chapter 3 test solutions only - Chapter 03 - Management...

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Unformatted text preview: Chapter 03 - Management Fraud and Audit Risk 1. The major emphasis in GAAS related to consideration of fraud in a financial statement audit (SAS 99) is on: B. Management fraud. 2. Management fraud generally refers to C. Intentional distortions of financial statements. 3. External auditors are responsible B. For reporting immaterial frauds to a level of management at least one level above the people involved. is not considered an accounting estimate? B. Credit Sales. 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. 6. Certain conditions and circumstances are often present when management fraud occurs. Which of the following is not such a condition or circumstance? C. High liquidity. 7. Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of: 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. 8. When fraud risk is significant, and management cooperation is unsatisfactory, the auditors will most likely D. Withdraw from the engagement. 9. Which of the following statements concerning illegal acts by clients is correct? A. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and frauds. 3-1 Chapter 03 - Management Fraud and Audit Risk 10. Which of the following statements best describes auditors' responsibility to detect errors and frauds? A. Auditors should design an audit to provide reasonable assurance of detecting errors and frauds that are material to the financial statements. 11. The probability that an audit team will give an inappropriate opinion on financial statements best describes A. Audit risk. 12. Inherent risk is the C. Probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements. 13. If control risk increases, and all other risks in the audit risk model stay constant except the one referred to below, which of the following statements is correct? A. Detection risk will decrease. 14. Anchoring refers to B. Preconceived notions about control risk that auditors carry over from a previous audit or audits of the client. 15. Which of the following would be a step in an internal control program? C. Assess the control risk for sales and collections. 16. If fictitious credit sales were recorded, and the fictitious accounts receivable were later directly written off as bad debt expense, C. Income would not be misstated....
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