Area II: Risk Assessment — CPA Practice Question 14

How to approach this question

Think like a fraudster. When do you commit fraud? Late at night. Who does it? Senior people. How? Round numbers (estimates) or no description (hiding).

Full Answer

C.Entries processed outside of normal business hours, by upper management, with round numbers or lacking descriptions.✓ Correct

C

AU-C 240 identifies characteristics of fraudulent journal entries: made to unrelated/unusual accounts, made by individuals who typically don't make entries, recorded at the end of the period, made late at night or on weekends, containing round numbers, or lacking descriptions.

Common mistakes

Focusing on just one trait (unusual accounts) rather than the combination of behavioral traits (timing, user, description).

An auditor is using audit data analytics (ADA) to identify high-risk journal entries in the audit of a nonissuer. The auditor is specifically looking for entries that might indicate management override of controls. Which of the following characteristics would be MOST indicative of such entries?

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Practice the full CPA AUD Practice Exam 2

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