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| 1 | |
The cash account is involved in which cycle? |
| | A) | Revenue and collection. |
| | B) | Acquisition and expenditure. |
| | C) | Production and conversion. |
| | D) | All of the above. |
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| 2 | |
Which of the following is an appropriate audit program step for the review of canceled checks to ensure that only authorized check signers are actually signing checks? |
| | A) | Compare the check date with the first cancellation date. |
| | B) | Determine that all checks are to be signed by an individual authorized by the board. |
| | C) | Examine a representative sample of signed checks and determine that the signatures are authorized in the corporate signature book. |
| | D) | Confirm the signatures from a sample of checks directly with the bank. |
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| 3 | |
A proof of cash is normally used |
| | A) | for all engagements. |
| | B) | to test the transactions process when controls over cash are weak. |
| | C) | when control risk for cash is low. |
| | D) | when the client uses a lockbox system. |
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| 4 | |
When counting cash on hand the auditor must exercise control over all cash and other negotiable assets to prevent |
| | A) | Theft. |
| | B) | Collusion. |
| | C) | Substitution of stolen funds. |
| | D) | Kiting. |
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| 5 | |
When a fraud perpetrator embezzles company funds for the purpose of buying gifts for co-workers, the fraudster's motive is said to be: |
| | A) | Psychotic |
| | B) | Egocentric |
| | C) | Ideological |
| | D) | Economic |
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| 6 | |
An enlightened management team can decrease the probability of fraud in the company best by: |
| | A) | Restricting authority for profit objective determination to top management. |
| | B) | Measuring performance and awarding bonuses on the basis of short-term operating results. |
| | C) | Providing employees performance feedback that stresses negative observations on their work to increase performance. |
| | D) | Establishing work teams that share responsibilities, performance, and bonuses based on collective efforts. |
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| 7 | |
In order for internal auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which of the following is a characteristic of fraud? |
| | A) | Unintentional deception. |
| | B) | Taking unfair or dishonest advantage of uninformed individuals. |
| | C) | Lack of training. |
| | D) | Negligence on the part of executive management. |
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| 8 | |
Which of the following statements is correct with respect to the elements of the "fraud triangle"? |
| | A) | Opportunity is a cause that pressures people into action. |
| | B) | Motive refers to a situation that allows someone with opportunity to carry out fraud. |
| | C) | Fraud it most common when motive, opportunity and rationalization all occur together. |
| | D) | Fraud is most common when motive and lack of integrity exist together. |
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| 9 | |
When auditing with "fraud awareness," auditors should especially notice and follow up employee activities under which of these conditions? |
| | A) | The company counts inventory on a cycle basis throughout the year without performing a complete inventory observation at year-end to improve efficiency. |
| | B) | The petty cash box is always locked in the desk of the custodian to improve security. |
| | C) | Cash disbursement and bank statement reconciliation responsibilities are restricted to the cashier to improve accountability. |
| | D) | The board of directors reviews and approves all investment transactions to prevent unauthorized transactions. |
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| 10 | |
Which of the following gives an indication of potential fraudulent activity? |
| | A) | Credit memos have been issued to the company's biggest customer. |
| | B) | Internal auditor cannot locate several credit memos to support reductions of customers' balances. |
| | C) | The year-end bank reconciliation has no outstanding checks or deposits older than 15 days. |
| | D) | No one was absent the day the auditors handed out the paychecks. |
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| 11 | |
Which of these arrangements of duties would least likely lead to an embezzlement or theft? |
| | A) | Inventory warehouse manager has responsibility for making the physical inventory observation and reconciling discrepancies to the perpetual inventory records. |
| | B) | Cashier prepared the bank deposit, endorsed the checks with a company stamp, took the cash and checks to the bank for deposit, and reconciled the bank statement. |
| | C) | Accounts receivable clerk opens customer payments so she could make entries in the customers' accounts receivable subsidiary accounts. |
| | D) | Financial vice president received checks made out to suppliers and the supporting invoices, signed the checks, and put them in the mail to the payees. |
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