C254 Fraud and Forensic Accounting Practice Questions - Set 1 - Part 3

Correct Answer: b) Management may override internal controls.

Management override is a common way fraud is committed, even when strong internal controls are in place. This is why auditors must remain skeptical and consider override risks.

Correct Answer: False

Family relationships within management can increase the risk of fraud, as collusion is more likely, and there may be less oversight or skepticism toward family members.

Correct Answer: b) Control symptoms.

Lack of segregation of duties is a control symptom, indicating that one person has too much control over a transaction process, which increases the risk of fraud.

Correct Answer: b) Perform additional audit procedures to address the specific fraud risk.

When a specific fraud risk is identified, SAS No. 99 requires auditors to adjust their audit procedures accordingly, increasing the level of skepticism and scrutiny in high-risk areas.

Correct Answer: c) To uncover fraudulent transactions in large populations.

Discovery sampling is an effective method for detecting fraudulent transactions within large populations, as it allows auditors to draw conclusions from a sample.

Correct Answer: False

Auditors are not expected to find all instances of fraud. Their role is to provide reasonable assurance, not a guarantee, that financial statements are free of material misstatement due to fraud.

Correct Answer: b) It converts financial data into common-size figures for comparison.

Vertical analysis involves converting financial statement data into common-size figures, making it easier to compare line items and identify any unusual changes that could signal fraud.

Correct Answer: b) Missing documents or altered invoices.

Missing or altered documents are classic accounting or documentary symptoms of fraud, indicating possible manipulation of financial records.

Correct Answer: True

SOX requires public companies to have a whistleblower system in place to encourage reporting of fraud or misconduct without fear of retaliation.

Correct Answer: b) To avoid taking evidence at face value and maintain a questioning attitude.

Professional skepticism requires auditors to question the validity of evidence and avoid accepting it at face value, particularly when fraud risks are present.