Auditing and Internal Controls Flashcards
6 cards from real ACFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Auditing and Internal Controls flashcards as text
Which of the following is considered a 'material weakness' under PCAOB standards?
Answer: A significant deficiency where there is a reasonable possibility of a material misstatement not being prevented or detected
A material weakness is a significant deficiency in internal control where there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis.
Which element distinguishes an internal audit function from external audit in the context of fraud detection?
Answer: Internal auditors work year-round with continuous access to company data and operations
Internal auditors have continuous, ongoing access to operations and data throughout the year, enabling more timely fraud detection than the periodic external audit.
In a proactive fraud audit, which technique involves applying Benford's Law?
Answer: Analyzing the frequency distribution of leading digits in financial data to identify anomalies
Benford's Law predicts the expected frequency of leading digits in naturally occurring datasets; deviations from this distribution can signal fabricated or manipulated numbers.
Which of the following best describes the role of an audit committee in fraud governance?
Answer: Providing independent oversight of financial reporting and internal controls on behalf of the board
The audit committee serves as an independent body within the board that oversees the integrity of financial reporting, the effectiveness of internal controls, and the activities of both internal and external auditors.
Which control activity directly reduces the risk of unauthorized access to financial systems?
Answer: Role-based access controls (RBAC) limiting system permissions to job-required functions
Role-based access controls restrict system access to only the functions required for an employee's specific job, reducing the opportunity to commit or conceal fraud through unauthorized system use.
The ACFE recommends that organizations implement a fraud risk assessment as part of their overall anti-fraud program. What is the primary output of a fraud risk assessment?
Answer: A prioritized inventory of fraud risks and the controls designed to mitigate each risk
A fraud risk assessment produces a prioritized register of identified fraud risks, the likelihood and impact of each, and maps existing or needed controls to each risk.