Ch11 Solutions - 1Chapter 11 - Fraud Auditing Multiple...

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1 Chapter 11 - Fraud Auditing Multiple Choice Questions From CPA Examinations 11-20 a. (3) b. (4) c. (1) d. (2) 11-21 a. (1) b. (4) 11-22 a. (1) b. (1) c. (1) 11-23 Information Fraud Condition 1. Management has a strong interest in employing inappropriate means to minimize reported earnings for tax-motivated reasons. Incentives/Pressures 2. Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate. Opportunities 3. The company is marginally able to meet exchange listing and debt covenant requirements. Incentives/Pressures 4. Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist. Opportunities 5. There are recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. Attitudes/Rationalization 6. The company’s financial performance is threatened by a high degree of competition and market saturation. Incentives/Pressures
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11-24 a. Management fraud is often called fraudulent financial reporting, and is the intentional misstatement or omission of amounts or disclosures by management with the intent to deceive users. In contrast, defalcations, which are also called misappropriation of assets, involve theft of an entity’s assets, and normally involve employees and others below the management level. b. The auditor’s responsibility to detect management fraud is the same as for other errors that affect the financial statement. The auditor should design the audit to obtain reasonable assurance that material misstatements in the financial statements due to errors or fraud are detected. c. The auditor should evaluate the potential for management fraud using the fraud triangle of incentives/pressures, opportunities, and attitudes/ rationalizations. Incentives/pressures – Auditors should evaluate incentives and pressures
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This note was uploaded on 06/24/2011 for the course ACCOUNTING 424 taught by Professor Smith during the Spring '11 term at UNC Charlotte.

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Ch11 Solutions - 1Chapter 11 - Fraud Auditing Multiple...

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