C254 WGU Practice Review Exam 2023 with complete solution
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C254 WGU
C254 WGU Practice Review Exam 2023 with complete solution
In the past (early 20th century time-frame), what was the general consensus of the principal purpose of audits (including among auditors)?
To detect fraud
To certify for the public that management is qualified to run the entity
T...
c254 wgu practice review exam 2023 with complete solution in the past early 20th century time frame
what was the general consensus of the principal purpose of audits including among auditors t
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C254 WGU Practice Review Exam 2023 with complete
solution
In the past (early 20th century time-frame), what was the general consensus of
the principal purpose of audits (including among auditors)?
To detect fraud
To certify for the public that management is qualified to run the entity
To evaluate that companies follow GAAP
Investigative and analytical purposes
To detect fraud
Why has there been so much frustration between the general public and auditors
regarding fraud detection?
The auditors were not sufficiently trained in GAAP rules and regulations to
identify fraud risks properly.
The public felt searching for fraud was pointless and was costing their
investments too much money; if fraudsters want to hide things, they will succeed.
The auditors were taking short cuts and trying to make as large a profit as
possible and therefore weren't performing as they should have.
The public wants all cases of fraud detected, while auditors felt they only needed
to be "reasonably certain" of its absence.
The public wants all cases of fraud detected, while auditors felt they only needed to be
"reasonably certain" of its absence.
True or False
Auditors can only say, with 100% certainty, that there is no fraud if they examine
every transaction. Otherwise, there will always be some measure of doubt.
True
AICPA and the Cohen Commission (the commission on auditor's responsibility)
fought over something specific concerning the fall of Equity Funding in the
1970's. This conflict highlighted a major communication issue between auditors
and financial statement users during much of the 20th century. What was this
conflict about?
How much responsibility should the auditor take when endeavoring to detect (or
fails to detect) fraud
The severity of punishment top management of the company with fraud should
,be subjected to when they perpetrate fraud
The auditors consistently weren't detecting fraud due to improper training
The public felt that auditors needed to be more of a consultant than anything
else, but the AICPA disagreed with this
How much responsibility should the auditor take when endeavoring to detect (or fails to
detect) fraud
True or False
In the beginning of the 20th century, everyone believed that the main purpose of
audits was to detect fraud. However, at this time, Standards on Audit Procedures
(SAP's) began to come forth, making it official that auditors really were
responsible for fraud, and that fraud detection was a priority second to none.
False
SAP No. 1 actually began to define audits as more than just fraud detection. Since then,
audits never had has their principal purpose fraud detectio
What did Audit Standard No. 99 do that previous standards didn't?
Created a special SEC task force to aggressively attach/investigate all "high risk"
public companies
It establishes black and white standards to evaluate whether the auditor did their
job correctly, especially in their search for fraud.
Requires all auditors to publish their work papers so financial statement users
can evaluate for themselves if the auditors were thorough enough or not.
Established the purpose of audits to be a more consultatory in nature than
verifying GAAP rules and fraud detection
It establishes black and white standards to evaluate whether the auditor did their job
correctly, especially in their search for fraud.
True or False
Despite many attempts to close the "expectation gap" between auditors and the
public, the AICPA wasn't successful until SAS No. 99.
True
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was
addressed as "errors and irregularities."
False
True or False
Audit standards involving auditors' responsibility in fraud detection has been to
"reasonably assure" the lack of fraud in financial statements, but didn't clearly
articulate the breadth and scope of their responsibility until SAS No. 99, thus
causing the "expectation gap" between the public and CPA auditors.
True
,The AICPA has had one major goal in issuing auditing standards about fraud, but
never really met its goal until SAS No. 99. What was that goal?
Eliminate the gap between financial statement users' expectations and auditors'
assurances.
Eliminate the need for auditors to detect fraud and focus on evaluating internal
controls and verify that all GAAP rules and regulations have been followed.
Establish a formula/solution identifying potential red flags so auditors, if doing
their job properly, can't fail to detect fraud.
Create consultatory standards for auditors to follow; an excellent consultant,
when given the reins to improve the company, will undoubtedly uncover the well-
hidden cases of fraud.
Eliminate the gap between financial statement users' expectations and auditors'
assurances.
True or False
One of the unique, yet key, provisions of SAS 99 establishes that auditors refrain
from trying to think like a "fraudster," and think more analytically.
False
It requires audit teams to envision themselves as the fraudster; the more creative their
brainstorming, the better.
True or False
Inquiring several simple questions of management in the beginning is now
sufficient under SAS No. 99.
False
Fraud should be considered through the whole process, as should necessary questions
and clarifications asked of management.
When brainstorming possible fraud risks, it is important to avoid what kind of
group dynamic?
Non-hierarchal system where everyone's ideas count
Thoughts of criminal-like behavior.
Groupthink
Free-flowing ideas
Groupthink
Which of the following now needs to be documented (but wasn't required in the
past) in audit work papers, according to SAS No. 99?
Testing of internal controls
Testing of journal entries
, All questions and answers asked of and answered by management
Brainstorming session of possible fraudulent areas.
Brainstorming session of possible fraudulent areas.
True or False
SAS No. 99 classified that auditors ARE required to detect, at the very least,
cases of forgery and collusion.
False
Forgery and collusion are actually some of the most difficult types of fraud to identify
and prove. Auditors are not expected to find all types of fraud on every case.
What is one key paradigm shift reiterated by SAS No. 99?
Fraud detection is an ongoing process, not just a step in planning the audit.
Instead of searching for fraud, auditors are now required to only look for obvious
red flags; fraudsters have become too creative to make it cost effective to search
for fraud.
Fraud is no longer a priority; verifying that IFRS and GAAP have been merged
properly is the number one concern
Every client needs to be viewed as a devious fraudster, always attempting to
deceive.
Fraud detection is an ongoing process, not just a step in planning the audit.
Which of the following were explicitly reiterated in SAS No. 99 from No. 82?
Maintain professional skepticism
Making extensive inquiries of management whenever necessary
Fraud detection has become an ongoing process, not just a piece in the planning
process
All of the above
All of the above
True or false
If fraud risk is higher, the auditor should never incorporate spontaneity or any
form of unpredictability in the audit.
False
The controller of HealthSouth drew on his audit experience and knew the regular
processes and procedures to know how to hide hundreds of thousands of fraudulent
transactions that easily avoided auditor scrutiny.
True or False
Research shows that many fictitious entries occur through the override of
management controls. SAS No. 99 now requires testing these types of entries for
every public company that has them.
True
SOX (Sarbanes-Oxley Act) created a private-sector, non-profit organization to
help auditors concerning their responsibilities to detect fraud. What is the name
of this organization?
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