79. Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets? a. A high turnover of senior management. b. A lack of independent checks. c. A strained relationship between management and the predecessor auditor. d. An inability to generate cash flow from operations. 80. The Center for Audit Quality (CAQ) report identifies which of the following ways in which individuals involved in the financial reporting process can mitigate the risk of fraudulent financial reporting? a. Individuals involved in financial reporting need to acknowledge that there needs to exist a strong highly ethical tone at the top of an organization that permeates the corporate culture including an effective fraud risk management program. b. Individuals involved in financial reporting need to continually exercise professional skepticism. c. Individuals involved in financial reporting need to remember that strong communication among those involved in the financial reporting process is critical. d. All of the above. 81. Which of the following frauds is most common? a. Chief financial officer misappropriation of funds. b. Misapplication of revenue recognition principles. c. Management’s theft of cash held in reserve accounts. d. Over-recording expenses related to stock options. 82. Which of the following is an example of fraud? a. A mistake in processing accounting data. b. An incorrect accounting estimate arising from misinterpretation of facts. c. Misappropriation of an asset. d. A mistake in the application of accounting principles. 83. Which of the following is a common incentive or condition which increases the likelihood for fraudulent financial reporting? a. Ineffective segregation of assets. b. Addictions to gambling or drugs. c. Pending stock option expirations. d. Access to undeposited cash. 84. Which of the following is not an element of the Fraud Triangle? a. Incentive. b. Rationalization. c. Deception. d. Opportunity 85. Protection Transparency Inc. is being audited by Messer and Bromely LLP. During the assessment of fraud Messer and Bromely discover that the controller has been creating fictional sales and posting them to the general ledger. Who should the auditors make aware of this issue? a. Protection Transparency’s legal counsel. b. The police. c. The chairman of Protection Transparency’s audit committee. d. The predecessor auditor of Protection Transparency. 86. Management of Premium Discovery Company is compensated through large salaries stock options and bonuses tied to the company’s working capital growth. The CEO is constantly holding meetings to ensure that management is on target for increased operating income each month. Based upon the above information only what type of probable motivation is there to commit fraud at the Premium Discovery Company? a. Incentive. b. Opportunity. c. Rationalization. d. Expectation. 87. Which of the following creates an opportunity for fraud to be committed in an organization? a. Management demands financial success. b. Poor internal control. c. Commitments tied to debt covenants. d. Management is aggressive in its application of accounting rules. 88. Which of the following statements about the Bernie Madoff ponzi scheme is false? a. Madoff too advantage of his unique ties to the investment community (he was the former Chair of the NASDAQ) to create trust and encourage further investments. b. Madoff began perpetrating the fraud shortly before passage of the Sarbanes-Oxley Act and the provisions of that Act ultimately led to discovery of the fraud. c. Madoff was sentenced to 150 years in prison. d. The estimated amount missing from client accounts including fabricated gains was almost $65 billion.
