C254 WGU Practice Exam 2026
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 - Correct answer-To detect fraud
Why has there been so much frustration between the general public and auditors
regarding fraud detection?
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,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. - Correct answer-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. -
Correct answer-True
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,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 - Correct answer-How much responsibility
should the auditor take when endeavoring to detect (or fails to detect) fraud
True or False
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, 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. -
Correct answer-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
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.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 4
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 - Correct answer-To detect fraud
Why has there been so much frustration between the general public and auditors
regarding fraud detection?
©COPYRIGHT 2025, ALL RIGHTS RESERVE 1
,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. - Correct answer-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. -
Correct answer-True
©COPYRIGHT 2025, ALL RIGHTS RESERVE 2
,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 - Correct answer-How much responsibility
should the auditor take when endeavoring to detect (or fails to detect) fraud
True or False
©COPYRIGHT 2025, ALL RIGHTS RESERVE 3
, 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. -
Correct answer-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
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.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 4
