CPA Auditing and Attestation (AUD) : CPA Auditing and Attestation (AUD)
Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)
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Example Questions
Example Question #1 : The Fraud Triangle
When planning an audit, the CPA auditor should document in the work papers the risk assessment of material misstatement of the financial statements due to fraud. Of the following, which should be included in the work paper documentation if the factors are identified and present?
Discussion of the risk factor with the client
A copy of the report of the risk factor to the company legal counsel
Those risk factors identified
Investigation of the risk factors
Those risk factors identified
During the planning stage of an audit, the engagement team must discuss the potential for misstatement due to fraud as well as the three factors. The team must also document the factors if identified.
Example Question #5 : The Fraud Triangle
An example of fraud could include all of the following except:
Misappropriation of assets
Knowingly providing an auditor with incorrect accounting information
Inaccurate accounting estimates
Intentionally misstating financial statements
Inaccurate accounting estimates
Inaccurate accounting estimates would likely be classified as an error rather than fraud. Fraud requires an intentional act, whereas an error is unintentional.
Example Question #1 : Fraud Incentives
The three conditions generally present when fraud occurs include:
avoidance
management oversight
motivation
Internal Control
motivation
Motivation to commit fraud is typically one of the elements present when fraud occurs. Internal control is a system used to help prevent fraud. Management oversight is an element of internal control.
Example Question #2 : Fraud Incentives
According to AU 316; “Management has a unique ability to perpetrate fraud because”
They pick the auditors
They are not accountable to ownership
They are not responsible for internal control
They can override controls
They can override controls
AU 316 indicates that management is in a unique position to be able to override internal controls. This is considered a control risk.
Example Question #3 : Fraud Incentives
Managers and/or employees may attempt to conceal the fraud by:
colluding with other employees
none of the above
ignoring auditors
blaming other employees
colluding with other employees
Audit collusion is a situation where two or more individuals work together to override a system of internal controls. Internal control systems are built around the concept of segregation of duties. Where collusion exists, segregation of duties is overridden.
Example Question #1 : Fraud Incentives
Of the following characteristics, which would most likely raise an auditor's concern about the risk of material misstatement arising from fraud?
Equipment is sold at a loss before being fully depreciated
Lack of turnover of employees in the accounting department
Monthly bank recs usually include several deposits in transit
Management displays a significant disregard for regulations and authority
Management displays a significant disregard for regulations and authority
Fraudulent financial reporting includes the intentional misstatement or omission of amounts or disclosures in financial statements and are designed to deceive users of the financial statements. This reaction from management would indicate a higher risk of fraud than a management with public respect and diligence of regulations and authority. Of the remaining options, these are not necessarily indicative of fraud or a higher risk of fraud.
Example Question #5 : Fraud Incentives
Of the following characteristics, which would most likely raise an auditor's concern about the risk of material misstatement arising from fraud?
Management's lack of interest in increasing the entity's stock trend
Large amounts of liquid assets that are easily convertible into cash
The inability of the company to generate cash flows from operations while reporting substantial earnings growth
Inability to borrow necessary capital without granting debt covenants
The inability of the company to generate cash flows from operations while reporting substantial earnings growth
The CPA auditor's concern about fraud risk would be raised if the company was unable to generate cash flows while reporting earnings growth as these two factors are inconsistent.
Example Question #2 : Fraud Incentives
In the pursuit of maintaining professionally skeptical, an auditor should conduct all of the following procedures except:
Maintain discussion of fraud risk with engagement team
Obtain information to help identify fraud risks
Evaluate evidence from the audit about fraud
Demand compliance from management
Demand compliance from management
Professional skepticism encourages cordial and polite behavior while analyzing evidence and keeping an open mind for potential risks of fraud. Demanding compliance from management is not professionally skeptical.
Example Question #11 : Audit Risk Evidence
Which of the following groups within an entity is typically in the best position to perpetrate a material fraud?
Management
Entry level personnel
Directors
Customers
Management
Management is typically in the best position to perpetrate a material fraud because management can override controls to manipulate accounting records and prepare fraudulent financial statements.
Example Question #1 : Fraud Vs Error
According to PCAOB standards which one of the following statements does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement or error?
The dollar amount of the error
The cost of the correction
The significance of the misstatement
The effects of misclassification
The dollar amount of the error
The dollar amount of the error does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement or error.
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