(Top QUALITY 2024/2025 EXAM REVIEW) WGU C254 - Fraud and Forensic Accounting, Questions and answers, rated A+

WGU C254 - Fraud and Forensic Accounting, Questions and answers, rated A+ (Economic downturn 2008 to 2013) Most economists agree that __________ and _________ were the root causes of the economic downturn. - -- sub-prime mortgages - other risky financial instruments Financial statements prepared by organizations play an important role in keeping America's markets efficient, what do financial statements provide? - -- meaningful disclosures of: ---where a company has been ---where it is currently ---where it is going Financial statement fraud is also referred to as ______________. - -- management fraud When ________ fraud takes place, mngmt acts on behalf of the organization to make the organization appear more profitable than it actually is. - -- financial statement fraud Probably the best measure of the amount of financial statement fraud is to look at ______________. - -SEC enforcement releases (AAERs) The best measure of the amt of financial statement fraud is to look at _________________. - -SEC enforcement releases (AAERs) - [1+ enforcement release is typically issued when financial statement fraud occurs at a company whose stock is publicly trade] While several studies have examined AAERs, the most comprehensive was: a. commissioned by what organization? b. conducted by who? c. what did it study? - -a. Committee of Sponsoring Organizations of the Treadway Commission (COSO) b. Beasley, Carcello, Hermanson, Neal c. it studied all financial statement frauds from In that big study (mentioned in prior card) the most common techniques used to manipulate financials were? - -- improper revenue recognition, followed by overstatement of existing assets or capitalization of expenses Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002 prepared by the SEC a. what does it require SEC to do? - -a. requires the SEC to review and analyze all enforcement actions by the SEC involving violations of reporting requirements under the securities laws, ----- also review restatements of financials - to identify areas of reporting most susceptible to fraud - inappropriate manipulation, or earnings management - also requries commission to report its finding to the Committee on Financial Services of the HOR & Committee on Banking,housing and urban affairs of the senate Why are american financial statements so widely trusted? - -- they are prepared w/ integrity, and there is a system that checks all published statements ********What is the most significant red flag or telltale sign of fraud? - -- the symptoms, or red flags, cannot be ranked in order of their significance or extent The first auditing textbook (Montgomery) listed 3 objectives of the audit.... what are they? - -1. detection of fraud 2. detection of technical errors 3. detection of errors in principle What did SAP no.1 say? - -(SAP no.1 - Extensions of Auditing Procedure) - ordinary examination is not designed to find every single issue - to look at all cases of dishonesty or fraud, the auditor would have to examine every single transaction - this is not possible What did SAP no.30 say? - -(SAP no.30 - Responsibilities and Functions of the Independent Auditor in the Examination of Financials) - purpose: pressure to reconsider its official position on responsibility of detecting fraud - added no new responsibility to detecting fraud - no.30 stated auditor's responsibility to detect irregularities: a. the examination of financials to express an opinion on financials is not specifically designed/can't be relied upon to disclose issues/regularities, you can't rely on the audit exam to ensure discovery b. auditor holds no responsibility to design tests that would detect fraud (beyond minimums) What did SAS No.16 state? - -(SAS No.16- The Independent Auditor's Responsibility for the Detection of Errors or Irregularities) - stated that auditors have some obligation to search for fraud in the normal course of a GAAS audit - auditors objective: examine financials in accordance with GAAS - to form opinion on whether financials present fair financial position, results of ops, changes in financial position adhere to GAAP - under GAAS the auditor is responsible to plan examination to search for material errors and irregularities - requires auditors to search for fraud, does not require them to detect it What did the - Report on the National Commission on Fraudulent Financial Report do? and who issued it? - -- issued by the Nat'l Comm on Fraudulent Reporting (Treadway Commission) - helped refocus business community on problem of fraudulent financial reporting - focused on broader range of parties playing a vital role in the financial reporting process - identified casual factors that can lead to financial statement fraud What does SAS no.53 state? - -(SAS no.53- The Auditor's Responsibility to Detect and Report Errors and Irregularities) - strengthens auditor's responsibility relating to the detection of material fraud financial reportin - no.53 was designed to narrow gap of assurances auditors provide and what financial statement users expect regarding detection of fraud finan. reporting ****requires auditor to provide reasonable assurance that material irregularities would be detected, which extend the auditor's responsibility beyond what was required by SAS no.16 Public Oversight Board's 1993 Special Report - why was it issued? - -- report was called: In the Public Interest-Issues confronting the Accounting Profession - issued in response to signs of failing public confidence in public accountants and auditors- ppl believed auditors had responsibility for detecting mngmt fraud which many viewed auditors as not meeting - included specific instructions for improving and strengthening the accounting profession performance by incr capacity/willingness to detect fraud and improve the financial reporting process - called for improved guidance beyond SAS no.53----to help auditors with detecting fraud, strengthening auditor independence/professionalism - esp interested in enhancing potential for detecting mngmt fraud AICPA Board of Director's 1993 report - -- called: Meeting the Financial Reporting Needs of the Future: A Public Commitment from the Public Accounting Profession - AICPA board of direc, expressed determination to keep the US financial reporting system the best in the world , supported recommmend and support to assist auditors in detection of material misstatements in fraud, and encouraged mngmt, advisors, regulators, independent auditors to share this responsiblity What did the AICPA's Professional Issues Task Force do? (formed by AICPA's SEC Practice Section) - -- published guidance about emerging or unresolved practice issues that surface through litigation analysis, peer review, or internal inspection SAS No.82 - -(SAS No.82- Consideration of Fraud in a Financial Statement Audit) - issued because of requests for improved auditing guidance for detection of material misstatements due to fraudulent financial reporting - to help LESSEN the expectation gap that exists btw financial statement auditors and users of financials - SAS 82 was successful at lessening expectations if 1) auditors detected more fraud, sooner 2) standard was successful in convincing financial statement users that auditors shouldn't be held for detecting ALL fraud -82 clarified fraud detection responsibilities of cpas and gave guidance to those that do m audits - gave guidance on how GAAS standards should be interpretated and followed - didn't require auditors to detect all material fraud - it more explicitly explained what auditors need to do to discover material fraud - No.82 was first auditing standard to solely address fraud - made it clear that the auditor's responsibilities with respect to fraud extend through entire audit not just during planning - requires GAAS auditors to document how they assessed the risk of fraud, also required to document how they responsded to discovering risks of fraud - need for professional skepticism when dealing w