Auditing And Assurance Services An Integrated Approach 13th Edition By Arens – Test Bank

Chapter 11

Multiple-Choice Questions

1. Which of the following best defines fraud in a financial statement auditing context?
easy a. Fraud is an unintentional misstatement of the financial statements.
b b. Fraud is an intentional misstatement of the financial statements.
c. Fraud is either an intentional or unintentional misstatement of the financial statements, depending on materiality.
d. Fraud is either an intentional or unintentional misstatement of the financial statements, depending on consistency.

2.
easy One of the earliest frauds occurred at McKesson-Robbins. This company committed fraud by doing which of the following?
b a. Reporting fictitious contributed capital.
b. Reporting fictitious sales and nonexistent inventory.
c. Reporting fictitious fixed assets and underreporting expenses.
d. Reporting expenses as capitalized items.

3. Which of the following is a category of fraud?
easy
a Fraudulent financial reporting Misappropriation of assets
a. Yes Yes
b. No No
c. Yes No
d. No Yes

4. With respect to fraudulent financial reporting, most frauds involve:
easy
d Inventory or liquid asset theft Intentional misstatements of amounts
a. Yes Yes
b. No No
c. Yes No
d. No Yes

5. ________ is fraud that involves theft of an entity’s assets.
easy a. Fraudulent financial reporting
c b. A “cookie jar” reserve
c. Misappropriation of assets
d. Income smoothing

6. ________ involves deliberate actions taken by management to meet earnings objectives.
easy a. Expenditure management
b b. Earnings management
c. Top-line management
d. Management-by-objective

7.
easy ________ is a form of earnings management in which revenues and expenses are shifted between periods to reduce fluctuations in earnings.
c a. Fraudulent financial reporting
b. Expense smoothing
c. Income smoothing
d. Each of the above is correct

8. Which of the following is one of the conditions for fraud described in SAS No. 99?
easy
a Attitudes/rationalization Risk Factors Opportunities
a. Yes No Yes
b. No Yes Yes
c. Yes No No
d. No Yes No

9. Fraudulent financial reporting may be accomplished through the manipulation of:
easy a. assets.
d b. revenues.
c. liabilities.
d. all of the above

10. Who is most likely to perpetrate fraudulent financial reporting?
easy a. Members of the board of directors
c b. Production employees
c. Management of the company
d. The internal auditors

11. Misappropriation of assets is normally perpetrated by:
easy a. members of the board of directors.
b b. employees at lower levels of the organization.
c. management of the company.
d. the internal auditors.

12.
medium Which of the following is not a factor that relates to opportunities to commit fraudulent financial reporting?
c a. Lack of controls related to the calculation and approval of accounting estimates.
b. Ineffective oversight of financial reporting by the board of directors.
c. Management’s practice of making overly aggressive forecasts.
d. High turnover of accounting, internal audit, and information technology staff.