In: Accounting
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
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.