Fraud
This category of financial statement issue involves an unintentional mistake in math, application of GAAP, or omission of information.
What is an error?
This is issued when an auditor cannot obtain sufficient evidence due to a scope limitation.
What is a disclaimer of opinion?
This earnings management technique involves taking massive write-offs during periods of stress so that accrual reversals lead to future reported profits.
What is taking a bath?
This threat is present when a CPA is too close to a client, such as being a former partner or an immediate relative.
What is a familiarity threat?
This state of mind is required by GAAS and involves a questioning mind and a critical assessment of audit evidence.
What is professional skepticism?
This entity is responsible for establishing auditing standards for nonpublic companies in the United States.
Who is the AICPA?
This framework holds that accounting choices exist on a spectrum from conservative to fraudulent, with no clear line beyond which a choice becomes obviously unethical — only a matter of degree.
What is the Needles Continuum?
In the fraud triangle, this element represents the "why" — the financial or emotional force pushing someone toward fraud.
What is pressure?
This type of opinion concludes that fiscal records are given fairly and in accordance with accounting principles.
What is an unqualified (or unmodified) opinion
Unlike payroll taxes, these accrual items are ones management has the authority to delay or eliminate.
What are discretionary accruals?
Under the AICPA Conceptual Framework, the first step to evaluate potential independence issues is to do this.
What is identify threats?
This bias involves putting more weight on information that is consistent with an auditor's initial beliefs or preferences.
What is confirmation bias?
This deceptive practice involves inflating sales and earnings by sending more products to retailers or distributors than they are actually able to sell.
What is channel stuffing
This high level assessment is performed during the audit to identify red flags that an individual may be committing fraud.
What is a fraud risk assessment?
This is the auditor's recourse when the relationship with management has deteriorated to the point where all client-provided information is considered suspect.
What is withdrawal?
This earnings management strategy involves setting aside reserves in profitable years and drawing on them to prop up earnings in weaker years.
What are cookie jar reserves?
Auditors must satisfy independence in these two distinct ways: one involving the actual state of mind and the other involving public perception.
What are independence in fact and in appearance?
A CPA may receive this type of compensation when NOT offering attest services, but must disclose it.
What are commissions?
This term describes a company searching for different accounting firms until they find one that provides a desired accounting treatment or perspective.
What is opinion shopping?
An employee tells themselves they deserve the money after years of being underpaid, that they will pay it back, and that their manager would have approved it anyway. Despite sounding like different things, each statement represents this single element of the fraud triangle.
What is rationalization?
When fraud involves a low-level employee, the auditor is required to report it to this person or entity.
What is one level above the employee?
While accounting policy choices involve accrual manipulation, this type of earnings management directly affect the firm longer term interests and cash flows.
What are real actions?
According to the SEC, an auditor cannot be independent if they audit their own work, serve in an advocacy role, or function in this capacity.
What is the role of management?
When an ethical conflict remains unresolved after external consultation, this is the final option.
What is severing the relationship?
This deficiency in internal control over financial reporting exists when there is a reasonable possibility that a material misstatement will not be prevented on a timely basis.
What is a material weakness?
Under AU-C 240, this specific risk is automatically presumed to exist on every single audit engagement.
What is improper revenue recognition?
This entity requires all public companies to include an independent auditor report in their annual financial statements.
What is the Securities Exchange Commission?
According to the 2016 Dichev survey of 375 CFOs these two characteristics ranked highest as indicators of earnings quality.
What are consistent reporting choices through time and the absence of long-term estimates?
A CPA firm's audit fee from one client represents 40% of total firm revenue. This is the specific threat that creates.
What is the financial self-interest threat?
Sharing CPA exam questions, violating confidentiality, and failing to return client records all fall under this category of professional conduct violations.
What are acts discreditable?
This type of financial statement analysis uses percentage comparisons across accounting periods to identify changes in financial statement items.
What is horizontal analysis?