1Which of the following statements are true?
The SEC has authority to establish GAAP for all business enterprises.
Lapping of accounts receivable is most likely to occur when there is an inadequate segregation of duties.
Control activities implemented to mitigate transaction processing risk that typically affect only certain processes, transactions, accounts, and assertions are referred as transaction or application controls.
One of the benefits of establishing a formal credit policy for granting credit is that management is freed from the burden of monitoring accounts receivable.
A transaction trail includes the documents and records that allow an auditor to trace a transaction from its origination through to its final disposition, or vice versa.
2Which of the following statements are true?
An example of fraudulent financial reporting is the CFO intentionally overstating sales to boost profits.
The auditor is not responsible for the presentation of financial statements; therefore, the auditor has no responsibility for fraud in the financial statements.
Internal control is a process designed to guarantee the achievement of the objectives of reliable financial reporting, compliance with laws and regulations and ineffective and inefficient operations.
Public confidence is mostly maintained by the public accounting profession through integrity based on personal moral standards and it is reinforced by codes of conduct.
Internal control is a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.
3 Which of the following statements are false?
For audits, reviews and compilations services, the CPA must be independent.
When an accountant is asked to compile financial statements that omit substantially all of the required disclosures, the CPA may accept the engagement if the CPA believes the omission is not undertaken to mislead users.
Confirmation is a procedure that requests a direct written response to the auditor from a third party (e.g., customer, vendor, etc.).
The standards of competence, independence, and due professional care are covered in the General Standards section of the generally accepted auditing standards.
When the CPA is not independent with respect to a compilation client, the CPA must issue a disclaimer.
4 Which of the following statements are true?
One aspect of forensic accounting focuses on identifying the person who has perpetrated the fraud and having that person confess to the fraud.
The focus of forensic accounting is similar to financial statement auditing in that it is directed to the fairness of financial statements.
Control activities are the component of internal control that includes control actions that have been established by policies and procedures
Pro forma financial information shows what the significant effects might have been had a consummated or proposed transaction or event occurred at an earlier date.
Complex transactions such as derivative instruments provide management certain opportunities to manipulate financial statements to its advantage.