loan covenants.
C) Firm policy sets materiality at 4% of pretax income.
D) A small misstatement would interrupt an earnings trend.
Answer: C
Q3) Materiality significantly impacts the auditor's decisions about how much and what kind of evidence to gather.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Risk Assessment
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Sample Questions
Q1) When assessing the risk of material misstatement, auditors evaluate the reasonableness of an entity's accounting estimates. An auditor normally would be concerned about assumptions that are
A) Susceptible to bias.
B) Consistent with prior periods.
C) Insensitive to variations.
D) Similar to industry guidelines.
Q2) As the acceptable level of detection risk decreases, the assurance directly provided from
A) Substantive procedures should increase.
B) Substantive procedures should decrease.
C) Tests of controls should increase.
D) Tests of controls should decrease.
Q3) Which of the following is a source of detection risk?
A) Unstable business environment.
B) Poor client controls.
C) A nonrepresentative sample.
D) Inherent risk assessed too high.
Q4) What is the difference between audit risk and engagement risk?
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Chapter 5: Evidence and Documentation
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Sample Questions
Q1) Which statement concerning audit evidence is not valid?
A) The auditor is seldom convinced beyond all doubt with respect to all aspects of the financial statements being audited.
B) The auditor performs tests to collect convincing evidence that the financial statements are not misstated.
C) The auditor weighs the cost of obtaining evidence with its usefulness.
D) The auditor considers the amount of risk present in deciding the nature and extent of evidence to be collected.
Q2) The classification assertion refers to transactions and events being recorded in the correct accounting period.
A)True
B)False
Q3) You are concerned with unrecorded transactions in the purchasing cycle. Which audit procedure are you most likely to use when auditing purchases?
A) Vouching transactions in accounting records to vendor invoices.
B) Tracing vendor invoices to accounting records.
C) Recalculation of vendor invoice amounts.
D) Confirmation of customer accounts.
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Chapter 6: Internal Control in a Financial Statement Audit
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Sample Questions
Q1) An auditor would most likely be concerned with internal control policies and procedures that provide reasonable assurance about the
A) Efficiency of management's decision-making process.
B) Appropriate prices that the entity should charge for its products.
C) Methods of assigning production tasks to employees.
D) Entity's ability to accurately process and summarize financial data.
Q2) What are some typical types of evidence that may be collected in testing an entity's internal controls?
Q3) In a properly designed internal control system, the same employee may be permitted to
A) Receive and deposit checks and also approve write-offs of customer accounts.
B) Approve vouchers for payment and also sign checks.
C) Reconcile the bank statements and also receive and deposit cash.
D) Sign checks and also cancel supporting documents.
Q4) A high detection risk strategy includes all of the following except:
A) Interim testing.
B) Reduced testing of transactions.
C) Heavy reliance on analytical procedures as substantive procedures.
D) Audit work only completed at year-end.
Q5) Why might an auditor decide to test controls at an interim date?
Page 8
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Chapter 7: Auditing Internal Control Over Financial Reporting
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Sample Questions
Q1) Management documentation should include all of the following except:
A) Documentation regarding the auditor's evaluation of internal controls.
B) Documentation regarding management's testing and evaluation of the controls.
C) Documentation regarding the safeguarding of assets.
D) Documentation on the controls designed in all five components of internal control.
Q2) In determining the extent to which the auditor may use the work of others in the audit of ICFR, the auditor should do all of the following except:
A) Test some of the work performed by others to evaluate the quality and effectiveness of their work.
B) Evaluate the nature of the controls subjected to the work of others.
C) Evaluate the competence and objectivity of the individuals who performed the work.
D) All of these are required.
Q3) Discuss the differences between a control deficiency, a significant deficiency, a material weakness, and the two dimensions of the control deficiency - likelihood and magnitude.
Q4) Identify indicators of a material weakness in internal control over financial reporting.
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Page 9
Chapter 8: Audit Sampling: An Overview and Application to
Tests of Controls
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67 Verified Questions
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Sample Questions
Q1) Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.
A)True
B)False
Q2) For which of the following audit tests would an auditor most likely use attributes sampling?
A) Making an independent estimate of the amount of LIFO inventory.
B) Examining invoices in support of the valuation of fixed asset additions.
C) Selecting accounts receivable balances for confirmation.
D) Inspecting employee time cards for proper approval by supervisors.
Q3) The larger the sample, the lower the confidence level and the lower the sampling risk.
A)True
B)False
Q4) Define sampling risk and nonsampling risk.
Q5) Audit sampling is commonly used to gather confirmation audit evidence.
A)True
B)False
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Q6) Identify the types of audit evidence that are tested using audit sampling techniques.
Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
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Sample Questions
Q1) The risk of incorrect acceptance and the risk of overreliance relate to the
A) Preliminary estimates of materiality levels.
B) Allowable risk of tolerable error.
C) Efficiency of the audit.
D) Effectiveness of the audit.
Q2) The objective of monetary-unit sampling is to test the assertion that no material misstatements exist in an account balance or class of transactions.
A)True
B)False
Q3) In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items
A) That include fraud will not be overlooked when the auditor exercises compatible reciprocal options.
B) May occur in a systematic pattern, thus making the sample more representative.
C) May occur more than once in a sample.
D) Do not have to be prenumbered in order for the auditor to use the technique.
Q4) Describe two advantages and two disadvantages of monetary-unit sampling (MUS).
Page 11
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Chapter 10: Auditing the Revenue Process
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Sample Questions
Q1) Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of A) Classification.
B) Cutoff.
C) Occurrence.
D) Authorization and accuracy.
Q2) Order entry is the initial function in the revenue cycle.
A)True
B)False
Q3) All of the following are important controls over credit memos except:
A) Proper segregation of duties to ensure that sales discounts taken were earned.
B) Credit memos should be approved by someone other than whoever initiated it.
C) Credit memos should be supported by a receiving document for returned goods.
D) Proper segregation of duties between access to customer records and authorizing credit memos.
Q4) The return of vendor purchases is a part of the revenue process.
A)True
B)False
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Page 12
Chapter 11: Auditing the Purchasing Process
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) The authority to accept incoming goods in receiving should be based on a(an)
A) Vendor's invoice.
B) Materials requisition.
C) Bill of lading.
D) Approved purchase order.
Q2) After the controls are tested, the auditor sets the achieved level of control risk.
A)True
B)False
Q3) A product cost is
A) An expense allocated by a systematic procedure.
B) Recognized during the period in which a liability is incurred.
C) Recognized in the period during which related revenue is recognized.
D) Recognized in the period in which cash is spent.
Q4) Operating control over the check signature plate normally should be the responsibility of the
A) Secretary.
B) Chief accountant.
C) Vice President of Finance.
D) Treasurer.
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Chapter 12: Auditing the Human Resource Management Process
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Sample Questions
Q1) Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?
A) Human resource.
B) Treasurer.
C) Controller.
D) Payroll.
Q2) A surprise observation by an auditor of an entity's regular distribution of paychecks is primarily designed to satisfy the auditor that
A) All unclaimed payroll checks are properly returned to the cashier.
B) The paymaster is not involved in the distribution of payroll checks.
C) All employees have in their possession proper employee identification.
D) Names on the company payroll are those of bona fide employees presently on the job.
Q3) Which of the following internal control activities could best prevent direct labor from being charged to manufacturing overhead?
A) Reconciliation of work in process inventory with cost records.
B) Comparison of daily journal entries with the factory labor summary.
C) Comparison of period costs budgets and time sheets.
D) Reconciliation of the unfinished job summary and production cost records.
Page 14
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Chapter 13: Auditing the Inventory Management Process
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Sample Questions
Q1) An auditor will usually trace the details of the test counts made during the observation of the physical inventory count to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are
A) Owned by the entity.
B) Not obsolete.
C) Physically present at the time of the preparation of the final inventory schedule.
D) Included in the final inventory schedule.
Q2) Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?
A) Inventory cutoff errors.
B) Misapplication of LIFO.
C) Unreported scrap or spoilage.
D) Theft.
Q3) Inherent risk is typically assessed at a low to moderate level for inventory due to the nature of the asset.
A)True
B)False
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Chapter 14: Auditing the Financing Investing Process:
Prepaid Expenses Intangible Assets and Property Plant and Equipment
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Sample Questions
Q1) If the ratio of repairs and maintenance expense to property, plant, and equipment is higher than expected, which of the following is a plausible explanation?
A) Routine maintenance on an important piece of machinery was charged to repairs and maintenance expense.
B) An addition to a building was charged to repairs and maintenance expense.
C) The company forgot to depreciate all of its equipment.
D) The company purchased an unusual amount of new equipment.
Q2) A normal audit procedure is to analyze the current year's repairs and maintenance accounts to provide evidence in support of the audit proposition that
A) Expenditures for fixed assets have been recorded in the proper period.
B) Capital expenditures have been properly authorized.
C) Noncapitalizable expenditures have been properly expensed.
D) Expenditures for fixed assets have been capitalized.
Q3) The auditor may conclude that depreciation charges are insufficient by noting A) Insured values greatly in excess of book values.
B) Large amounts of fully depreciated assets.
C) Continuous trade-ins of relatively new assets.
D) Excessive recurring losses on assets retired.
Page 16
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Chapter 15: Auditing the Financing Investing Process:
Long-Term Liabilities Stockholders Equity and Income
Statement Accounts
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Sample Questions
Q1) The registrar is responsible for preparing stock certificates and maintaining adequate stockholders' records.
A)True
B)False
Q2) All corporate capital stock transactions should ultimately be traced to the
A) Minutes of the board of directors.
B) Cash receipts journal.
C) Cash disbursements journal.
D) Numbered stock certificates.
Q3) The auditor can best verify an entity's bond sinking fund transactions and year-end balance by
A) Recomputation of interest expense, interest payable, and amortization of bond discount or premium.
B) Confirmation with individual holders of retired bonds.
C) Confirmation with the bond trustee.
D) Examination and count of the bonds retired during the year.
Q4) Notes receivable is a common type of long-term financing.
A)True
B)False
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Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
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Sample Questions
Q1) Which of the following procedures would be most important in the audit of an investment valued at fair value?
A) Compare the balance in the investment account to the prior year.
B) Read the footnote disclosure related to the investment.
C) Inquire of management's regarding the accuracy and reliability of the underlying data.
D) Develop an independent estimate of the fair value measurement.
Q2) For each assertion about cash listed below, give an example of a test of transactions for (1) cash receipts and (2) cash disbursements.
a. Classification.
b. Occurrence.
c. Authorization.
d. Completeness.
Q3) Identify 3 of the 6 tests an auditor uses on the bank reconciliation. (Only 3 are required for the student's answer)
Q4) It is generally more efficient to follow a substantive strategy for auditing investments.
A)True
B)False
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Chapter 17: Completing the Audit Engagement
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Sample Questions
Q1) An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the
A) Auditor's report.
B) Final review of the audit working papers.
C) Public issuance of the financial statements.
D) Delivery of the auditor's report to the entity.
Q2) Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.
Q3) Define the term "contingent liability" and discuss the criteria used to classify these events or conditions. Provide some examples of contingent liabilities.
Q4) A Type II subsequent event usually requires
A) An adjustment to the financial statements and the footnotes.
B) An adjustment to the financial statements but no special disclosure is required.
C) Disclosure in the footnotes.
D) Neither an adjustment to the financial statements nor disclosure in the footnotes.
Q5) State the two primary purposes of the management letter of representation.
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Page 19
Chapter 18: Reports on Audited Financial Statements
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Sample Questions
Q1) When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the entity's financial statement?
A) When the auditor believes the financial statements are misleading.
B) When the auditor was unable to observe the taking of the physical inventory.
C) When the auditor is uncertain about the outcome of a material uncertainty.
D) When the auditor has performed insufficient auditing procedures to express an opinion.
Q2) If the principal auditor decides to make reference to the other auditor's examination, the introductory paragraph must specifically indicate the
A) The portion of the financial statements examined by the other auditor.
B) Name of the other auditor.
C) Name of the consolidated subsidiary examined by the other auditor.
D) Type of opinion expressed by the other auditor.
Q3) A special report related to compliance with contractual provisions provides
A) Positive assurance.
B) Negative assurance.
C) No assurance.
D) None of these.
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Chapter 19: Professional Conduct, Independence, and Quality Control
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Sample Questions
Q1) A violation of the profession's ethical standards would least likely have occurred when a CPA in public practice
A) Used a records-retention agency to store the CPA's working papers and client records.
B) Served as an expert witness in a damage suit and received compensation based on the amount awarded to the plaintiff.
C) Referred life insurance assignments to the CPA's spouse, who is a life insurance agent.
D) Failed to file his personal tax return.
Q2) Identify the primary purposes of Rules 201-203 of the Rules of Conduct.
Q3) The term "ethics" refers to a person's propensity to follow the laws of the land.
A)True
B)False
Q4) For private companies, accounting firms are prohibited from providing
A) Outsourced internal audit services.
B) Audit services.
C) Review services.
D) None of these.
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Chapter 20: Legal Liability
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Sample Questions
Q1) Hark, CPA, failed to follow generally accepted auditing standards in auditing Long Corp.'s financial statements. Long's management had told Hark that the audited statements would be submitted to several banks to obtain financing. Relying on the statements, Third Bank gave Long a loan. Long defaulted on the loan. In a jurisdiction applying the Ultramares doctrine, if Third sues Hark, Hark will
A) Win because there was no privity of contract between Hark and Third.
B) Lose because Hark knew that banks would be relying on the financial statements.
C) Win because there was contributory negligence on the part of Third in granting the loan.
D) Lose because Hark was negligent in performing the audit.
Q2) To prevail in a suit alleging negligence, a third party must prove that the auditor had a duty to the auditor's client to exercise due care.
A)True
B)False
Q3) An auditor can be sued by a client for negligence under common law.
A)True
B)False
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Page 22
Chapter 21: Assurance, Attestation, and Internal Auditing Services
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Sample Questions
Q1) A practitioner is allowed to perform either of two types of attestation engagements for reporting on internal control: (1) examination or (2) review.
A)True
B)False
Q2) An examination of a financial forecast is a professional service that involves
A) Compiling or assembling a financial forecast that is based on management's assumptions.
B) Limiting the distribution of the accountant's report to management and the board of directors.
C) Assuming responsibility to update management on key events for one year after the report's date.
D) Evaluating the preparation of a financial forecast and the support underlying management's assumptions.
Q3) Direct services offered under PrimePlus include all of the following except:
A) Accounting for the entity's income.
B) Providing assurances about the quality of care.
C) Supervising the entity's investments.
D) Arranging for payment of care.
Q4) Explain each of the three PrimePlus Services typically offered by practitioners.
Page 23
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