Fraud Auditing MCQs 2026

Revenue recognition fraud is best described as

1. A always detected by bank confirmation ✓
2. B never material ✓
3. C premature or fictitious revenue to inflate performance ✓
4. D only concern for banks ✓

Which statement about Fraud risk in related parties is correct

1. A related parties always arm length ✓
2. B no disclosure required ✓
3. C non-arm length transactions may conceal fraud or expropriation ✓
4. D auditor should ignore related parties ✓

Procurement fraud in the context of Fraud Auditing refers to

1. A never affects financial statements ✓
2. B only IT issue ✓
3. C only tax issue ✓
4. D kickbacks inflated invoices or orders to related vendors ✓

Regarding Ghost employee fraud in Fraud Auditing, the accurate view is

1. A payroll payments to fictitious or terminated employees ✓
2. B only revenue side scheme ✓
3. C prevented without payroll review ✓
4. D only affects inventory ✓

In Fraud Auditing, Auditor reporting fraud primarily means

1. A hide fraud from audit committee ✓
2. B only tell media first ✓
3. C communicate fraud to appropriate level of management and governance ✓
4. D ignore immaterial fraud without consideration ✓

Legal consequences of fraud is best described as

1. A no penalties for financial fraud ✓
2. B only auditor penalized always ✓
3. C fraud is civil contract issue only ✓
4. D criminal and civil penalties under Pakistan Penal Code and corporate law ✓

Regarding Collusion effect on audit in Fraud Auditing, the accurate view is

1. A collusion can circumvent controls and conceal fraud from auditor ✓
2. B collusion makes detection certain ✓
3. C collusion never occurs in practice ✓
4. D controls always prevent collusion ✓

Fraud Auditing: Red flags for fraud can be defined as

1. A stable predictable results always flag ✓
2. B unusual related party transactions missing documents and management pressure ✓
3. C strong internal control eliminates all fraud risk ✓
4. D auditor fee level indicates fraud ✓

Regarding Employee fraud in Fraud Auditing, the accurate view is

1. A only financial statement capitalization policy ✓
2. B only consolidation entries ✓
3. C misappropriation of assets such as theft or false disbursements ✓
4. D only audit fee negotiation ✓

Kiting fraud is best described as

1. A inventory obsolescence only ✓
2. B using time lag between banks to double-count cash temporarily ✓
3. C depreciation estimate only ✓
4. D only related party lease ✓

In Fraud Auditing, Fraud triangle primarily means

1. A incentive pressure opportunity and rationalization ✓
2. B only external audit fees ✓
3. C only depreciation method ✓
4. D only inventory count ✓

Auditor responsibility for fraud is best described as

1. A guarantee detection of all fraud ✓
2. B only detect errors not fraud ✓
3. C obtain reasonable assurance FS free from material misstatement whether fraud or error ✓
4. D ignore management integrity ✓

Which statement about Fraud is correct

1. A unintentional clerical error only ✓
2. B normal business judgment difference ✓
3. C intentional act by management or others involving deception for gain ✓
4. D system glitch without intent ✓

Whistleblower mechanisms is best described as

1. A entity channels for reporting fraud should be evaluated by auditor ✓
2. B auditor should disable hotlines ✓
3. C never inquire about reporting channels ✓
4. D only HR marketing function ✓

In Fraud Auditing, Forensic audit primarily means

1. A same as routine statutory audit always ✓
2. B only tax return preparation ✓
3. C specialized investigation focused on fraud quantification and evidence for legal use ✓
4. D only inventory count without investigation ✓

Regarding Fraud inquiry of management in Fraud Auditing, the accurate view is

1. A only ask after clean opinion drafted ✓
2. B never document fraud discussion ✓
3. C only inquire of junior clerk ✓
4. D required discussion among engagement team about fraud risk ✓

Analytical procedures for fraud in the context of Fraud Auditing refers to

1. A analytics never useful for fraud ✓
2. B only at completion always ✓
3. C unexpected relationships may indicate fraudulent manipulation ✓
4. D replace all other tests ✓

A key aspect of Lapping fraud is that it involves

1. A only affects fixed assets ✓
2. B only affects share capital ✓
3. C using subsequent receipts to cover prior theft from receivables ✓
4. D detected by single bank rec only always ✓

Regarding Management fraud risk in Fraud Auditing, the accurate view is

1. A override of controls and fraudulent financial reporting ✓
2. B only employee petty theft always ✓
3. C never involves top management ✓
4. D prevented by any software always ✓

Journal entry testing is best described as

1. A only test sales invoices ✓
2. B ignore manual journals ✓
3. C only test payroll ✓
4. D reviewing unusual entries for fraud indicators especially period-end ✓