Quiz 12 620 - quiz 12 PDF

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quiz 12...

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4 out of 4 points Management has the primary responsibility for preparing financial statements and safeguarding assets. Selected Answer:

Tru e

Answers:

Tru e False

4 out of 4 points Which of the following is NOT a recommended strategy for strengthening the board's knowledge of business and financial statement risks? Selected Answer:

Performing ratio analysis on detailed accounts and tracing transactions to underlying support.

Answers: Performing ratio analysis on detailed accounts and tracing transactions to underlying support. Communication with internal and external auditors. Understanding the incentives, pressures, motivations and opportunities for wrongdoing within the company. Maintaining a broad network of information sources inside and outside the organization. Response Feedback:

The correct answer is "Performing ratio analysis on detailed accounts and tracing transactions to underlying support." Ratio analysis and tracing have great value, but such detailed procedures are not the primary tools used by audit committees or boards, except in unusual circumstances.

4 out of 4 points One of the responsibilities of the board of directors (or the audit committee of the board) is oversight of management, including mitigating the risk of management override of controls.

Selected Answer: Answers:

Response Feedback:

Tru e Tru e False This is a true statement. See the reading "Management Override of Internal Control: The Achilles' Heel of Fraud Prevention."

4 out of 4 points One fundamental difference between an accounting error and a fraudulent misstatement is intent. Selected Answer:

Tru e

Answers:

Tru e False

Response Feedback:

This is a true statement. 4 out of 4 points

Which of the following statements is true? Selected Answer:

Answers:

Communication of the fraud risk management program needs to be sufficient so that all personnel and vendors understand their responsibilities. The board should participate in the execution of fraud risk control procedures in order to ensure adequate oversight of the company. It is important to document the fraud risk management program using the proscribed format articulated by the Fraud Risk Management Guide in order to comply with COSO requirments. Communication of the fraud risk management program needs to be sufficient so that all personnel and vendors understand their responsibilities.

A fraud risk management program should be kept confidential so that potential fraud perpetrators cannot anticipate controls. Response Feedback:

The correct answer is: "Communication of the fraud risk management program needs to be sufficient so that all personnel and vendors understand their responsibilities."

4 out of 4 points It's generally better to consider the risk of management override as a separate risk during brainstorming. Selected Answer: Answers:

Response Feedback :

Tru e Tru e False This is a true statement. Often, when management override is not considered separately, it is never really addressed at all. It's a difficult dialogue, especially if management is part of the discussion. Making it an explicit element of the fraud risk management program helps make sure it is fully addressed.

4 out of 4 points One key defense against the risk of management override of internal controls is a vigorous whistleblower program. Selected Answer: Answers:

Response Feedback:

Tru e Tru e False This is a true statement. This is referenced in several of the readings, including the ACFE's Report to the Nations (where "tip" is one of the most common mechanisms for fraud detection.

4 out of 4 points COSO's Principle 8 requires the establishment of a comprehensive fraud risk management program. Selected

Fals

Answer: Answers:

e True Fals e

Response Feedback :

This statement is false. Principle 8 requires that "the organization considers the potential for fraud in assessing risks to the achievement of objectives." The comprehensive fraud risk management program articulated in the Fraud Risk Management Guide is a best practice, but the requirement in the principles is more narrow.

0 out of 4 points External auditors who are engaged to examine the effectivness of an organization's internal control over financial reporting can assess the organization's implementation of COSO's internal control principle number 8 by using the Fraud Risk Management Guide. Selected Answer: Answers: Response Feedback:

Fals e True False This is a true statement. See additional information in the Fraud Risk Management Guide.

4 out of 4 points (Extra Credit) Mary Beth is the CFO of a company that sells advertising on the web. She is well-qualified for the job, with a CPA, an MBA and many years of experience in accounting and finance for internet companies. The company places ads for various companies and receives payment based on the number of times the ad is clicked. The amount of click-based revenue continues to grow as a proportion of the company's overall income, and there are a number of difficult accounting judgments associated with revenue recognition. Roughly half of Mary Beth's compensation is paid as a part of the year-end bonus on earnings results. Mary Beth has a good relationship with the audit team and the board. They ask about revenue recognition every quarter. Mary Beth is always on top of things and has all the information that anyone asks for. Based on the information Mary Beth has presented, the revenue looks solid.

Which of the following is NOT true? Selected Answer:

There is little risk of revenue-related fraud, since Mary Beth is well-qualified, has command of the relevant information, there is an external audit and the board is asking questions each quarter.

Answers: There is little risk of revenue-related fraud, since Mary Beth is well-qualified, has command of the relevant information, there is an external audit and the board is asking questions each quarter. The existence of a significant amount of variable compensation based on earnings increases the risk of fraud or manipulation of earnings results to meet performance targets. Although Mary Beth seems entirely competent, there is always a risk of management override, particularly if the auditors and the board are reliant on Mary Beth for most of their information. The existence of complexity in the internet-based revenues and the accounting judgments increases the opportunity for fraud, as compared to a simple, objective revenue process. Response Feedback :

The correct answer is "There is little risk of revenuerelated fraud, since Mary Beth is well-qualified, has command of the relevant information, there is an external audit and the board is asking questions each quarter." There are several risk factors present in this discussion, including the confidence and trust of the auditors and board, the complexity of the revenue recognition judgments, the pressures associated with the variable compensation structure. Even though Mary Beth is a trusted, competent person, the risk of management override is present....