Fraud Examination
6th Edition
ISBN: 9781337619677
Author: Albrecht, W. Steve, Chad O., Conan C., Zimbelman, Mark F.
Publisher: Cengage,
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4) Consider each situation independently and describe the audit opinion that should be given and explain why.a) The client estimated its Provision for Bad Debts based on an average of actual bad debts over the past five years. The client has always used this accounting policy when estimating this provision. The auditor considered the amount to be a reasonable one. The client has also properly accounted for and disclosed it in the financial statements. b) The client (a large department store) used the Last In First Out (LIFO) method to determine the cost of its closing stock. The IFRS’s does not allow the use of LIFO in accounting for inventory. The client is not willing to change this accounting policy. c) In rare circumstances e.g. when the client is not a going concern, in order to give a true and fair view, management may prepare financial statements on a basis other than going concern basis. The client which is no longer a going concern has still prepared the financial statements…
5. Which of the following auditing procedures would the auditor not apply to a cutoff bank statement?
A. Trace year end outstanding checks and deposits in transit to the cutoff bank statement
B. Reconcile the bank account as of the end of the cutoff period
C. Compare dates, payees and endorsements on returned checks with the cash disbursements record
D. Determine that the year-end deposit in transit was credited by the bank on the first working day of the following accounting period.
Identify the applicable qualitative characteristics referred to in the Conceptual Framework for Financial Reporting that is not adhered in the scenario below and indicate the respective group to which each characteristic belongs to. You are also required to indicate the sub-category (if applicable) to which the qualitative characteristic belong to.
A company discovered at the end of the fiscal year that credit sales transactions from the last 2 months of the period were not recorded as the accountant was waiting for a transfer of cash or equivalent to settle the outstanding amounts.
a.
Faithful Representation; completeness; Enhancing
b.
Faithful Representation; completeness; Fundamental
c.
Faithful Representation; neutral; Fundamental
d.
Faithful Representation; free from error; Fundamental
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- 5 Please provide the type of audit procedures that was performed in the following actions or procedures: Read the minutes of a board of directors’ meeting to summarize the information relevant to the financial statements __________________ Trace postings from the sales reports to the general ledger accounts, and back from the general ledger listing to the sales reports to determine sales have been recorded _____________ Calculate debt-equity ratio for each quarter and compare to previous year or the industry ratio __________________________ Prepare a written request to sample of suppliers or vendors to confirm the accuracy of the amount owed to them by the client that is being audited ____________________arrow_forwardCase study 1: While auditing the financial statements of Petty Corporation, the certified public accounting firm of Trueblue and Smith discovered that its client’s legal expense account was abnormally high. Further investigation of the records indicated the following: • Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip. • Swindle, Fox, and Kreip were not Petty Corporation attorneys. • A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk. • Boghas’s other duties included performing the end-of-month bank reconciliation. • Subsequent investigation revealed that Swindle, Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees. Required: a. What control procedures could Petty Corporation have employed to prevent this…arrow_forward27. An audit firm has been asked by a client to attend a meeting between the client and its bank where a new bank loan application is to be discussed. According to the Code of Professional Ethics for Accountants, what type of threat to objectivity will be created if the auditor attends this meeting? a. Self interest threat b. Intimidation threat c. None of the options d. Self review threatarrow_forward
- 24. During a consulting engagement involving the development of a new accounts payable system, an internal auditor identified a control weakness. Although the weakness was reported to the manager of the systems development project, the manager decided to accept the risk because, in the manager's opinion, the risk was not significant. Six months after the implementation of the new system, the disbursements process was audited by another internal auditor who determined that the control weakness had impacted payment processing. The auditor reviewing the disbursements process should do which of the following? Group of answer choices Request that the manager of the systems development project fix the system Discuss the control weakness with the manager of the accounting system, but do not report the finding Report the control weakness to management and the audit committee Disregard the control weakness because management previously decided to accept the risk None of the choicesarrow_forwardSubject: Accounting Information System ETHICS, FRAUD, AND INTERNAL CONTROL Stated Problem: EXPENSE ACCOUNT FRAUD While auditing the financial statements of Petty Cor-poration, the certified public accounting firm of TrueBlue and Smith discovered that its client’s legal expenses account was abnormally high. Further investigation of the records indicated the following:•Since the beginning of the year, several disbursements totaling $15,000 had been made to the law firm of Swindle, Fox, and Kreip.•Swindle, Fox, and Kreip were not Petty Corporation's attorneys. A review of the canceled checks showed that they had been written and approved by Mary Boghas, the cash disbursements clerk. Boghas’s other duties included performing the end-of-month bank reconciliation. Subsequent investigation revealed that Swindle,Fox, and Kreip are representing Mary Boghas in an unrelated embezzlement case in which she is the defendant. The checks had been written in payment of her personal legal fees.…arrow_forward9. The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? Group of answer choices a. Negative confirmation letters may be sent to the suppliers even if we did not rely on controls. b. Since the difference is below materiality, there is no need to change samples. c. The sampling technique used by the audit associate is invalid because it involves bias. d. There is a sampling…arrow_forward
- 9-18. During audit planning, an auditor obtained the following information:1. The company’s financial stability or profitability is threatened by economic, industrial, or its operating conditions.2. There is excessive pressure on management to meet debt repayment requirements.3. The company’s board of directors’ personal net worth is materially threatened by its financial performance.4. Important accounting estimates involve subjective judgments or uncertainties that are difficult to verify.5. The audit committee overlooks certain aspects of financial reporting.6. The company experiences high turnover in its information technology staff and internal audit function.7. There is ineffective communication and therefore insufficient support of the company’s values.8. There have been several incidents of violations of security laws and other regulations in the past.9. The management makes unrealistic or overly optimistic forecasts to analysts, creditors, and other third parties.Required:a.…arrow_forward21. During a consulting engagement involving the development of a new accounts payable system, an internal auditor identified a control weakness. Although the weakness was reported to the manager of the systems development project, the manager decided to accept the risk because, in the manager's opinion, the risk was not significant. Six months after the implementation of the new system, the disbursements process was audited by another internal auditor who determined that the control weakness had impacted payment processing. The auditor reviewing the disbursements process should do which of the following? Group of answer choices Request that the manager of the systems development project fix the system None of the choices Disregard the control weakness because management previously decided to accept the risk Discuss the control weakness with the manager of the accounting system, but do not report the finding Report the control weakness to management and the audit committeearrow_forwardPROBLEM 2 You are revisiting the audit working paper presented to you by your audit staff in line with his audit procedures done in auditing T-ara Corporation’s accounts receivable. The following were lifted from the said working papers: Audit notes: T-ara Corporation’s accounts receivable subsidiary ledger had the following details: Customers Invoice Date Invoice Amount Balance Park Ji-yeon Inc. 12/06/22 127,000 10/29/22 84,000 211,000 Hyomin Company 12/30/22 42,000 09/27/22 30,000 08/20/22 53,520 125,520 Hahn Eunjung Inc. 12/30/22 40,000 12/08/22 80,000 11/25/22 63,600 183,600 Park So-yeon Company 11/17/22 138,840 10/09/22 132,000 08/20/22 74,400 345,240 Jeon Boram Corporation 12/10/22 250,000 250,000 Qri Incorporated 09/12/22 104,400 104,400 Total 1,219,760 The…arrow_forward
- MULTIPLE CHOICE: 4. An auditor who is engaged to examine the financial statements of a business entity will request cutoff bank statement primarily in order to: A. Detect lapping B. Detect kiting C. Verify reconciling items on the client’s bank reconciliation D. Verify the cash balance reported on the bank confirmation inquiry form 5. Which of the following auditing procedures would the auditor not apply to a cutoff bank statement? A. Trace year end outstanding checks and deposits in transit to the cutoff bank statement B. Reconcile the bank account as of the end of the cutoff period C. Compare dates, payees and endorsements on returned checks with the cash disbursements record D. Determine that the year-end deposit in transit was credited by the bank on the first working day of the following accounting period.arrow_forwardMULTIPLE CHOICE: 1. An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure to A. request a cutoff bank statements and related checks be sent to the auditor B. Detect kiting activities that may otherwise not be discovered C. Seek information about contingent liabilities and security agreements D. Provide the data necessary to prepare proof of cash 2. As one of the year-end audit procedures , the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the request , it was mailed by the assistant treasurer. What is the major flaw in this audit procedure? A. The request was mailed by the assistant treasurer B. The CPA did not sign the confirmation request before it was mailed C. Sending the request was…arrow_forwardAn analyst assessed a company and determined the company reported a "high quality of earnings." This implies that management issued a press release indicating it was not aware of any fraud during the current year. the company’s management exercised little or no discretionary influence in reporting financial statement information to shareholders. management has used its influence in determining the dollar amounts reported on financial statements. income statement items reported during the current period can be expected to reflect future income levels.arrow_forward
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