ADVANCED AUDITING MIDTERM EXAM: A+ GRADED GUIDE
WITH THE LATEST KEY QUESTIONS AND ANSWERS.
Assume that you have selected a random sample of 15 checks from a population
of 800 checks. The checks you have selected are the following numbers: 664, 789,
650, 136, 365, 538, 800, 657, 110, 136, 398, 645, 214, 544, and 777. You have
determined that no fraud exists in the sample of 15 checks you evaluated.
Based on this sample of 15 randomly selected checks, you may conclude that no
fraud exists in the population.
False. If fraud is not present in the sample, you cannot know for sure whether fraud
exists in the population. You would need to examine all checks to be 100 percent sure
that fraud does not exist. Based on your sample size, you can state that, at a certain
confidence level, the probability of fraud is not more than a certain percent. If you want
to be more confident or reduce the probability of fraud, you must take a larger sample.
Enron, one of the largest corporations to ever file for bankruptcy protection, was
number 7 on the Fortune 500 list of the largest companies in America as ranked
by revenues at the time of its bankruptcy. It was alleged that Enron executives
were involved in questionable accounting practices and financial statement fraud,
the disclosure of which led to the downward spiral in Enron's stock price and the
financial ruin of thousands of employees and investors. In addition to Enron's
internal accounting problems, it is alleged that its auditor, one of the large
accounting firms, instructed employees to destroy documents related to its work
for Enron.
Based on your understanding of the role of documentary evidence in fraud
investigations, which of the following statements is not true?
a. The best way to obtain documentary evidence is through computer-based
queries of accounting and other databases.
b. Concealment is generally accomplished by manipulating documentary
,evidence.
c. Documents make up a significant portion of the evidence in most fraud cases.
d. Documentary evidence generally is not considered by fraud examiners to be as
persuasive or reliable as eyewitness testimony.
Documentary evidence generally is not considered by fraud examiners to be as
persuasive or reliable as eyewitness testimony.
Marlin Company has suspected something "fishy" for several months. It has
noticed that its profits have been slowly decreasing, while revenues have been
increasing. After consulting with you, a fraud expert, the company has decided to
investigate the purchasing patterns of its three purchasing agents—Curly, Larry,
and Moe. You decide that a good method for investigation into the matter is
examining a random sample of purchase invoices and verifying their accuracy
and validity. Curly's invoices are numbered 0001 through 0999, Larry's are 1000
through 1999, and Moe's are 2000 through 2999. When you approach Curly, Larry,
and Moe, they seem somewhat defensive. They begin to harass one another,
blaming each other for the mess in which they are involved. Moe even twitches
their noses and slaps their heads. Curly attempts to retaliate by poking Moe in the
eye, but misses and hits Larry instead. When the three were done, the CFO, Mr.
Rutin-Tutin, exclaimed, "Would you three stooges quit fooling around and
produce the invoices immediately?" The three shuffled off to their offices,
grumbling all the way. They returned a couple of hours later with photocopies of
their invoices. When Mr. Rutin-Tutin asked where the original invoices were, they
explained that they always copy and destroy the originals for easier storing
purposes. Rather annoyed and fed up with the three morons, Mr. Rutin-Tutin
directs them to return to their offices. He then asks if you think fraud is occurring,
and you reply that there does appear to be something wrong. First of all, they
could only produce photocopies of the invoices, which is not acceptable. The fact
that it took them a couple of hours to produce these documents also causes
suspicion. Mr. Rutin-Tutin hands you the stacks of photocopied invoices and tells
you to do your thing. You decide to use discovery sampling as a first step in your
examination of the invoices. The results of the sample will provide a basis for
,making inferences from the sample to the population.
Although discovery sampling allows inferences to be made about the population,
there is still the possibility that the sample will not be representative of the
population; this is labeled sampling risk. Generally, this risk is greater when the
fraudulent records relate to a limited number of transactions and/or the fraud
occurs at irregular intervals in the dataset.
True
Documentary evidence such as private tax returns can usually be obtained only
by:
Subpoena.
Search warrant.
Voluntary consent.
Which of the following is not a benefit of statistical sampling?
a. It allows quantification of risk.
b. It allows auditors to be certain that fraud does not exist in a population.
c. It allows inference about a population.
d. It is helpful when populations are large.
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It allows auditors to be certain that fraud does not exist in a population.
What can a fraud examiner conclude if his or her tests confirm that no instances
of fraud are present in a sample taken from a population?
a. Only that no fraud is present in that particular sample.
b. There is virtually no risk that fraud exists in the population.
c. The sample is most likely not representative of the population as a whole.
d. The population contains no fraud.
Only that no fraud is present in that particular sample.
Which of the following is usually the best way to obtain documentary evidence?
a. Computer-based queries of full-population accounting and other databases.
b. A statistically sound sampling approach like discovery sampling.
, c. Chance, accident, or tip discovery.
d. None of the above are effective methods of discovering evidence.
Computer-based queries of full-population accounting and other databases.
Programs like CaseMap, CaseCentral, ZANTAZ, Ringtail, and DatiCon are
examples of:
a. Software packages used to index and store evidence.
b. Software that implements discovery sampling techniques.
c. Forensic software used to investigate hard drives and other digital devices.
d. Link analysis software.
Software packages used to index and store evidence.
Checks are excellent sources of physical evidence.
a. True
b. False
False. Checks are documentary evidence.
Photocopies are always preferable to original documents as evidence.
a. True
b. False
False. Original documents are always preferable to photocopies as documentary
evidence.
Even if photocopies of original documents are allowed to be introduced as
evidence in a court of law, they are still considered secondary evidence.
a. True
b. False
True
A canceled check typically shows the account number of the person who
presented the check, the teller who processed the check, and the sequence
number of the transaction.
a. True
b. False
True
WITH THE LATEST KEY QUESTIONS AND ANSWERS.
Assume that you have selected a random sample of 15 checks from a population
of 800 checks. The checks you have selected are the following numbers: 664, 789,
650, 136, 365, 538, 800, 657, 110, 136, 398, 645, 214, 544, and 777. You have
determined that no fraud exists in the sample of 15 checks you evaluated.
Based on this sample of 15 randomly selected checks, you may conclude that no
fraud exists in the population.
False. If fraud is not present in the sample, you cannot know for sure whether fraud
exists in the population. You would need to examine all checks to be 100 percent sure
that fraud does not exist. Based on your sample size, you can state that, at a certain
confidence level, the probability of fraud is not more than a certain percent. If you want
to be more confident or reduce the probability of fraud, you must take a larger sample.
Enron, one of the largest corporations to ever file for bankruptcy protection, was
number 7 on the Fortune 500 list of the largest companies in America as ranked
by revenues at the time of its bankruptcy. It was alleged that Enron executives
were involved in questionable accounting practices and financial statement fraud,
the disclosure of which led to the downward spiral in Enron's stock price and the
financial ruin of thousands of employees and investors. In addition to Enron's
internal accounting problems, it is alleged that its auditor, one of the large
accounting firms, instructed employees to destroy documents related to its work
for Enron.
Based on your understanding of the role of documentary evidence in fraud
investigations, which of the following statements is not true?
a. The best way to obtain documentary evidence is through computer-based
queries of accounting and other databases.
b. Concealment is generally accomplished by manipulating documentary
,evidence.
c. Documents make up a significant portion of the evidence in most fraud cases.
d. Documentary evidence generally is not considered by fraud examiners to be as
persuasive or reliable as eyewitness testimony.
Documentary evidence generally is not considered by fraud examiners to be as
persuasive or reliable as eyewitness testimony.
Marlin Company has suspected something "fishy" for several months. It has
noticed that its profits have been slowly decreasing, while revenues have been
increasing. After consulting with you, a fraud expert, the company has decided to
investigate the purchasing patterns of its three purchasing agents—Curly, Larry,
and Moe. You decide that a good method for investigation into the matter is
examining a random sample of purchase invoices and verifying their accuracy
and validity. Curly's invoices are numbered 0001 through 0999, Larry's are 1000
through 1999, and Moe's are 2000 through 2999. When you approach Curly, Larry,
and Moe, they seem somewhat defensive. They begin to harass one another,
blaming each other for the mess in which they are involved. Moe even twitches
their noses and slaps their heads. Curly attempts to retaliate by poking Moe in the
eye, but misses and hits Larry instead. When the three were done, the CFO, Mr.
Rutin-Tutin, exclaimed, "Would you three stooges quit fooling around and
produce the invoices immediately?" The three shuffled off to their offices,
grumbling all the way. They returned a couple of hours later with photocopies of
their invoices. When Mr. Rutin-Tutin asked where the original invoices were, they
explained that they always copy and destroy the originals for easier storing
purposes. Rather annoyed and fed up with the three morons, Mr. Rutin-Tutin
directs them to return to their offices. He then asks if you think fraud is occurring,
and you reply that there does appear to be something wrong. First of all, they
could only produce photocopies of the invoices, which is not acceptable. The fact
that it took them a couple of hours to produce these documents also causes
suspicion. Mr. Rutin-Tutin hands you the stacks of photocopied invoices and tells
you to do your thing. You decide to use discovery sampling as a first step in your
examination of the invoices. The results of the sample will provide a basis for
,making inferences from the sample to the population.
Although discovery sampling allows inferences to be made about the population,
there is still the possibility that the sample will not be representative of the
population; this is labeled sampling risk. Generally, this risk is greater when the
fraudulent records relate to a limited number of transactions and/or the fraud
occurs at irregular intervals in the dataset.
True
Documentary evidence such as private tax returns can usually be obtained only
by:
Subpoena.
Search warrant.
Voluntary consent.
Which of the following is not a benefit of statistical sampling?
a. It allows quantification of risk.
b. It allows auditors to be certain that fraud does not exist in a population.
c. It allows inference about a population.
d. It is helpful when populations are large.
Hide Feedback
It allows auditors to be certain that fraud does not exist in a population.
What can a fraud examiner conclude if his or her tests confirm that no instances
of fraud are present in a sample taken from a population?
a. Only that no fraud is present in that particular sample.
b. There is virtually no risk that fraud exists in the population.
c. The sample is most likely not representative of the population as a whole.
d. The population contains no fraud.
Only that no fraud is present in that particular sample.
Which of the following is usually the best way to obtain documentary evidence?
a. Computer-based queries of full-population accounting and other databases.
b. A statistically sound sampling approach like discovery sampling.
, c. Chance, accident, or tip discovery.
d. None of the above are effective methods of discovering evidence.
Computer-based queries of full-population accounting and other databases.
Programs like CaseMap, CaseCentral, ZANTAZ, Ringtail, and DatiCon are
examples of:
a. Software packages used to index and store evidence.
b. Software that implements discovery sampling techniques.
c. Forensic software used to investigate hard drives and other digital devices.
d. Link analysis software.
Software packages used to index and store evidence.
Checks are excellent sources of physical evidence.
a. True
b. False
False. Checks are documentary evidence.
Photocopies are always preferable to original documents as evidence.
a. True
b. False
False. Original documents are always preferable to photocopies as documentary
evidence.
Even if photocopies of original documents are allowed to be introduced as
evidence in a court of law, they are still considered secondary evidence.
a. True
b. False
True
A canceled check typically shows the account number of the person who
presented the check, the teller who processed the check, and the sequence
number of the transaction.
a. True
b. False
True
