WGU C254 PRACTICE REVIEW EXAM
2025 QUESTIONS AND ANSWERS
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 - ANS To detect fraud
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
1
therefore weren't performing as they should have.
Page
@COPYRIGHT @THEBRIGHT 2025/2026
, The public wants all cases of fraud detected, while auditors felt they only needed to be
"reasonably certain" of its absence. - ANS The public wants all cases of fraud detected, while
auditors felt they only needed to be "reasonably certain" of its absence.
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. - ANS True
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 - ANS How much responsibility should the auditor take when
endeavoring to detect (or fails to detect) fraud
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
2
forth, making it official that auditors really were responsible for fraud, and that fraud detection
Page
was a priority second to none. - ANS False
@COPYRIGHT @THEBRIGHT 2025/2026
, 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
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 - ANS It establishes black and white standards to evaluate whether the
auditor did their job correctly, especially in their search for fraud.
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. - ANS True
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was addressed as "errors
and irregularities." - ANS False
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. - ANS True
3
Page
@COPYRIGHT @THEBRIGHT 2025/2026
, 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.
Establish a formula/solution identifying potential red flags so auditors, if doing their job
properly, can't fail to detect fraud.
Create consultatory standards for auditors to follow; an excellent consultant, when given the
reins to improve the company, will undoubtedly uncover the well-hidden cases of fraud. -
ANS Eliminate the gap between financial statement users' expectations and auditors'
assurances.
True or False
One of the unique, yet key, provisions of SAS 99 establishes that auditors refrain from trying to
think like a "fraudster," and think more analytically. - ANS False
It requires audit teams to envision themselves as the fraudster; the more creative their
brainstorming, the better.
True or False
Inquiring several simple questions of management in the beginning is now sufficient under SAS
No. 99. - ANS False
Fraud should be considered through the whole process, as should necessary questions and
clarifications asked of management.
When brainstorming possible fraud risks, it is important to avoid what kind of group dynamic?
4
Page
Non-hierarchal system where everyone's ideas count
@COPYRIGHT @THEBRIGHT 2025/2026
2025 QUESTIONS AND ANSWERS
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 - ANS To detect fraud
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
1
therefore weren't performing as they should have.
Page
@COPYRIGHT @THEBRIGHT 2025/2026
, The public wants all cases of fraud detected, while auditors felt they only needed to be
"reasonably certain" of its absence. - ANS The public wants all cases of fraud detected, while
auditors felt they only needed to be "reasonably certain" of its absence.
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. - ANS True
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 - ANS How much responsibility should the auditor take when
endeavoring to detect (or fails to detect) fraud
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
2
forth, making it official that auditors really were responsible for fraud, and that fraud detection
Page
was a priority second to none. - ANS False
@COPYRIGHT @THEBRIGHT 2025/2026
, 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
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 - ANS It establishes black and white standards to evaluate whether the
auditor did their job correctly, especially in their search for fraud.
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. - ANS True
True or False
The idea "fraud" was not explicitly addressed until the 1990's. Fraud was addressed as "errors
and irregularities." - ANS False
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. - ANS True
3
Page
@COPYRIGHT @THEBRIGHT 2025/2026
, 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.
Establish a formula/solution identifying potential red flags so auditors, if doing their job
properly, can't fail to detect fraud.
Create consultatory standards for auditors to follow; an excellent consultant, when given the
reins to improve the company, will undoubtedly uncover the well-hidden cases of fraud. -
ANS Eliminate the gap between financial statement users' expectations and auditors'
assurances.
True or False
One of the unique, yet key, provisions of SAS 99 establishes that auditors refrain from trying to
think like a "fraudster," and think more analytically. - ANS False
It requires audit teams to envision themselves as the fraudster; the more creative their
brainstorming, the better.
True or False
Inquiring several simple questions of management in the beginning is now sufficient under SAS
No. 99. - ANS False
Fraud should be considered through the whole process, as should necessary questions and
clarifications asked of management.
When brainstorming possible fraud risks, it is important to avoid what kind of group dynamic?
4
Page
Non-hierarchal system where everyone's ideas count
@COPYRIGHT @THEBRIGHT 2025/2026
