Fraud Risk Assessment Flashcards
7 cards from real CFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fraud Risk Assessment flashcards as text
Which professional standard requires auditors to assess the risk of material misstatement due to fraud when planning an engagement?
Answer: SAS No. 99 / AU-C 240
SAS No. 99 (codified as AU-C Section 240) requires auditors to specifically consider fraud risk factors and adjust audit procedures accordingly when planning an engagement.
What term describes the degree to which management and employees are committed to creating a culture of ethical behavior and fraud awareness?
Answer: Tone at the top
Tone at the top refers to the ethical climate set by senior leadership, which is a primary determinant of the organization's overall anti-fraud culture.
Which of the following is the MOST common reason employees fail to report suspected fraud?
Answer: Fear of retaliation from management or colleagues
Research consistently shows that fear of retaliation is the leading barrier to fraud reporting, underscoring the need for robust whistleblower protections.
When assessing fraud risk at the account level, which of the following factors should receive the MOST weight?
Answer: The susceptibility of the account to manipulation and the materiality of the balance
Accounts that are highly susceptible to manipulation (e.g., estimates, reserves) and material in size warrant the greatest fraud risk attention.
Which component of the COSO Internal Control framework is most directly concerned with fraud risk assessment?
Answer: Risk Assessment
The Risk Assessment component of COSO specifically includes identifying and analyzing risks, including fraud risks, that may prevent the organization from achieving its objectives.
Which factor most significantly increases the fraud risk associated with journal entries?
Answer: Top-side entries made by senior management near period-end
Top-side journal entries made by management near period-end are a primary vehicle for financial statement fraud and represent a significant fraud risk indicator.
Which of the following best describes a 'fraud risk appetite' statement?
Answer: A formal declaration of the level of fraud risk an organization is willing to accept
A fraud risk appetite statement formally documents how much fraud risk the board and management are willing to tolerate, guiding control investment decisions.