. Which one of the four components of the exposure rectangle do external auditors

primarily focus on when looking for management fraud?

1. Management and directors
2. Company's relationship with other entities
3. The organization and its industry
4. Financial results and operating characteristics

25. Fraud in financial statements usually takes the form of:

I. Overstated assets or revenue

II. Understated liabilities and expenses

1. I only
2. II only
3. Both I and II
4. Neither I nor II
   1. Overstates, does not affect

26. When management overstates inventory, it _________ current year's income and

____________ the next year's income.

1. Overstates, overstates
2. Understates, overstates
3. Overstates, understates

27. When management creates fictitious revenues, it ______________current year's

income and _________________ the next year's income.

1. Overstates, does not affect
2. Overstates, overstates
3. Understates, overstates
4. Overstates, understates

28. Bribery schemes usually benefit the employee who accepts the

vendor bribe, but the company rarely suffers economic loss?

1. True
2. False

29. It is normally not a good idea to ask employees whether or not fraud is occurring

within their organisation because it makes the auditor look unprepared and ignorant

of what is going on within the company.

A. True

B. False

30. Why do you think there is so much fraud and corruption in the world?

1. Most people think they are 'good' even though they do bad things because they tend compare themselves to people like Hitler.
2. Most people think it's OK to lie, cheat, and steal as long as it's 'just a little'
3. Most people grow up never being taught ethics and morality
4. Many people do not think of the 'consequences' of their actions
5. All of the above