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Unformatted text preview: Chapter 03 - Management Fraud and Audit Risk Chapter 03 Management Fraud and Audit Risk Multiple Choice Questions 1. The major emphasis in GAAS related to consideration of fraud in a financial statement audit (SAS 99) is on: A. Employee misappropriation of assets. B. Management fraud. C. Client fraud on customers. D. Employee embezzlement. 2. Management fraud generally refers to A. Unintentional mistakes. B. Illegal acts. C. Intentional distortions of financial statements. D. Violations of GAAS. 3. External auditors are responsible A. For authenticating documents. B. For reporting immaterial frauds to a level of management at least one level above the people involved. C. For finding intentional misstatements concealed by collusion. D. For reporting all frauds to outside agencies or parties. 4. Which of the following is not considered an accounting estimate? A. Allowance for loan losses. B. Credit Sales. C. Net realizable value of inventory. D. Percentage-of-completion revenue. 3-1 Chapter 03 - Management Fraud and Audit Risk 5. According to auditing standards, external auditors' responsibilities for indirect illegal acts do not include A. Designing audit procedures to detect illegal acts in the absence of specific information brought to the auditors' attention. B. Performing audit procedures when specific information indicates that possible illegal acts may have a material indirect effect on financial statements. C. Considering the qualitative materiality of known and suspected illegal acts. D. Obtaining written management representations concerning the absence of violations of laws and regulations. 6. Certain conditions and circumstances are often present when management fraud occurs. Which of the following is not such a condition or circumstance? A. Unfavorable industry conditions. B. Lack of working capital. C. High liquidity. D. Slow customer collections. 7. Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of: A. The maximum amount of asset overstatement that might mislead investors in relation to the latest financial statements under audit. B. A maximum percentage of net income overstatement that might mislead investors in relation to the latest financial statements under audit. C. A cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit. D. Controversial accounting measurements that might mislead investors in relation to the latest financial statements under audit. 8. When fraud risk is significant, and management cooperation is unsatisfactory, the auditors will most likely A. Perform extended audit procedures....
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- Spring '11