What is the primary difference between fraud and error in financial statement reporting?
The level of management involved
The type of transaction effected
The intent to deceive
The materiality of the misstatement
Which of the following is a common rationalization for fraudulent financial reporting?
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.
Which of the following types of transactions did WorldCom management engage in as part of that company's fraudulent financial reporting scheme?
Recorded barter transactions as sales
Used restructuring reserves from prior acquisitions to decrease expenses
Capitalized line costs rather than expensed them
All of these
Which of the following statements is true?
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
None of these
Refer to Exhibit 2.5. The Sarbanes-Oxley Act enacted which of the following provisions relevant to auditors and the audit opinion formulation process?
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.
Audit committee activities and responsibilities include which of the following?
Selecting the external audit firm
Approving corporate strategy
Reviewing management performance and determining compensation
The three elements of the fraud triangle include incentive, opportunity, and rationalization.
In the Enron fraud, one of the ways that management covered up the fraud was to shift debt off the balance sheet to SPEs.
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.
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.
