FAC Finance and Accounting Auditing & Risk Review 3

Question 1

An auditor discovers that a client's CFO has override access to approve journal entries without secondary review. This represents a deficiency in which control principle?

Accepted Answer

Segregation of duties

Answer

Segregation of duties requires that no single individual can initiate, approve, and record a transaction; CFO override without secondary review violates this principle.

Question 2

The concept of 'materiality' in auditing is BEST described as:

Accepted Answer

The threshold above which misstatements could influence economic decisions of users

Answer

Materiality is the magnitude of an omission or misstatement that could influence the economic decisions of reasonable users relying on the financial statements.

Question 3

Which risk response strategy involves a company choosing NOT to engage in a particular business activity because the risk exceeds its tolerance?

Accepted Answer

Risk avoidance

Answer

Risk avoidance means deciding not to pursue an activity or exiting a business line because the risk level exceeds what the organization is willing to accept.

Question 4

In forensic accounting investigations, which type of fraud scheme involves an employee creating fictitious vendors and submitting false invoices for payment?

Accepted Answer

Billing fraud

Answer

Billing fraud (also called vendor fraud) involves creating fictitious vendors or inflating legitimate vendor invoices to misappropriate company funds.

Question 5

Which audit procedure provides the HIGHEST level of assurance about a client's accounts receivable balance?

Accepted Answer

Confirming balances directly with customers

Answer

External confirmation directly from customers provides strong third-party evidence about the existence and accuracy of accounts receivable balances.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Finance and Accounting Auditing & Risk Review 3