D251 WGU EXAM PRACTICE QUESTIONS
AND CORRECT ANSWERS!!
Under the FASB's guidance on revenue recognition, which of the following is not a criteria
that must be met in order for a contract to exist?
a. The parties have approved it.
b. The auditor has ensured that the contract's valuation is reasonable in all material
respects.
c. The goods and/or services involved are clearly identified.
d. The payment terms are spelled out.
e. There is commercial value to the contract.
b. The auditor has ensured that the contract's valuation is reasonable in all material respects.
Research indicates that a majority of financial statement frauds involve inappropriate
recording of revenue.
True
When assessing fraud risks, the auditor should consider the client's motivation to increase
revenue due to both internal and external pressures.
True
Which of the following factors is not a motivation for clients to fraudulently misstate
revenue?
a. Bankruptcy may be imminent.
b. Management bonuses are contingent on a certain revenue goal.
,c. Controls over revenue process are ineffective.
d. Management wants to meet publicly announced earnings expectations.
c. Controls over revenue process are ineffective.
Which of the following explanations best describes the purpose of lapping?
a. Lapping is a technique used by client personnel to cover up the embezzlement of cash.
b. Lapping is an approach used by client personnel to eliminate differences between a
customer's records and the client's records reported on confirmations.
c. Lapping is a procedure used by the auditor to obtain evidence the client's customer does
return a positive confirmation.
d. Lapping is an agreement containing contract term
a. Lapping is a technique used by client personnel to cover up the embezzlement of cash.
It is not possible for internal controls to mitigate risks associated with the valuation of
accounts receivable.
False
Diageo made improper cash payments to government officials in Mexico, Brazil, and
Argentina during the period 2003-2009, which violated provisions of the Foreign Corrupt
Practices Act.
False
Which of the following procedures can organizations use to address credit risk most
effectively?
a. An informal credit policy, which may be automated for most transactions, but requires
, special approval for large and/or unusual transactions.
b. A periodic review of the credit policy by key executives to determine whether changes
are dictated either by current economic events or by deterioration of the receivables.
c. Periodic monitoring of receivables for evidence of increased risk, such as i
b. A periodic review of the credit policy by key executives to determine whether changes are
dictated either by current economic events or by deterioration of the receivables.
Responding to identified risks in the revenue cycle rarely involves developing an audit
approach that contains substantive procedures (e.g., tests of details and, when appropriate,
substantive analytical procedures).
False
While audit firms may have a standardized audit program for the revenue cycle, the
auditor should customize the audit program based on the assessment of risk of material
misstatement.
True
After identifying the risks of material misstatement, the auditor develops an audit plan in
response to those risks. Which of the following plans for testing revenue would be most
likely when the auditor believes that control risk is high?
a. The only evidence the auditor plans to obtain is from tests of details.
b. The auditor plans to obtain 40% of the necessary audit evidence from tests of controls,
and the remaining 60% from substantive analytical procedures.
c. The auditor plans to obtai
a. The only evidence the auditor plans to obtain is from tests of details.
AND CORRECT ANSWERS!!
Under the FASB's guidance on revenue recognition, which of the following is not a criteria
that must be met in order for a contract to exist?
a. The parties have approved it.
b. The auditor has ensured that the contract's valuation is reasonable in all material
respects.
c. The goods and/or services involved are clearly identified.
d. The payment terms are spelled out.
e. There is commercial value to the contract.
b. The auditor has ensured that the contract's valuation is reasonable in all material respects.
Research indicates that a majority of financial statement frauds involve inappropriate
recording of revenue.
True
When assessing fraud risks, the auditor should consider the client's motivation to increase
revenue due to both internal and external pressures.
True
Which of the following factors is not a motivation for clients to fraudulently misstate
revenue?
a. Bankruptcy may be imminent.
b. Management bonuses are contingent on a certain revenue goal.
,c. Controls over revenue process are ineffective.
d. Management wants to meet publicly announced earnings expectations.
c. Controls over revenue process are ineffective.
Which of the following explanations best describes the purpose of lapping?
a. Lapping is a technique used by client personnel to cover up the embezzlement of cash.
b. Lapping is an approach used by client personnel to eliminate differences between a
customer's records and the client's records reported on confirmations.
c. Lapping is a procedure used by the auditor to obtain evidence the client's customer does
return a positive confirmation.
d. Lapping is an agreement containing contract term
a. Lapping is a technique used by client personnel to cover up the embezzlement of cash.
It is not possible for internal controls to mitigate risks associated with the valuation of
accounts receivable.
False
Diageo made improper cash payments to government officials in Mexico, Brazil, and
Argentina during the period 2003-2009, which violated provisions of the Foreign Corrupt
Practices Act.
False
Which of the following procedures can organizations use to address credit risk most
effectively?
a. An informal credit policy, which may be automated for most transactions, but requires
, special approval for large and/or unusual transactions.
b. A periodic review of the credit policy by key executives to determine whether changes
are dictated either by current economic events or by deterioration of the receivables.
c. Periodic monitoring of receivables for evidence of increased risk, such as i
b. A periodic review of the credit policy by key executives to determine whether changes are
dictated either by current economic events or by deterioration of the receivables.
Responding to identified risks in the revenue cycle rarely involves developing an audit
approach that contains substantive procedures (e.g., tests of details and, when appropriate,
substantive analytical procedures).
False
While audit firms may have a standardized audit program for the revenue cycle, the
auditor should customize the audit program based on the assessment of risk of material
misstatement.
True
After identifying the risks of material misstatement, the auditor develops an audit plan in
response to those risks. Which of the following plans for testing revenue would be most
likely when the auditor believes that control risk is high?
a. The only evidence the auditor plans to obtain is from tests of details.
b. The auditor plans to obtain 40% of the necessary audit evidence from tests of controls,
and the remaining 60% from substantive analytical procedures.
c. The auditor plans to obtai
a. The only evidence the auditor plans to obtain is from tests of details.
