Auditing chapter 2 Pre Quiz

Description

Pre quiz Ch 2
Kayla Harbaugh
Quiz by Kayla Harbaugh, updated more than 1 year ago
Kayla Harbaugh
Created by Kayla Harbaugh over 4 years ago
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Resource summary

Question 1

Question
What is the primary difference between fraud and error in financial statement reporting?
Answer
  • The level of management involved
  • The type of transaction effected
  • The intent to deceive
  • The materiality of the misstatement

Question 2

Question
Which of the following is a common rationalization for fraudulent financial reporting?
Answer
  • This is a one-time transaction and it will allow the company to get through the current financial crisis, but I'll never do it again.
  • No-one will be hurt if I take some inventory for personal use. No-one will even know.
  • I am only borrowing the money; I will pay it back next year.
  • Executives at other companies are getting paid more than I am, so I deserve the money.

Question 3

Question
Which of the following types of transactions did WorldCom management engage in as part of that company's fraudulent financial reporting scheme?
Answer
  • Recorded barter transactions as sales
  • Used restructuring reserves from prior acquisitions to decrease expenses
  • Capitalized line costs rather than expensed them
  • All of these

Question 4

Question
Which of the following statements is true?
Answer
  • Unless an independent audit can provide reasonable assurance that financial information has not been materially misstated because of fraud, it has little, if any, value to society.
  • Repeated revelations of accounting scandals and audit failures related to undetected frauds have seriously damaged public confidence in external auditors
  • A strong ethical tone at the top of an organization that permeates corporate culture is essential in mitigating the risk of fraud
  • All of these
  • None of these

Question 5

Question
Refer to Exhibit 2.5. The Sarbanes-Oxley Act enacted which of the following provisions relevant to auditors and the audit opinion formulation process?
Answer
  • The PCAOB was established, and it has the power to conduct inspections of public company audits.
  • The lead audit partner and reviewing partner must rotate off the audit of a publicly traded company at least every 10 years.
  • In the annual report, management must acknowledge that they are required to have the company's internal audit function attest to the accuracy of the annual reports.
  • All of these
  • None of these

Question 6

Question
Audit committee activities and responsibilities include which of the following?
Answer
  • Selecting the external audit firm
  • Approving corporate strategy
  • Reviewing management performance and determining compensation
  • All of these
  • None of these

Question 7

Question
The three elements of the fraud triangle include incentive, opportunity, and rationalization.
Answer
  • True
  • False

Question 8

Question
In the Enron fraud, one of the ways that management covered up the fraud was to shift debt off the balance sheet to SPEs.
Answer
  • True
  • False

Question 9

Question
An important change resulting from the Sarbanes-Oxley Act is that auditors are no longer allowed to provide most consulting services for their public company audit clients.
Answer
  • True
  • False

Question 10

Question
The term corporate governance mosaic refers to the fact that each of the parties involved in corporate governance has complementary roles and specific responsibilities; no one party is completely responsible.
Answer
  • True
  • False
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