1. The Sarbanes-Oxley Act of 2002 significantly increased the involvement of public company audit committees with the financial reporting process.

1. True
2. False

2. A decrease in inherent risk would have the following effects on control risk and acceptable detection risk:

1. Decrease control risk and decrease acceptable detection risk.
2. No effect on control risk and decrease acceptable detection risk.
3. No effect on control risk and increased acceptable detection risk.
4. Increase control risk and increase acceptable detection risk.

3. In the Code of Professional Conduct, the Independence Rule applies to covered members. In the absence of other information, which of the following people is not a covered member?

1. A partner in another office who counseled the engagement partner on a technical accounting issue.
2. The engagement partner's cousin.
3. An intern on an engagement assigned to audit accounts receivable and sales.
4. An engagement team member who sits on a client's Board of Directors.

4. Which of the following is an opportunity to engage in fraud?

1. Managers salaries are based on tenure with the company.
2. Analysts have issued EPS forecasts reflecting consistently increasing sales for the next four years.
3. Jewelry store employees are inconsistent about placing inventory in the safe at the end of the day.
4. Employees anticipate losing their jobs due to the consolidation of several warehouses.

5. Which of the following factors would suggest low inherent risk for an iPhone retailer?

1. The market demand for iPhones remains stable.
2. iPhones are subject to rapid technological changes.
3. Stolen iPhones can easily be sold.
4. GAAP requires inventory to be valued at the lower of cost or market which requires estimating future sales for all iPhone models in stock.