Question

In: Accounting

1. For each scenario below, indicate which element of the fraud triangle is present. (incentives/pressures, opportunities,...

1. For each scenario below, indicate which element of the fraud triangle is present. (incentives/pressures, opportunities, or attitudes/rationalization.)
a)   Large amounts of cash are on hand.
b)   Management failed to correct ICFR deficiencies in a timely manner.
c)   The organizational structure is complex and lines or authority are unclear.
d)   Future employee layoffs are expected.
e)   Employee behavior suggests dissatisfaction with the company.
f)   Restrictions on the auditor limit access to evidence.
g)   Management attempts to influence the scope of the audit work.
h)   Industry factors threaten the company’s financial stability.
i)   Significant related party transactions are audited by another firm.
j) The personal financial situation of management is threatened.

2. Generally, the closer the relationship between auditor and plaintiff, the:
a)   Easier it is to prove negligence.
b)   The harder it is to prove negligence.
c)   The more likely a plaintiff is to prevail.
d) None of the above.

3. An auditor’s work papers document all of the following except:
a)   the procedures performed and evidence collected by the auditor.
b)   the auditor’s planning and performance of work.
c)   the time required for company personnel to compile the records requested by the auditor.
d)   conclusions reached by the auditor.

4. Generally, the auditor:
a)   Cannot control audit risk.
b)   Can control audit risk.
c)   Controls audit risk to the extent of audit testing.
d) None of the above

Solutions

Expert Solution

1.

OVERCOMING THE FRAUD TRIANGLE. ... * Opportunity (weak internal controls) allows the fraud to occur. * Financial pressure (motive) is the perceived need for committing the fraud. * Rationalization (weak ethics) is the mind-set of the fraudster that justifies the crime

a)   Large amounts of cash are on hand. - Opportunities
b)   Management failed to correct ICFR deficiencies in a timely manner.- Opportunities
c)   The organizational structure is complex and lines or authority are unclear. - Opportunities
d)   Future employee layoffs are expected. - Pressure/Incentive
e)   Employee behavior suggests dissatisfaction with the company. - Attitude/Rationalization.
f)   Restrictions on the auditor limit access to evidence. -Opportunity
g)   Management attempts to influence the scope of the audit work.- Attitude/Rationalization.
h)   Industry factors threaten the company’s financial stability.- Pressure/Incentive
i)   Significant related party transactions are audited by another firm. -Opportunity
j) The personal financial situation of management is threatened.-Pressure/Incentive

2.

2. Generally, the closer the relationship between auditor and plaintiff, the:

Answer: d) None of the above.

3. An auditor’s work papers document all of the following except:

Answer: c)   the time required for company personnel to compile the records requested by the auditor.

4. Generally, the auditor:
Answer: c)   Controls audit risk to the extent of audit testing.


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