Professional Documents
Culture Documents
False
False
False
False
False
6. The client should request the bank to send a cutoff bank statement
directly to the auditor.
True
False
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
False
False
False
False
False
False
False
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
False
False
False
False
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
Psychotic.
Egocentric.
Ideological.
Economic.
A.
B.
C.
D.
Motive.
Lack of training.
Opportunity.
Rationalization.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. Identify old outstanding checks that the client may exclude from the
year-end bank reconciliation in order to misappropriate cash.
B. Obtain sufficient information to reconcile the client's bank account as
of year-end.
C. Obtain direct confirmation of the client's bank balances as of yearend.
D. Test the propriety of items appearing on the client's year-end bank
reconciliation.
29 Auditors ordinarily send a standard confirmation request to all banks
. with which the client has done business during the year under audit,
regardless of the year-end balances. A purpose of this procedure is to
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
A.
B.
C.
D.
A.
B.
C.
D.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
A.
B.
C.
D.
A.
Intentional deception.
B. Taking unfair or dishonest advantage of other people.
C. Perpetration for the benefit or detriment of the organization.
D. Negligence on the part of executive management.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
Theft.
Irregular endorsement.
Replacement or substitution of stolen assets.
Deposits in transit.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
Adequate internal control.
B. Inadequate internal control because mailroom employees should not
have access to cash.
C. Inadequate internal control because treasury employees should
prepare the deposit slip.
D. Inadequate internal control because of a lack of separation of duties.
45 Which of the following should be performed by the persons opening the
. mail and recording payments?
A.
B.
C.
D.
46 At the end of each business day, Safe Company sends its bank a list of
. all checks written during the day, including the check number, payee,
and amount. When a check is sent to the bank for payment, the bank
compares the payee and the amount with the list provided by Safe
Company. This system is called
A.
B.
C.
D.
Paychex.
Pay-as-you-go.
Positive pay.
Pay master.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
47 Two people should open mail that includes payments. This control is
. called
A.
B.
C.
D.
Separation of duties.
Joint custody.
Anti-collusion.
Lapping.
48 Most fraud investigators utilize the fraud triangle theory. A new theory
. called the fraud diamond has been proposed. Which of the following is
an element of the fraud diamond that is not an element of the fraud
triangle?
A.
B.
C.
D.
Motive.
Opportunity.
Capability.
Liquidity.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
Inventory.
Wage expense.
Consulting service expense.
Property tax expense.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
Understating the sales journal.
B. Overstating the accounts receivable control account.
C. Overstating the accounts receivable subsidiary ledger.
D.
Overstating the sales journal.
63 Embezzlement is a type of fraud that involves
.
A. An employee's misappropriating an employer's money or property
not entrusted to him or her.
B. A manager's falsification of financial statements for the purpose of
misleading investors and creditors.
C. An employee's mistaken representation of opinion that causes
incorrect accounting entries.
D. An employee misappropriating an employer's money or property
entrusted to the employee's control in the employee's normal job.
64 Which of the following control activities would best protect against the
. preparation of improper or inaccurate cash disbursements?
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
Existence.
Rights and obligations.
Valuation or allocation.
Occurrence.
A.
B.
C.
D.
Prior-years' balances.
Management inquiry.
Cash budgets.
Aged accounts receivable reports.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. Does the person who opens the mail make a list of cash received?
B. Are prenumbered sales invoices or receipt books used?
C. Are current receipts controlled by mechanical devices?
D. Does a responsible person approve discounts taken by customers
with payments on account?
70 The characteristics of people who commit the largest frauds would not
. include
A.
B.
C.
D.
A.
B.
C.
D.
Motive.
Opportunity.
Lack of integrity.
Predication.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A.
B.
C.
D.
Audit of balance.
Test of controls.
Paper trail.
Discovery summary.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
77 Information about criminal rackets and cons and their operations and
. the reputations of local businesses can be found at the
A.
B.
C.
D.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
96 Auditors are auditing the cash receipts for Great Wall Corporation. For
. each audit procedure performed (numbered 1-5), select the control
objective being tested by placing the correct letter in the blank.
A. Existence
B. Completeness
C. Authorization
D. Accuracy
E. Classification
F. Accounting and posting
G. Proper period
______ 1. For a sample of recorded cash receipts, the auditors compared
the date of receipt to the recording date.
______ 2. The auditors traced a sample of daily cash reports to the cash
receipts journal.
______ 3. The auditors vouched a sample of recorded cash receipts to
the deposits in the bank statement.
______ 4. The auditors recalculate the cash listed on the daily deposit for
a sample of recorded cash receipts.
______ 5. The auditors traced a sample of recorded cash receipts to
postings in the correct customers' accounts.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Essay Questions
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
99 After checks are signed for vendor invoices, why should vouchers be
. marked PAID or otherwise mutilated?
100 List and briefly describe the three factors that increase the probability
.
of fraud.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
101 What kind of error or fraud could happen if the inventory warehouse
.
manager also had responsibility for making the physical inventory
count and reconciling discrepancies to the perpetual inventory
records?
102 Describe how a lockbox works and indicate the advantages of such a
.
system
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
103 Ed's wife Diane owns a printing business in town. Ed works in the
.
accounts payable department of Jiffy Abs Vitamin Company. Diane
prints invoices for work supposedly done for Jiffy Abs (no actual work
was performed), and Ed places the invoice in the invoice pile approved
for payment. Jiffy Abs pays these invoices and sends Diane a check.
a. Name two internal controls that might prevent or detect these
fraudulent payments.
b. Name two audit procedures that might detect this fraud
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
104 Micro Chip Corporation (MCC) has a special post office box to which
.
customers send their payments. Chris is responsible for:
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Define and explain the differences among several kinds of employee fraud that might
occur at an audit client.
Topic: Employee Fraud
2.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
3.
4.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Topic: The Audit of Cash-Substantive Procedures
5.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Topic: The Audit of Cash-Substantive Procedures
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
6.
The client should request the bank to send a cutoff bank statement
directly to the auditor.
TRUE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Topic: The Audit of Cash-Substantive Procedures
7.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Define and explain the differences among several kinds of employee fraud that might
occur at an audit client.
Topic: Employee Fraud
8.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
9.
10.
11.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
12.
13.
14.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
15.
16.
17.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Define and explain the differences among several kinds of employee fraud that might
occur at an audit client.
Topic: Employee Fraud
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
18.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Topic: The Audit of Cash-Substantive Procedures
19.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
20.
21.
A.
B.
C.
D.
Psychotic.
Egocentric.
Ideological.
Economic.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 Identify and explain the three conditions (i.e.; the fraud triangle) that often exist
when a fraud occurs.
Source: Original
Topic: Fraud Triangle
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
22.
23.
A.
B.
C.
D.
Motive.
Lack of training.
Opportunity.
Rationalization.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 Identify and explain the three conditions (i.e.; the fraud triangle) that often exist
when a fraud occurs.
Source: Original
Topic: Fraud Triangle
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
24.
25.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
26.
27.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
28.
A. Identify old outstanding checks that the client may exclude from
the year-end bank reconciliation in order to misappropriate cash.
B. Obtain sufficient information to reconcile the client's bank account
as of year-end.
C. Obtain direct confirmation of the client's bank balances as of yearend.
D. Test the propriety of items appearing on the client's year-end bank
reconciliation.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Source: Original
Topic: Substantive Procedures
29.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
30.
A.
B.
C.
D.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Source: Original
Topic: Substantive Procedures
31.
A.
B.
C.
D.
32.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
33.
An unrecorded check issued during the last week of the year would
most likely be discovered by the auditor when the
34.
A.
B.
C.
D.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
35.
A.
B.
C.
D.
36.
A.
Intentional deception.
B. Taking unfair or dishonest advantage of other people.
C. Perpetration for the benefit or detriment of the organization.
D. Negligence on the part of executive management.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-01 Define and explain the differences among several kinds of employee fraud that might
occur at an audit client.
Source: Original
Topic: Employee Fraud Types
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
37.
38.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
39.
40.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
41.
42.
A proof of cash
A.
Is required by GAAS.
B. Can be used to test the transactions process.
C. Is most helpful when control risk for cash is low.
D.
Always detects lapping.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 3 Hard
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: AICPA
Topic: Internal Controls
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
43.
A.
B.
C.
D.
Theft.
Irregular endorsement.
Replacement or substitution of stolen assets.
Deposits in transit.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-05 Describe the types of substantive procedures that are conducted during the audit of
cash.
Source: Original
Topic: Substantive Procedures
44.
A.
Adequate internal control.
B. Inadequate internal control because mailroom employees should
not have access to cash.
C. Inadequate internal control because treasury employees should
prepare the deposit slip.
D. Inadequate internal control because of a lack of separation of
duties.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: AICPA
Topic: Internal Controls
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
45.
46.
At the end of each business day, Safe Company sends its bank a list
of all checks written during the day, including the check number,
payee, and amount. When a check is sent to the bank for payment,
the bank compares the payee and the amount with the list provided
by Safe Company. This system is called
A.
B.
C.
D.
Paychex.
Pay-as-you-go.
Positive pay.
Pay master.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: Original
Topic: Internal Controls
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
47.
Two people should open mail that includes payments. This control is
called
A.
B.
C.
D.
Separation of duties.
Joint custody.
Anti-collusion.
Lapping.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: Original
Topic: Internal Controls
48.
A.
B.
C.
D.
Motive.
Opportunity.
Capability.
Liquidity.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-02 Identify and explain the three conditions (i.e.; the fraud triangle) that often exist
when a fraud occurs.
Source: Original
Topic: Fraud Triangle
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
49.
50.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
51.
52.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
53.
54.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
55.
A.
B.
C.
D.
Inventory.
Wage expense.
Consulting service expense.
Property tax expense.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
56.
57.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: Original
Topic: Internal Controls
58.
59.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
60.
61.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
62.
A.
Understating the sales journal.
B. Overstating the accounts receivable control account.
C. Overstating the accounts receivable subsidiary ledger.
D.
Overstating the sales journal.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-06 Discuss actual cash fraud cases and describe how the schemes were uncovered.
Source: Original
Topic: Fraud Schemes
63.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
64.
65.
A.
B.
C.
D.
Existence.
Rights and obligations.
Valuation or allocation.
Occurrence.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
66.
A.
B.
C.
D.
Prior-years' balances.
Management inquiry.
Cash budgets.
Aged accounts receivable reports.
67.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
68.
A.
B.
C.
D.
69.
A. Does the person who opens the mail make a list of cash received?
B. Are prenumbered sales invoices or receipt books used?
C. Are current receipts controlled by mechanical devices?
D. Does a responsible person approve discounts taken by customers
with payments on account?
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: Original
Topic: Internal Controls
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
70.
A.
B.
C.
D.
71.
A.
B.
C.
D.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
72.
A.
B.
C.
D.
Motive.
Opportunity.
Lack of integrity.
Predication.
73.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
74.
75.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
76.
The standard format for the audit approach to fraud cases would not
include
A.
B.
C.
D.
Audit of balance.
Test of controls.
Paper trail.
Discovery summary.
77.
Information about criminal rackets and cons and their operations and
the reputations of local businesses can be found at the
A.
B.
C.
D.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
78.
79.
80.
81.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
82.
83.
84.
85.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
86.
87.
88.
89.
90.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
91.
Observation of persons'_____________________________ in
_____________________________ and _____________________________ may
be red flags of employee fraud.
changes; habits; lifestyles
Reference: Question also found in study guide
92.
93.
94.
95.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Auditors are auditing the cash receipts for Great Wall Corporation. For
each audit procedure performed (numbered 1-5), select the control
objective being tested by placing the correct letter in the blank.
A. Existence
B. Completeness
C. Authorization
D. Accuracy
E. Classification
F. Accounting and posting
G. Proper period
______ 1. For a sample of recorded cash receipts, the auditors
compared the date of receipt to the recording date.
______ 2. The auditors traced a sample of daily cash reports to the
cash receipts journal.
______ 3. The auditors vouched a sample of recorded cash receipts to
the deposits in the bank statement.
______ 4. The auditors recalculate the cash listed on the daily deposit
for a sample of recorded cash receipts.
______ 5. The auditors traced a sample of recorded cash receipts to
postings in the correct customers' accounts.
1. G; 2. B; 3. A; 4. D; 5. F
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: Original
Topic: Internal Controls
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
97.
1. E; 2. L; 3. O; 4. G; 5. I; 6. N; 7. H; 8. J; 9. K; 10. D
Feedback: Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 3 Hard
Learning Objective: 06-01 Define and explain the differences among several kinds of employee fraud that might
occur at an audit client.
Learning Objective: 06-02 Identify and explain the three conditions (i.e.; the fraud triangle) that often exist
when a fraud occurs.
Learning Objective: 06-03 Describe techniques that can be used to prevent employee fraud.
Source: Original
Topic: Fraud Terminology
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Essay Questions
98.
The bank imprints the check with the amount paid by the bank
(magnetic print in the lower right corner). It will be 00007500,
meaning $75.00.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-07 Describe some extended procedures for detecting employee fraud schemes involving
cash.
Source: Original
Topic: Extended Fraud Procedures
99.
After checks are signed for vendor invoices, why should vouchers be
marked PAID or otherwise mutilated?
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
100. List and briefly describe the three factors that increase the
probability of fraud.
Motive, opportunity, and lack of integrity are the three factors that
increase the probability of fraud. Motive is a cause that pressures
people into action. Economic motives are common in business fraud.
Opportunity refers to a situation that allows someone with motive to
carry out fraud. An example would be a lack or lapse of a specific
control or controls in an organization. A lack of integrity describes a
person who does not adhere to the social or organizational ethical
code. The person may rationalize the actions to defend such a lack of
integrity. Fraud is most common when these three factors exist
together.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-02 Identify and explain the three conditions (i.e.; the fraud triangle) that often exist
when a fraud occurs.
Source: Original
Topic: Fraud Triangle
101. What kind of error or fraud could happen if the inventory warehouse
manager also had responsibility for making the physical inventory
count and reconciling discrepancies to the perpetual inventory
records?
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-02 Identify and explain the three conditions (i.e.; the fraud triangle) that often exist
when a fraud occurs.
Source: Original
Topic: Fraud Triangle
102. Describe how a lockbox works and indicate the advantages of such a
system
A lockbox is box that locks, such as ones at a post office under the
control of a bank. The bank sends employees to retrieve checks from
the box and then deposits them in the company's account. The bank
provides a list of deposits and the remittance advices to the
company. The bank may also provide images of the checks (if the
company is willing to pay for these additional services).
The two main advantages to this system are that
a. Checks are retrieved by the bank and never enter the company.
Therefore, the risk that checks will be misplaced or end up in the
hands of the wrong individuals is eliminated. Separation of duties
also becomes easier because the custody of the asset is no longer a
possibility for record keepers or authorizers.
b. The money is placed immediately into the bank, allowing
immediate access to the use of the funds or interest on them.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-04 Describe the control activities over the receipt and disbursement of cash.
Source: Original
Topic: Internal Controls
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
103. Ed's wife Diane owns a printing business in town. Ed works in the
accounts payable department of Jiffy Abs Vitamin Company. Diane
prints invoices for work supposedly done for Jiffy Abs (no actual work
was performed), and Ed places the invoice in the invoice pile
approved for payment. Jiffy Abs pays these invoices and sends Diane
a check.
a. Name two internal controls that might prevent or detect these
fraudulent payments.
b. Name two audit procedures that might detect this fraud
a. Controls include:
Using a voucher package that includes a receiving report.
Using an approved vendor list and requiring that the vendor be on
the approved vendor list.
Including an expense account for charges of all material. Each
department receives a report of all expenses each month for review.
b. Procedures include:
Reviewing voucher packages to ensure that goods were received.
Reviewing voucher packages to ensure that vendors are on the
approved vendor list.
Using analytical procedures to identify increases in expenditures for
specific types of products (printing services).
Using analytical procedures to identify increases in expenditures to
specific vendors.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-03 Describe techniques that can be used to prevent employee fraud.
Source: Original
Topic: Fraud Prevention
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
104. Micro Chip Corporation (MCC) has a special post office box to which
customers send their payments. Chris is responsible for:
a. Controls include:
Having a different person empty the post office box, record how
many envelopes were in the box, and deliver the unopened mail to
Chris. Chris would be required to account for each envelope.
The mail could be picked up under joint custody.
The mail could be opened under joint custody.
Surveillance equipment could be used to monitor the opening and
recording of payments.
Customers would be made because payments would not be
credited to their account, and an independent and vigorous
complaint resolution process to address these complaints would be a
good control.
Statements should be mailed each month to customers with
balances or activity in their account.
Someone independent of accounts receivable should provide
follow-up communication on customer accounts that are past due.
b. Procedures include these:
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Someone should observe the opening of the mail and the recording
of cash.
Customer complaints should be reviewed for patterns and
appropriately followed up by company personnel
Individuals identified from a sample of customer complaints should
be asked to send a copy of their payment (front and back) and the
appropriate employee should review the checks for the endorsement
and bank account
The aging of accounts receivable schedule (accounts whose
payments were diverted would begin to have past due balances)
should be reviewed.
Account balances should be confirmed with customers.
Responses to follow-up communications on customer past due
accounts should be reviewed.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-03 Describe techniques that can be used to prevent employee fraud.
Source: Original
Topic: Fraud Prevention
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.