TRUE-FALSE QUESTIONS

1. The Great Salad Oil Swindle of 1963 could best be categorized as an asset misappropriation fraud.

2. The Koss Corporation fraud could best be categorized as fraudulent financial reporting.

3. The three elements of the fraud triangle include incentive, opportunity, and rationalization.

4. Management compensation schemes that heavily emphasize stock-based compensation most affect the opportunity to commit fraud.

5. In the Enron fraud, one of the key ways that management covered up the fraud was to shift debt off the balance sheet to special purpose entities.

6. Professional skepticism involves the validation of information through probing questions, critical assessment of evidence, and attention to inconsistencies.

7. The investing public generally recognizes that it is very difficult for auditors to detect fraud, and so it does not hold auditors accountable when auditors fail to detect it.

8. Auditing standards historically have reflected the belief that it is not reasonable to expect auditors to detect cleverly hidden frauds.

9. The Sarbanes-Oxley Act of 2002 was written by Congress to address problems revealed in frauds that were committed in the late 1980s.

10. An important change caused by the Sarbanes-Oxley Act is that auditors are no longer allowed to provide most consulting services for their public company audit clients.

11. Corporate governance is the process by which the owners and creditors of an organization exert control over and require accountability for the resources entrusted to the organization.

12. Companies with effective corporate governance are more risky to audit.