Question

1.The general type of fraud that involves intentionally misstating items or omitting important facts from the financial statements is typically known as _______.

-fraudulent financial reporting

-writing checks to fictitious vendors

-using company cars for personal use

-theft of inventory by employees

2.The general type of fraud that involves some form of theft is typically known as _______.

-fictitious sales

-misappropriation of assets

-unrecorded liabilities

-improper asset valuation

3.An audit plan details the nature, extent, and timing of audit procedures to be performed. The “extent” of audit procedures is best defined as _______.

-what type of procedure will be used

-when the procedure will be performed

-how much testing will be done

-the reliability and relevance of evidence obtained in the audit

4.What are tests of controls?

-Audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.

-Audit controls for developing an audit plan that details the nature, extent, and timing of audit procedures to be performed.

-Audit timelines of when audit activities occur for the audit of a client that uses a calendar year-end.

-Audit procedures designed for the determining the amount of time spent testing the client’s internal controls and conducting detailed testing of transactions and account balances

5.The audit risk model is presented as _______.

-AR = f (IR + CR + DR)

-AR = f (IR + CR – DR)

-AR = f (IR * CR * DR)

-AR = f (IR * CR) / DR

Answer 1

1. The correct answer is fraudulent financial reporting. The question asks for the general type of fraud that involves intentionally misstating items or omitting important facts from the financial statements. This means there is an intention to misstate items or omit important facts from the financial statements itself. This has to be fraudulent financial reporting. The other options of writing checks to fictitious vendors, using company cars for personal use and theft of inventory by employees does not directly relate to the financial statements and are part of misappropriation of assets.

2. The correct answer is misappropriation of assets. The question asks for the general type of fraud that involves some form of theft. In misappropriation of assets, the assets are stolen from the company probably for personal or other reasons. The other options such as fictitious sales, unrecorded liabilities and improper asset valuation represent fraudulent financial reporting.

3. The correct answer is how much testing will be done. An audit plan details the nature, extent, and timing of audit procedures to be performed. The nature represents "what type of procedure will be used". The extent represents "how much testing will be done" and timing represents "when the procedure will be performed".

4. The correct answer is audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. The auditor should design and perform test of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls is the auditors risk of material misstatement assessment has an expectation that the internal controls would be effective and that substantive tests alone would be insufficient.

5. The correct answer is AR = f (IR * CR * DR). Audit risk is the risk that the auditor expresses an inappropriate opinion where the financial statements are materially misstated. Audit risk is a function of inherent risk, control risk and detection risk. Audit risk will a product of the three as inherent risk is the risk of the accounting system missing the material misstatement whereas control risk is the risk of the internal controls missing the material misstatement and detection risk is the risk of the auditor missing the material misstatement.