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A production manager for a medium-sized manufacturing company began ordering excessive raw materials and had them delivered to a wholesale company he runs as a side business. He falsified receiving documents and approved the invoices for payment.
Which of the following audit procedures would most likely detect this fraud?

• A. Observe the receiving dock and count material received; compare your counts to receiving reports completed by receiving personnel.
• B. Prepare analytical tests, comparing production, material purchased, and raw material inventory levels and investigate differences.
• C. Take a sample of cash disbursement; compare purchase orders, receiving reports, invoices, and check copies.
• D. Take a sample and confirm the amount purchased, purchase price, and date of shipment with the vendors.

Mike Robin, ACA is identifying risk in the statement of Mohin Co as a part of his audit work.
Which of the following defines control risk for Mohin Co?

• A. The risk that the procedures performed by Mike to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements.
• B. The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls of Mohin Co.
• C. The risk that a misstatement that could occur in an assertion about a class of transaction, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by Mohin Co's internal control.
• D. The risk that the financial statements of Mohin Co are materially misstated prior to audit.

Panama and Co has been asked to take on the role of internal auditor at one of its clients and would be responsible for implementing its own recommendations.
Which of the following will NOT be considered by external auditors in their assessment of whether to use the work of internal audit?

• A. The technical training of the staff of the audit department of Panama and Co
• B. To whom the internal audit department of Panama and Co reports
• C. Whether internal audit work is properly documented
• D. The fact that the fee will fall if much use can be made of internal audit work

When performing risk assessment procedures and related activities to obtain an understanding of the entity and its environment, including the entity's internal control, required by ISA 315, the auditor shall perform certain procedures to obtain information for use in identifying the risks of material misstatement due to fraud.
Which of the following is not a part of an entity's risk assessment process?

• A. Identify relevant business risks
• B. Decide upon actions to manage the risks
• C. Report the process to the auditors
• D. Assess the likelihood of occurrence

A personnel department is responsible for processing placement agency fees for new hires. A recruiter established some bogus placement agencies and, when interviewing walk-in applicants, the recruiter would list one of the bogus agencies as referring the candidate.
A possible means of detection or deterrence is to

• A. Process all personnel agency invoices via a purchase order through the purchasing department.
• B. Verify new vendors to firms listed in a professional association catalog and/or verify the vendor name and address through the telephone book.
• C. Monitor the closeness of the relationships of recruiters with specific vendors.
• D. Require all employees to sign an annual conflict of interest statement.