Auditing and Assurance Services, 15e (Arens)Chapter 11 Fraud AuditingLearning Objective 11-11) Which of the following best defines fraud in a financial statement auditing context?A) Fraud is an unintentional misstatement of the financial statements.B) Fraud is an intentional misstatement of the financial statements.C) Fraud is either an intentional or unintentional misstatement of the financial statements, depending on materiality.D) Fraud is either an intentional or unintentional misstatement of the financial statements, depending on consistency.Answer: BTerms: Definition of fraud in financial statement auditingDiff: EasyObjective: LO 11-1AACSB: Reflective thinking skills2) Companies may intentionally understate earnings when income is high to create ________ that may be used in future years to increase earnings. 1
3) Which of the following is a category of fraud?Fraudulent financial reporting Misappropriation of assetsYesYesFraudulent financial reporting Misappropriation of assetsNoNoFraudulent financial reporting Misappropriation of assetsYesNoFraudulent financial reporting Misappropriation of assetsNoYes4) Most cases of fraudulent reporting involve:5) ________ is fraud that involves theft of an entity's assets.A) Fraudulent financial reportingB) A "cookie jar" reserveC) Misappropriation of assetsD) Income smoothingAnswer: CTerms: Fraud that involves theft of entity's assetsDiff: EasyObjective: LO 11-1AACSB: Reflective thinking skills2
6) Which of the following is a form of earnings management in which revenues and expenses areshifted between periods to reduce fluctuations in earnings?
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- Financial audit, AACSB