FAC Auditing Principles & Procedures 3

Question 1

What is the concept of 'audit materiality' primarily used to determine?

Accepted Answer

The threshold above which misstatements could influence user decisions

Answer

Materiality is the threshold above which uncorrected misstatements could reasonably influence the economic decisions of financial statement users.

Question 2

Which element is NOT part of the fraud triangle?

Accepted Answer

Capability

Answer

The classic fraud triangle consists of pressure, opportunity, and rationalization; capability is part of the extended fraud diamond, not the triangle.

Question 3

What is 'lapping' as a type of fraud in accounting?

Accepted Answer

Concealing a cash shortage by delaying recording of receipts

Answer

Lapping is a scheme where stolen cash receipts are concealed by applying later receipts to the earlier account, creating a perpetual lag.

Question 4

Which audit procedure is MOST effective in detecting unrecorded liabilities?

Accepted Answer

Examining cash disbursements after period end

Answer

Examining subsequent cash disbursements after period-end helps identify payments for goods and services not recorded as liabilities at year-end.

Question 5

What is the purpose of a 'cutoff test' in an audit?

Accepted Answer

To confirm that transactions are recorded in the correct period

Answer

Cutoff tests verify that transactions occurring near the period-end are recorded in the proper accounting period.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Auditing Principles & Procedures 3