Auditors Fraud Related Responsibilites

Question 1

According to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, the auditor’s assessment of the risk of material misstatement due to fraud at the financial statement level should influence which of the following aspect(s) of an audit?

A. Consideration of accounting policies used
B. Choice of auditing procedures
C. Assignment and supervision of personnel
D. All of the above

Answer 1

D. All of the above

Question 2

According to The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing, internal auditors must apply the care and skill of an expert whose primary responsibility is investigating fraud.

A. True
B. False

Answer 2

False

Question 3

An external auditor discovers a significant deficiency in an organization’s internal controls that could result in a material misstatement of the organization’s financial statements. Which of the following is FALSE regarding the auditor’s communication about these findings?

A. The communication should be made in writing.
B. The communication should include a description of the deficiencies and an explanation of their potential effects.
C. The communication should note that the purpose of the audit was to express an opinion on the effectiveness of the organization’s internal controls.
D. The communication should be provided to management and those charged with governance.

Answer 3

C. The communication should note that the purpose of the audit was to express an opinion on the effectiveness of the organization’s internal controls.

Question 4

If an external auditor identifies an immaterial misstatement in the financial statements that they believe is the result of fraud, they should:

A. Reconsider the reliability of evidence previously obtained
B. Assess the need to adjust the nature, timing, and extent of remaining audit procedures
C. Reevaluate the assessment of risks of material misstatement due to fraud
D. All of the above

Answer 4

D. All of the above

Question 5

The risk of the auditor not detecting a material misstatement resulting from employee fraud is greater than the risk of the auditor not detecting a material misstatement resulting from management fraud.

A. True
B. False

Answer 5

False

Question 6

If an external auditor discovers evidence of potential fraud, they are prevented from disclosing these findings to anyone in order to protect client confidentiality.

A. True
B. False

Answer 6

False

Question 7

Which of the following is NOT one of the responsibilities of the internal auditor with regard to fraud?

A. Evaluate the organization’s structures and process for fraud risk governance.
B. Provide insight and advice to senior management and the board on opportunities to improve the organization’s fraud risk management.
C. Report all findings of fraud to the appropriate regulators within ten working days.
D. Contribute to the organizational fraud risk awareness and training at the request of senior management.

Answer 7

C. Report all findings of fraud to the appropriate regulators within ten working days.

Question 8

According to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, if an external auditor suspects or identifies fraud involving management, it is the auditor’s responsibility to report these findings to those charged with governance of the organization.

A. True
B. False

Answer 8

True

Question 9

fraud?

A. Whether management possesses the necessary skills, resources, and inclination to provide effective fraud risk management
B. Any significant residual fraud risks
C. Management’s level of cooperation with the assessment of the organization’s fraud risk governance and management
D. All of the above

Answer 9

D. All of the above

Question 10

International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, requires auditors to discuss how management could perpetrate and conceal fraudulent financial reporting.

A. True
B. False

Answer 10

True

Question 11

When determining the relevance of certain fraud risk factors within an entity, the auditor should consider:

A. The ownership of the entity
B. The size of the entity
C. The complexity of the entity
D. All of the above

Answer 11

D. All of the above

Question 12

The primary purpose of International Standard on Auditing (ISA) 240 is to:

A. Establish auditors as being primarily responsible for the prevention and detection of fraud within an organization
B. Establish standards and provide guidance on the auditor’s responsibility to consider fraud in an audit of financial statements
C. Establish requirements for auditors related to designing and implementing fraud-related internal controls
D. All of the above

Answer 12

B. Establish standards and provide guidance on the auditor’s responsibility to consider fraud in an audit of financial statements

Question 13

Government auditors have several considerations regarding fraud during a public-sector financial statement audit that their counterparts in the private sector do not. Which of the following is NOT one of these considerations?

A. Narrower overall audit objectives
B. An inability to withdraw from the audit engagement
C. Additional communications about fraud-related matters
D. A need to consider the concept of abuse

Answer 13

A. Narrower overall audit objectives

Question 14

The internal audit function should wait until issues related to fraud occur before communicating with senior management or the board of directors about the topic.

A. True
B. False

Answer 14

False

Question 15

The external auditor should perform which of the following procedures to obtain information to use in identifying the risks of material misstatement due to fraud?

A. Make inquiries of management and others within the entity to determine whether they have knowledge of any actual, suspected, or alleged fraud affecting the entity
B. Evaluate any unusual or unexpected relationships that have been identified in performing analytical procedures
C. Evaluate whether the information obtained from the risk assessment procedures indicates that fraud risk factors are present
D. All of the above

Answer 15

D. All of the above

Question 16

Which of the following is a responsibility that the internal auditor should execute in conducting audit engagements?

A. Contribute to the organizational fraud risk awareness and training at the request of senior management
B. Evaluate the design and operationalization of the fraud risk management program
C. Perform an assessment of the organization’s fraud risks
D. All of the above

Answer 16

D. All of the above

Question 17

According to The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing, due professional care implies infallibility.

A. True
B. False

Answer 17

False

Question 18

Internal auditing standards require the internal audit function, through the chief audit executive (CAE), to report periodically to senior management and the board of directors about the organization’s fraud risks.

A. True
B. False

Answer 18

True

Question 19

During an audit of a public-sector organization’s financial statements, a government auditor uncovers evidence of a potential fraud. The auditor’s requirements for reporting these findings are substantially the same as those for external auditors in the private sector. [t/f]

Answer 19

False

Question 20

During an external audit of an organization’s financial statements, an auditor identifies a significant deficiency in the organization’s internal controls related to financial reporting. Which of the following is the auditor required to do regarding this issue?

A. Communicate the findings in writing to those charged with governance.
B. Implement procedures to correct the internal control deficiency.
C. Document the findings and withdraw from the engagement.
D. Report the findings to the appropriate government authorities.

Answer 20

A. Communicate the findings in writing to those charged with governance.

Question 21

During an external audit of XYZ Corporation, the audit team determines the quantitative materiality threshold (i.e., the amount by which financial statements must be misstated to be considered materially misstated) to be $1 million. If the auditors discover evidence that management has intentionally overstated sales by $900,000, they should deem the misstatement immaterial for purposes of the audit and disregard it.

A. True
B. False

Answer 21

False

Question 22

According to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, if an external auditor discovers evidence of a potential fraud involving senior management, to which of the following parties should they immediately report their findings?

A. Securities regulators
B. Local law enforcement
C. The audit committee
D. All of the above

Answer 22

C. The audit committee

Question 23

The risk of an auditor not detecting a material misstatement resulting from fraud is higher than the risk of an auditor not detecting a material misstatement resulting from error.

A. True
B. False

Answer 23

True

Question 24

International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, defines two types of frauds that are relevant for audit purposes: those that involve intentional fraudulent financial reporting and those that involve the misappropriation of company assets.

A. True
B. False

Answer 24

True

Question 25

Which of the following is NOT an effective response for addressing the risk of material misstatement due to fraud during a financial statement audit?

A. Engaging in consistent auditing procedures each year
B. Implementing auditing procedures on an unannounced basis
C. Assigning personnel with specialized knowledge to assist with a technical issue
D. Using differing sampling methods when collecting data for audit testing

Answer 25

A. Engaging in consistent auditing procedures each year

Question 26

Government auditors’ requirements for reporting fraud may be subject to specific provisions of the audit mandate and can vary depending on the jurisdiction.

A. True
B. False

Answer 26

True

Question 27

According to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, ________ involve(s) intentional misstatements in financial statements to deceive financial statement users.

A. Auditor misrepresentations
B. Financial reporting errors
C. Fraudulent financial reporting
D. Financial report item adjustments

Answer 27

C. Fraudulent financial reporting

Question 28

Which of the following factors should auditors include in their discussion on the financial statements’ susceptibility to fraud, as required by International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements?

A. Factors that indicate a culture that enables individuals to rationalize committing fraud
B. How a company’s assets could be misappropriated
C. How and where the financial statements might be susceptible to fraud
D. All of the above

Answer 28

D. All of the above

Question 29

According to The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing, the internal audit team must evaluate the potential for the occurrence of fraud and the organization’s fraud risk management initiatives.

A. True
B. False

Answer 29

True

Question 30

According to The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing, the internal audit activity must evaluate risk exposures relating to the organization’s governance, operations, and information systems regarding all the following EXCEPT:

A. Reliability and integrity of financial and operational information
B. Effectiveness and efficiency of operations
C. Sale of tangible and intangible assets
D. Compliance with laws, regulations, and contracts

Answer 30

C. Sale of tangible and intangible assets

Question 31

According to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, the auditor is primarily concerned with fraud that is determined to meet the legal definition of fraud.

A. True
B. False

Answer 31

False

Question 32

During an audit of a public-sector organization, a government auditor discovers evidence of potential fraud. To which of the following parties might the auditor be required to report this information?

A. Those charged with governance
B. The relevant legislative body
C. Affected third parties
D. All of the above

Answer 32

D. All of the above

Question 33

According to the International Organization of Supreme Audit Institutions’ (INTOSAI) standards for public-sector audits, the requirements for private-sector external auditors found in International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, also apply to government auditors during audits of public-sector financial statements.

A. True
B. False

Answer 33

True