Course #5150I/QAS5150I

Exam Packet

Fraud Update

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FRAUD UPDATE (COURSE # 5150I/QAS5150I)

COURSE DESCRIPTION This course covers the latest developments related to fraud in the accounting and auditing environment. In response to the investigation of several alleged accounting violations of SEC companies, both SAS No. 99 and the Sarbanes-Oxley Act were implemented. This course is designed to assist the CPA in understanding these developments, as well as the 2012 Report on Fraud. Uses the materials entitled Fraud Update. No prerequisites. Course level: Basic. Course #5150I/QAS5150I - 8 CPE hours.

LEARNING ASSIGNMENTS and OBJECTIVES As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment. ASSIGNMENT SUBJECT 1 SAS No. 99 and Other Fraud Developments

Study the course materials from pages 1-1 to 1-92 Complete the review questions at the end of chapter 1 Answer the final exam questions 1 to 30

Objectives: To explain the results of the 2012 Report on Fraud To describe the auditor’s responsibilities under SAS No. 99

ASSIGNMENT SUBJECT

2 The Aftermath of Sarbanes-Oxley

Study the course materials from pages 2-1 to 2-43 Complete the review questions at the end of chapter 2 Answer the final exam questions 31 to 40 Objectives:

To explain the responsibilities of the Public Company Accounting Oversight Board To identify the prohibited non-audit services To describe the cost of compliance with the Sarbanes-Oxley Act To describe the new responsibilities for corporate boards and audit committees To explain the trickle down effect of the Sarbanes-Oxley Act to all auditors

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ASSIGNMENT

3 Complete the Answer Sheet and Course Evaluation and mail to PES for credit

NOTICE This course and test have been adapted from materials and information contained in the materials entitled Fraud Update. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since tax accounting and auditing standards are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice. © Professional Education Services, LP 2012 Program publication date 9/6/12

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FRAUD UPDATE (COURSE #5150I/QAS5150I) – EXAM OUTLINE

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within one year from the date of purchase. TEST FORMAT: The following final exam, consisting of 40 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test. LICENSE RENEWAL INFORMATION: The Fraud Update course (#5150I/QAS5150I) qualifies for 8 CPE hours. PROCESSING: Your exam will be graded promptly. You must score 70% or better to pass. When you pass, your certificate of completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this and then another answer sheet will be sent to you free of charge. GRADING OPTIONS: Please choose only one of the following. There is no additional charge for any of these grading options. Make sure to fill out your answer sheet completely prior to submitting it.

ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user you must set up a new user account). Go to the “MY CPE” tab and click the “My CPE Exams in Progress” folder. If your exam is not already located in this folder, click “Add Exam Previously Purchased” and follow the instructions.

MAIL – Your exam will be graded and your certificate of completion mailed to you the same day we

receive it. Your certificate will be dated according to the postmark date; therefore, you do not need to overnight your exam. Please mail your answer sheet to:

Professional Education Services, LP 4208 Douglas Blvd., Ste 50

Granite Bay, CA 95746

FAX – Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you the same day we receive it. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) 791-4099.

Thank you for using Professional Education Services.

We appreciate your business!!

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FRAUD UPDATE (COURSE #5150I/QAS5150I) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. The 2012 Report to the Nation: Occupational

Fraud and Abuse (the Report) defines three types of fraud. Which of the following is not one of these:

a) asset misappropriation b) petty cash theft c) corruption d) fraudulent financial statements

2. Which of the following types of fraud resulted in

the greatest median loss according to the 2012 Report:

a) asset misappropriation b) corruption schemes c) fraudulent statements d) petty cash theft

3. According to the 2012 Report, which of the

following is true regarding fraud perpetrators:

a) usually a fraud perpetrator has had a prior conviction for fraud-related offenses

b) the greatest median loss due to fraud occurs by owners/managers

c) a fraud perpetrator is most often an owner/manager

d) a greater percentage of fraud perpetrators are female

4. According to the Report, which of the following

type of organization had the greatest occurrence (as a percent of cases) of fraud:

a) private companies b) public companies c) government d) not-for-profit organizations

5. The most common type of fraudulent

disbursements per the Report are:

a) billing schemes b) check tampering c) expense reimbursements d) payroll schemes

6. The most common method of detection of fraud results.

a) from internal audit b) from external audit c) by accident d) from tips

7. SAS No. 99 does all of the following except.

a) emphasizes that an auditor must exercise professional skepticism during the audit

b) expands information gathering requirements to identify fraud risks

c) provides a checklist to deal with fraud d) provides guidance on communicating fraud

to management and the audit committee

8. SAS No. 99:

a) eliminates the use of inquiries of management

b) requires the auditor to consider risk factors only, not specific identified risks

c) requires specific substantive tests to be performed on all publicly held and most nonpublic entities

d) all of the above

9. Fraud that causes a material misstatement of the financial statements should be reported directly to:

a) management b) the SEC c) the audit committee d) local law enforcement

10. Fraud differs from an error in that fraud is:

a) unintentional b) intentional c) irresponsible d) none of the above

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11. According to SAS No. 99, there are ______ types of misstatements due to fraud.

a) two b) three c) four d) five

12. The easiest way for management to manipulate earnings is by:

a) over-inflating reserves and allowance

accounts b) over-inflating sales c) manipulating inventory d) timing expenses

13. Which of the following is not one of the three

conditions commonly referred to by fraud examiners as the fraud triangle:

a) incentive or pressure b) risk c) opportunity d) rationalization or attitude

14. Which of the following is an example of where

management customarily overrides controls:

a) recording fictitious journal entries b) intentionally biasing assumptions and

judgments used to estimate account balances or selection of accounting principles

c) altering records and terms related to significant and unusual transactions

d) all of the above 15. Smaller businesses have certain characteristics

that make them more susceptible to fraud than their larger counterparts, including all of the following except:

a) poor segregation of duties b) disinterested management/owner c) lack of computer processing d) informal approval process

16. Having a ______ and performing a critical assessment of all audit evidence received is an example of professional skepticism.

a) biased attitude b) questioning mind c) trusting attitude d) none of the above

17. Under the Sarbanes-Oxley Act, an SEC auditor

(firm) must be rotated after ______ years of auditing the same client in order to reduce the risk of auditors becoming too close to their clients.

a) two b) five c) seven d) none of the above; firm rotation is not

required

18. SAS No. 99 requires that during the brainstorming session, the participants:

a) should think like fraud perpetrators b) should not take notes c) should not try to solve problems during the

meeting d) none of the above; SAS No. 99 does not

give any guidance for the brainstorming session

19. According to SAS No. 99, the brainstorming

session:

a) is restricted to the planning phase b) may be conducted at different intervals c) can be performed entirely at the end of the

audit d) is required to be performed in multiple

discussions 20. SAS No. 99 specifically requires the auditor to

take the following actions to gather information to identify fraud risks except:

a) use statistical sampling methods in

selecting interviewees b) make expanded inquiries of management

and others regarding their views about the risks of fraud and how they are addressed

c) perform expanded analytical procedures including those on revenue

d) consider whether one or more fraud risk factors exist

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21. When gathering information about fraud, a rule to follow in interviewing an employee is:

a) never accuse the employee b) stick only to questions regarding the

suspected fraud c) use a script d) interrupt the employee during his or her

answers if you think it is leading to something

22. When making inquiries about the existence or

suspicion of fraud, the auditor should make inquiries of:

a) management b) the audit committee c) employees d) all of the above

23. Which of the following is true regarding the auditor’s review of revenue:

a) the auditor should only be concerned with

the overstatement of revenue b) SAS No. 99 reduces the number of steps an

individual needs to perform regarding revenues

c) SAS No. 99 adds the requirement of performing analytical procedures relating to revenue

d) revenue generally does not require review because its amount is insignificant

24. Which of the following is true regarding the

audit of inventories:

a) inventory is easy to audit and therefore can be done by lesser experienced personnel

b) inventory has a high risk of fraud and usually involves the existence of large, significant and complex transactions

c) there is little risk in relation to inventory d) inventory is generally not a significant

balance sheet item and therefore does not need to be audited

25. One procedure recommended to be performed to address fraud risk due to management override of controls is to:

a) do a forensic audit b) increase inventory test counts c) increase receivable confirmations d) review accounting estimates for

management bias 26. SAS No. 99 exempts which of the following

from the requirement to perform additional procedures related to management’s override of controls: a) public entities only b) nonpublic entities only c) both public and nonpublic entities d) neither public nor nonpublic entities

27. Fraud involving senior management and fraud involving a material misstatement should be:

a) reported to the Better Business Bureau b) reported directly to the audit committee c) reported to senior management d) disregarded since no one will believe the

auditor

28. According to SAS No. 99, which of the following must be documented:

a) the brainstorming session among

engagement personnel b) the procedures performed to obtain,

identify and assess fraud risks c) the results of procedures performed to

further address the risk of management override of controls

d) all of the above 29. According to the Practice Aid included as an

exhibit to SAS No. 99, which of the following can help an organization reduce the risk of fraud:

a) create a positive workplace environment b) require employees to sign a code of conduct

statement annually c) provide a telephone “hotline” that is directed

to or monitored by an ethics officer d) all of the above

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30. Which of the following is true regarding the reality of an auditor’s responsibility:

a) the auditor is not responsible for finding

fraud b) the auditor is a guarantor of the financial

statement accuracy c) the auditor is responsible for the accuracy of

the financial statements d) the auditor is an “all knowing sleuth”

31. The Public Company Accounting Oversight

Board (PCAOB) established by the Sarbanes-Oxley Act has ______ full-time members.

a) three b) four c) five d) six

32. A maximum of ______ members of the PCAOB

must be or have been CPAs.

a) two b) three c) four d) five

33. The Act provides for a ______ workpaper

retention policy.

a) three-year b) four-year c) six-year d) seven-year

34. Under the Act, a mandatory partner rotation is required for the lead partner every ______.

a) three years b) four years c) five years d) eight years

35. Under the Act, auditors must report directly to

the ______.

a) audit committee b) board of directors c) management d) none of the above

36. One of the requirements under the Act is that the ______ must establish procedures for handling the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal control, or auditing matters.

a) audit committee b) outside auditors c) board of directors d) none of the above

37. Under the Act, an entity is required to disclose

______ types of fees related to the entity’s auditors.

a) three b) four c) five d) none of the above

38. The statute of limitations for discovering fraud

under the Act was extended from two years to:

a) three years b) five years c) seven years d) ten years

39. Under Section 404, public companies must:

a) assess their control environment, systems capabilities, and accounting principles and practices

b) identify and document significant controls c) prepare an internal control report d) all of the above

40. Companies with market capitalization of less than $75 million are required to comply with Section 404(b) of the Sarbanes-Oxley Act beginning:

a) December 15, 2009 b) June 15, 2010 c) July 31, 2010 d) none of the above; they are exempt from

complying with this section

Congratulations – you’ve completed the exam!

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FRAUD UPDATE #5150I/QAS5150I (8 CPE hours) – ANSWER SHEET (9/12) Important Note: For certification, this answer sheet must be completed and submitted to PES for grading within one year from the date of purchase. Please use black ink and print for quicker processing – thank you. Name (as it appears on your license)___________________________________________________________________

Address___________________________________________________________________________________

City ________________________________State _____________ Zip ___________________ Home Work

Daytime Phone (____)____________________E-mail address (for online grading)_____________________________

License Number __________________ State _______ Expiration Date _______________CPA, CFP, EA (circle one)

If course was ordered by another party, please indicate name here:_________________________________

GRADING OPTIONS – Please choose only ONE of the following:

ONLINE GRADING – Visit our website at http://www.mypescpe.com. o Login to your account (if you are a first-time user, you must set up a new user account). o Go to the “MY CPE” tab and click the “My CPE Exams in Progress” folder. o If your exam is not already located in this folder, click “Add Exam Previously Purchased” and follow the

instructions. Mail – Mail your exam to: PES, 4208 Douglas Blvd., Ste 50, Granite Bay, CA 95746 Fax – Fax your exam to (916) 791-4099 and choose one of the following options:

Please: mail my results only or fax phone my results to: (____)______________________

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Please complete the attached course evaluation – your opinion is extremely valuable.

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Fraud Update #5150I/QAS5150I - Course Evaluation Rate on a scale of 1-10 with 1 being poor and 10 being excellent.

1. The course met the course objectives described in the promotional material.

______

2. The course was up to date, held my interest, was timely, and effective.

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3. The course materials were understandable, valuable, and suitable for a correspondence course.

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4. The amount of advance knowledge and stated prerequisites were appropriate.

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5. The completion time was appropriate for the number of credits allowed.

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6. The course met my professional education needs.

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Please answer the following questions – mark/rate any and all that may apply

1. How would you rate PES’s order desk customer service

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2. What can PES do to keep you as a valued customer? ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

W 3. Any other comments regarding this course or our company would be appreciated.

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4. What other courses/subjects would you like to see PES offer in the future?

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Mail to: Professional Education Services, LP

4208 Douglas Blvd., Ste 50, Granite Bay, CA 95746