CPA Auditing and Attestation (AUD) : Fraud Incentives

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

varsity tutors app store varsity tutors android store

All CPA Auditing and Attestation (AUD) Resources

61 Practice Tests Question of the Day Flashcards Learn by Concept

Example Questions

Example Question #1 : Audit Risk Evidence

The three conditions generally present when fraud occurs include:

Possible Answers:

avoidance

motivation

management oversight

Internal Control

Correct answer:

motivation

Explanation:

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 : Audit Risk Evidence

According to AU 316; “Management has a unique ability to perpetrate fraud because”

Possible Answers:

They are not accountable to ownership

They can override controls

They are not responsible for internal control

They pick the auditors

Correct answer:

They can override controls

Explanation:

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 #1 : Audit Risk Evidence

Managers and/or employees may attempt to conceal the fraud by:

Possible Answers:

none of the above

ignoring auditors

blaming other employees

colluding with other employees

Correct answer:

colluding with other employees

Explanation:

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 #2 : Audit Risk Evidence

Of the following characteristics, which would most likely raise an auditor's concern about the risk of material misstatement arising from fraud?

Possible Answers:

Lack of turnover of employees in the accounting department

Management displays a significant disregard for regulations and authority

Equipment is sold at a loss before being fully depreciated

Monthly bank recs usually include several deposits in transit

Correct answer:

Management displays a significant disregard for regulations and authority

Explanation:

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 #41 : Cpa Auditing And Attestation (Aud)

Of the following characteristics, which would most likely raise an auditor's concern about the risk of material misstatement arising from fraud?

Possible Answers:

Management's lack of interest in increasing the entity's stock trend

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

Large amounts of liquid assets that are easily convertible into cash

Correct answer:

The inability of the company to generate cash flows from operations while reporting substantial earnings growth

Explanation:

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 #42 : Cpa Auditing And Attestation (Aud)

In the pursuit of maintaining professionally skeptical, an auditor should conduct all of the following procedures except:

Possible Answers:

Maintain discussion of fraud risk with engagement team

Demand compliance from management

Obtain information to help identify fraud risks

Evaluate evidence from the audit about fraud

Correct answer:

Demand compliance from management

Explanation:

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.

All CPA Auditing and Attestation (AUD) Resources

61 Practice Tests Question of the Day Flashcards Learn by Concept
Learning Tools by Varsity Tutors