ACT 205 CSU EXAM 2 2025
QUESTIONS AND ANSWERS
Reasons for incorrect financial statements - ....ANSWER ...-errors
fraud
Occupational fraud - ....ANSWER ...-the use of one's occupation for
personal enrichment through the deliberate misuse or misapplication of the
employer's resources.
-2 parts: misuse of resources and financial statement manipulation
Fraud triangle - ....ANSWER ...-three elements present in fraudulent
activity= opportunity, financial pressure, rationalization
Internal controls - ....ANSWER ...-a company's formal procedures to:
-safeguard assets from robbery, employee theft, and misuse of company resources
-improve accuracy and reliability of accounting information by detecting accidental
errors and financial statement manipulation
Enron - ....ANSWER ...-avoided reporting billions in debt/losses
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 1
,WorldCom - ....ANSWER ...-misclassified expenditures to overstate assets
and profitability
Sarbanes-Oxley Act of 2002 - ....ANSWER ...--passed by congress in 2002 to
reduce unethical corporate behavior
-companies must:
>maintain adequate system of internal controls
>continually verify controls are working
>certify accuracy of financial information
-independent auditors must attest to level of controls
-created the PCAOB
established guidelines related to internal control procedures and auditor-client
relations
-applies to all companies involved w/ SEC
Major provisions of SOX - ....ANSWER ...-Oversight board
corporate executive accountability
nonaudit services
retention of work papers
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 2
, auditor rotation
conflicts of interest
hiring of auditor
internal control (section 404)
Components of internal control - ....ANSWER ...-Control environment, risk
assessment, control activities, monitoring
Control activities - ....ANSWER ...-preventive controls and detective
controls
Preventive controls - ....ANSWER ...--separation of duties
-proper authorization
-physical controls
-employee management
-e-commerce controls
Separation of duties - ....ANSWER ...-related duties assigned to different
individuals, segregate record-keeping from physical custody
Proper authorization - ....ANSWER ...-formal guidelines for cash receipts
and purchases
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 3
QUESTIONS AND ANSWERS
Reasons for incorrect financial statements - ....ANSWER ...-errors
fraud
Occupational fraud - ....ANSWER ...-the use of one's occupation for
personal enrichment through the deliberate misuse or misapplication of the
employer's resources.
-2 parts: misuse of resources and financial statement manipulation
Fraud triangle - ....ANSWER ...-three elements present in fraudulent
activity= opportunity, financial pressure, rationalization
Internal controls - ....ANSWER ...-a company's formal procedures to:
-safeguard assets from robbery, employee theft, and misuse of company resources
-improve accuracy and reliability of accounting information by detecting accidental
errors and financial statement manipulation
Enron - ....ANSWER ...-avoided reporting billions in debt/losses
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 1
,WorldCom - ....ANSWER ...-misclassified expenditures to overstate assets
and profitability
Sarbanes-Oxley Act of 2002 - ....ANSWER ...--passed by congress in 2002 to
reduce unethical corporate behavior
-companies must:
>maintain adequate system of internal controls
>continually verify controls are working
>certify accuracy of financial information
-independent auditors must attest to level of controls
-created the PCAOB
established guidelines related to internal control procedures and auditor-client
relations
-applies to all companies involved w/ SEC
Major provisions of SOX - ....ANSWER ...-Oversight board
corporate executive accountability
nonaudit services
retention of work papers
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 2
, auditor rotation
conflicts of interest
hiring of auditor
internal control (section 404)
Components of internal control - ....ANSWER ...-Control environment, risk
assessment, control activities, monitoring
Control activities - ....ANSWER ...-preventive controls and detective
controls
Preventive controls - ....ANSWER ...--separation of duties
-proper authorization
-physical controls
-employee management
-e-commerce controls
Separation of duties - ....ANSWER ...-related duties assigned to different
individuals, segregate record-keeping from physical custody
Proper authorization - ....ANSWER ...-formal guidelines for cash receipts
and purchases
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 3
