ACCT 444 Week 2 Quiz

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ACCT 444 Week 2 Quiz

Question 1. 1. (TCO 4) To succeed in an action against the auditor, the client must be able to
show that (Points : 3)

the auditor was fraudulent.

the auditor was grossly negligent.
there was a written contract.
there is a close causal connection between the auditors behavior and the damages suffered by
the client.
Chapter 5, 6 & 7

1. (TCO 4) In connection with the audit of financial statements, an independent auditor could be
responsible for failure to detect a material fraud if (Points : 3)

statistical sampling techniques were not used on the audit engagement.

the auditor planned the audit in a negligent manner.
accountants performing important parts of the work failed to discover a close relationship
between the treasurer and the cashier.
the fraud was perpetrated by one employee who circumvented the existing internal controls.

Question 2. 2. (TCO 4) The principal issue to be resolved in cases involving alleged negligence
is usually (Points : 3)
the amount of the damages suffered by plaintiff.
whether to impose punitive damages on the defendant.
the level of care exercised by the CPA.
whether defendant was involved in fraud.
Chapter 5, 6 & 7

2. (TCO 4) The principal issue to be resolved in cases involving alleged negligence is usually
(Points : 3)

the amount of the damages suffered by plaintiff.

whether to impose punitive damages on the defendant.
the level of care exercised by the CPA.
whether defendant was involved in fraud.

Question 3. 3. (TCO 4) While performing services for their clients, professionals have a duty to
provide a level of care that is (Points : 3)

free from judgment errors.

superior.
greater than average.
reasonable.
Chapter 5

3. (TCO 4) A third-party beneficiary is one that (Points : 3)

has failed to establish legal standing before the court.

does not have privity of contract and is unknown to the contracting parties.
does not have privity of contract, but is known to the contracting parties and intended to benefit
under the contract.
may establish legal standing before the court after a contract has been consummated.

Chapter 5
Question 4. 4. (TCO 4) Tort actions against CPAs are more common than breach of contract
actions because (Points : 3)

there are more torts than contracts.

the burden of proof is on the auditor rather than on the person suing.
the person suing need prove only negligence.
the amounts recoverable are normally larger.
Chapter 5

Question 5. 5. (TCO 4) The responsibility for adopting sound accounting policies and
maintaining adequate internal control rests with the (Points : 3)

board of directors.
company management.
financial statement auditor.
companys internal audit department.
Chapter 6

Question 6. 6. (TCO 3) Which of the following is not one of the reasons that auditors provide
only reasonable assurance on the financial statements? (Points : 3)

The auditor commonly examines a sample, rather than the entire population of transactions.
Accounting presentations contain complex estimates, which involve uncertainty.
Fraudulently prepared financial statements are often difficult to detect.
Auditors believe that reasonable assurance is sufficient in the vast majority of cases.
Chapter 6

6. (TCO 3) Which of the following statements is most correct regarding errors and fraud?
(Points : 3)

An error is unintentional, whereas fraud is intentional.

Frauds occur more often than errors in financial statements.
Errors are always fraud and frauds are always errors.
Auditors have more responsibility for finding fraud than errors.

Question 7. 7. (TCO 3) Which of the following is not one of the factors of the fraud triangle?
(Points : 3)

Incentives/pressures
Attitudes/rationalization
Opportunities
Psychological make-up
Chapter 5 or 11

7. (TCO 3) In the fraud triangle, fraudulent financial reporting and misappropriation of assets
(Points : 3)

share little in common.

share most of the same risk factors.
share the same three conditions.
share most of the same conditions.

Chapter 11

Question 8. 8. (TCO 3) Fraudulent financial reporting may be accomplished through the

manipulation of (Points : 3)

assets.
liabilities.
revenues.
all of the above.
Chapter 11

8. (TCO 3) Because of the risk of material misstatements due to fraud, an audit of financial
statements in accordance with generally accepted auditing standards should be performed with
an attitude of (Points : 3)
objective judgment.
impartial conservatism.
independent integrity.
professional skepticism.

Chapter 11

Question 9. 9. (TCO 3) Which of the following is a factor that relates to attitudes or

rationalization to commit fraudulent financial reporting? (Points : 3)

Significant accounting estimates involving subjective judgments

Excessive pressure for management to meet debt repayment requirements
Managements practice of making overly aggressive forecasts
High turnover of accounting, internal audit and information technology staff
Chapter 11

Question 10. 10. (TCO 3) Auditor responses to fraud risks include which of the following?
(Points : 3)

Change the overall conduct of the audit to respond to identified fraud risks.
Design and perform audit procedures to address identified risks.
Perform procedures to address the risk of management override of controls.
All of the above.
Chapter 11

10. (TCO 3) Which of the following characteristics is most likely to heighten an auditors
concern about the risk of material misstatements, due to fraud in an entitys financial statements?
(Points : 3)

Employees who handle cash receipts are not bonded.

The entitys industry is experiencing declining customer demand.
Internal auditors have direct access to the board of directors and the entitys management.
The board of directors is active in overseeing the entitys financial reporting policies.

Chapter 11