CPA Auditing and Attestation (AUD) : The Fraud Triangle
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Example Questions
Example Question #1 : Audit Risk Evidence
James Jones is the bookkeeper of Prestige Yachts, a Yacht builder for high net worth individuals. The company owner decides to “do more with less” and requires James to record the accounts receivables and maintain the bank reconciliation. James decides to cash checks for outstanding accounts and will replace them as soon as he gets the money. He expects this to happen soon. Using the fraud triangle, this is an example of:
Rationalization
Justification
Opportunity
Determination
Opportunity
This is an example of an opportunity. The firm has inappropriate segregation of duties creating an opportunity for the employee to both defraud the firm and cover up the act.
Example Question #2 : Audit Risk Evidence
James Jones is the bookkeeper of Prestige Yachts, a Yacht builder for high net worth individuals. James sees the owner continually overcharging on options and giving himself raises. James hasn’t had a raise in years. James decides to cash checks for outstanding accounts and will replace them as soon as he gets the money. Using the fraud triangle, this is an example of
determination
motive
means
justification
motive
This is an example of a motive. The employee witnesses the employer overcharging customers and having not had a raise to justify the fraud based on motive.
Example Question #3 : Audit Risk Evidence
The auditors rely on the fraud triangle as one's means of developing
a risk assessment
a list of potential employees that might commit fraud
as evidence in a lawsuit
a criticism of management to the audit committed
a risk assessment
The fraud triangle is used in the planning stage of the audit to assess risk. Risk is assessed in terms of each area of the fraud triangle and the auditor designs tests of the internal control system based on these areas.
Example Question #4 : Audit Risk Evidence
Of the following statements about the fraud triangle, which is true?
Nonobservation of all three factors indicates no fraud
The existence of all three factors indicates that fraud has occurred
The CPA should determine whether and to what extent the factors are present as a part of the final review stage of the audit
The fraud risk factors should be discussed by engagement personnel during planning
The fraud risk factors should be discussed by engagement personnel during planning
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.
Example Question #1 : Audit Risk Evidence
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?
A copy of the report of the risk factor to the company legal counsel
Investigation of the risk factors
Discussion of the risk factor with the client
Those risk factors identified
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 #6 : The Fraud Triangle
An example of fraud could include all of the following except:
Knowingly providing an auditor with incorrect accounting information
Intentionally misstating financial statements
Misappropriation of assets
Inaccurate accounting estimates
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.
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