Spring 2018 1100 class Chapter 2 1 Consider the following st

Spring 2018 11:00 class Chapter 2 1. Consider the following statements: I. An example of fraudulent financial reporting is the controller\'s theft of millions of dollars of the company\'s assets. ccording to professional audit standards, the audit team should assemble early in the planning stage of an audit to conduct a fraud \"brainstorming\" session in order to determine the types of fraud that may occur with that have a high risk client. a. I is true; Il is true b. I is true; Il is false c. I is false; Il is true d. I is false; Il is false 2. Consider the following statements: I. Management can use journal entries to commit fraud because general journal entries are not reviewed by auditors. Il. Generally Acccepted Accounting Principles require questioning management, and corroborating management\'s responses a. I is true; Il is true b. I is true; II is false c. I is false; Il is true d. I is false; Il is false

Solution

1) Fraudulent financial reporting arises when the assets/liabilities are over/under valued knowingly to misstate the value of the assets. Financial reporting is done after a particular fraud has occured. Controller\'s theft of millions of dollars is a sign of weak internal control system or management fraud.
So, the statement is FALSE
II) As per SAS 99, fraud brainstorming sessions must be held within the audit team members to determine whether there\'s risk of material misstatement in the company\'s financial statements due to fraud.
SO, the statement is TRUE.
SO, the answer is Option C

2) Fraud can be committed by using journal entries and the auditors very rarely check the journal entry process as it is the very first stage in recording the transactions. But closing entries are checked by the auditors to determine the effect of closing entries in the financial statements.

SO, the statement that auditrs donot check the journal entries is FALSE.

II) Audit procedures require questioning the management and corroorating responses and not Generally accepted accounting principles.
SO, the statement is FALSE.
So, the answer is Option D