BT Ch-16,17

An external auditor should consider the risk of materially mis-stated financial statements due to client errors or fraud and should report any fraudulent activities discovered during an audit engagement.

Is this statement true or false?

• 1. True

• 1. .False

• 1. .False
     True

• True
  False

Heavy Metal Co has recently experienced high management turnover with a new chief executive officer, chief financial officer and treasurer hired over the past 18 months.

As the external auditors review the company’s sfinancial reporting activity, which type of fraud risk factor would be their greatest concern?

• 1. .Attitude and rationalisation

• 1. Incentives or pressures

• 1. Opportunities

• all of these

Window dressing and Ponzi investment schemes are fraud techniques that usually result in criminal prosecution.

Is this statement true or false?

• 1. True

• 1. False

• 1. False
     True

• True

  False

Which of the following activities or events would be considered fraud?

• 1. Recording an income transaction that lacks economic substance

• 1. Misinterpreting supporting information that results in underreporting periodic depreciation expense

• Including cheques in the sales ledger that were already recorded the previous month

• All of these

An office employee gets unauthorised access to the corporate safe and makes copies of disks that contains important intellectual property of the company.

Which type of misappropriation of assets has occurred?

• 1. Swindling

• 1. Embezzlement

• 1. Conversion

• 1. Larceny

The CFO of Solar Energy Co is concerned about a possible debt downgrade by the rating agencies given the company’s poor interim performance and inability to meet its forecasts. In order to increase revenue and net income in its year-end financial statements, the CFO recognises revenue that has yet to be earned on several large contracts.

Which type of fraud risk factor most likely led to this financial reporting scenario?

• 1. Opportunities

• 1. .Attitude

• 1. Incentive

• 1. Rationalisation

The chief financial officer of an investment firm is concerned about declining operating results for the recently completed fiscal year. She decides that investment income that is earned in the first fifteen days of the current fiscal year will be recognised in the prior year.

Which type of fraudulent activity (if any) most likely occurred?

• 1. A.Investment scheme

• 1. B.Window dressing

• 1. C.Misappropriation of assets

• 1. D.No fraudulent activity occurred

What is the best way for directors to discourage fraud?

• 1. A.Maintain a strong internal control system

• 1. B.Sack all employees suspected of carrying out fraud

• 2. C.Ensure employee pay is “above average”

• 1. D.Maintain an internal audit department

A fraud was recently discovered where the monthly salary of an employee who had left many months earlier continued to be paid after he had left. A wages administrator responsible for updating the payroll database was his girlfriend.

Which of the following controls, if operated, would have been most likely to have prevented the fraud?

• 1. A.Exit interview of employees by the HR department

• 1. B.Authorisation by the HR department of all changes to be made to the payroll database

• 1. C.Independent review and approval of the payment of the payroll against timesheets

• 1. D.Banning all personal relationships between payroll staff and other employees

Denis is employed as the accounts manager in a company that is trading in a legitimate activity. The company was established to receive funds that were acquired from illegal sources.

Denis may be guilty of which TWO money laundering offences?

• 1. A.Assisting another to retain the benefit of crime

• 1. B.Acquisition, possession or use of criminal proceeds

• 1. C.Concealing or transferring proceeds to avoid prosecution

• 2. D.Failure to disclose knowledge or suspicion of money laundering