WGU C254 Practice Review Exam 262 Questions
with Verified Answers
To detect fraud - CORRECT ANSWER 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
The public wants all cases of fraud detected, while auditors felt they only needed
to be "reasonably certain" of its absence. - CORRECT ANSWER 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.
True - CORRECT ANSWER 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.
How much responsibility should the auditor take when endeavoring to detect (or
fails to detect) fraud - CORRECT ANSWER 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
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 - CORRECT
ANSWER 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.
It establishes black and white standards to evaluate whether the auditor did their
job correctly, especially in their search for fraud. - CORRECT ANSWER 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
True - CORRECT ANSWER 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.
False - CORRECT ANSWER True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was
addressed as "errors and irregularities."
True - CORRECT ANSWER 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.
Eliminate the gap between financial statement users' expectations and auditors'
assurances. - CORRECT ANSWER 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.
with Verified Answers
To detect fraud - CORRECT ANSWER 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
The public wants all cases of fraud detected, while auditors felt they only needed
to be "reasonably certain" of its absence. - CORRECT ANSWER 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.
True - CORRECT ANSWER 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.
How much responsibility should the auditor take when endeavoring to detect (or
fails to detect) fraud - CORRECT ANSWER 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
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 - CORRECT
ANSWER 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.
It establishes black and white standards to evaluate whether the auditor did their
job correctly, especially in their search for fraud. - CORRECT ANSWER 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
True - CORRECT ANSWER 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.
False - CORRECT ANSWER True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was
addressed as "errors and irregularities."
True - CORRECT ANSWER 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.
Eliminate the gap between financial statement users' expectations and auditors'
assurances. - CORRECT ANSWER 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.
