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Homework answers / question archive / University of the East, Manila ACCOUNTING BAT 421 CHAPTER 5 FRAUD IN AN AUDIT OF FS Consideration of Fraud in an Audit of FS 1)Fraud include all of the following except: a

University of the East, Manila ACCOUNTING BAT 421 CHAPTER 5 FRAUD IN AN AUDIT OF FS Consideration of Fraud in an Audit of FS 1)Fraud include all of the following except: a

Accounting

University of the East, Manila

ACCOUNTING BAT 421

CHAPTER 5

FRAUD IN AN AUDIT OF FS

Consideration of Fraud in an Audit of FS

1)Fraud include all of the following except:

a.            recording of transactions without substance

b.            suppression or omission of the effects of transactions from records or documents c.      mathematical or clerical mistakes in the underlying records and accounting data.

d.   misappropriation of assets

 

2.            Error include all of the following except:

a.            misapplication of accounting policies

b.            manipulation, falsification or alteration of records and documents.

c.             mathematical or clerical mistakes in the underlying records and accounting data

d.            oversight of accounting policies

 

3.            1st statement – The responsibility for the prevention and detection of fraud and error rests with the auditor through implementation of accounting and internal control systems.

2nd statement – The accounting and internal control systems eliminate the possibility of fraud and error.

a.            1st statement is True; 2nd statement is False

b.            1st statement is False; 2nd statement is True

c.             Both statements are True d. Both statements are False

 

4.            1st statement – The auditor is not and cannot be held responsible for the prevention of fraud and error. 2nd statement – Annual audits may be carried out which may not; however, act as deterrent.

a.            1st statement is True; 2nd statement is False

b.            1st statement is False; 2nd statement is True

c.             Both statements are True

d.            Both statements are False

 

5.            Under PSA 240, which of the following would be classified as an error?

a.            Misappropriation of assets for the benefit of management.

b.            Misinterpretation by management of facts that existed when the financial statements were prepared.

c.             Preparation of records by employees to cover a fraudulent scheme.

d.            Intentional omission of the recording of a transaction to benefit a third party.

 

6.            The types of intentional misstatements that are relevant to the auditor’s consideration of fraud include I.

Misstatements resulting from fraudulent financial reporting

II.            Misstatements resulting from misappropriation of assets.

JJ.           a. I and II

b.            I only

c.             II only

d.            Neither I nor II

 

7.            The primary responsibility for the prevention and detection of fraud and error rests with

a.            the auditor

b.            those charged with governance

c.             the management of the entity d. both b and c

 

8.            According to PSA 250, “Consideration of Laws and Regulations in an Audit of Financial Statements”, the following

are indications that noncompliance may have occurred, except

a.            Investigation by government departments or payment of fines or penalties.

 

b.            Management is dominated by one person or a small group and there is no effective oversight board or committee.

c.             Unauthorized transactions or improperly recorded transactions.

d.            Purchasing at prices significantly above or below market price.

 

9.            This refers to acts of omission or commission by the entity being audited, either intentional or unintentional which are contrary to the prevailing laws and regulations.

a.            Error

b.            Fraud

c.             Noncompliance

d.            Defalcation

 

10.          An auditor who discovers that client employees have committed an illegal act that has a material effect on the

client’s financial statements, most likely would withdraw from the engagement if

a.            The illegal act is a violation of generally accepted accounting principles.

b.            The client does not take the remedial action that the auditor considers necessary.

c.             The illegal act was committed during a prior year that was not audited.

d.            The auditor has already assessed control risk at the maximum level.

 

11.          Which of the following statements concerning illegal acts by clients is correct?

 

a.            An auditor’s responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and irregularities.

 

b.            An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements.

 

c.             An auditor considers illegal acts from the perspective of the reliability of management’s representation

rather than their relation to audit objectives derived from financial statement assertions.

d.            An auditor has no responsibility to detect illegal acts by clients that have an indirect effect on the financial statements.

 

12.          Which of the following is least likely a category of fraud risk factors that relate to misstatements, resulting from fraudulent financial reporting?

a.            Management’s characteristics and influence over the control environment.

b.            Industry conditions

c.             Operating characteristics and financial stability d. Susceptibility of assets to misappropriation

 

13.          In comparing management fraud with employee fraud, the auditor’s risk of failing to discover the fraud is

a.            Greater for employee fraud because of the higher crime rate among blue collar workers.

b.            Greater for management fraud because of management’s ability to override existing internal controls.

c.             Greater for employee fraud because of the larger number of employees in the organization.

d.            Greater for management fraud because managers are inherently smarter than employees.

 

14.          Whether the auditor has performed an audit in accordance with PSA is determined by

a.            The adequacy of the audit procedures performed in the circumstances and the suitability of the auditor’s

report based on the result of these procedures.

b.            The absence of material misstatements

c.             The absence of material errors

d.            The Securities and Exchange Commission

 

15.          1st Statement – The auditor should communicate audit matters of governance interest arising from the audit of financial statements with those charged with governance of an entity.

 

2nd statement – The auditor should determine the relevant persons who are charged with governance and with whom audit matters of governance interest are not communicated.

a.            1st statement is True ; 2nd statement is False

b.            1st statement is False ; 2nd statement is True

c.             Both statements are True

d.            Both statements are False

 

16.          Under PSA 260, “Communications of Audit Matters With Those Charged with Governance”, the effectiveness of communications is enhanced by developing a constructive working relationship between the auditor and those charged with governance. This relationship is developed while maintaining an attitude of

a.            professional independence and objectivity

b.            loyalty and objectivity

c.             professional independence and confidentiality

d.            objectivity and confidentiality

 

17.          The auditor’s communication with those charged with governance may be made orally or in writing. The auditor’s

decision whether to communicate orally or in writing is affected by factors except:

a.            The nature, sensitivity and significance of the audit matters of governance interest to be communicated.

 

b.            The arrangements made with respect to periodic meetings or reporting of audit matters of governance interest.

 

c.             The size, operating structure, legal structure and communications processes of the entity being audited. d. The amount of past contact and dialogue the auditor has with those charged with governance.

 

Other References

 

 

18.          Which of the following best describes what is meant by the term “fraud risk factor”?

a.            Factors whose presence indicates that the risk of fraud is high.

b.            Factors whose presence often has been observed in circumstances where frauds have occurred.

c.             Factors whose presence requires modifications of planned audit procedures.

d.            Reportable conditions identified during audit.

 

19.          When conducting an audit, errors that arouse suspicion of fraud should be given greater attention than other errors. This is an example of applying the criterion of

a.            reliability of evidence

b.            materiality c.      risk

d.   dual-purpose testing

 

20.          Which of the following is correct concerning the required documentation in the working papers of the performance of the assessment of the risk of material misstatements due to fraud?

a.            All risk factors considered should be documented and the response to each documented.

 

b.            Those risk factors identified and the auditor’s response to them should be documented.

 

c.             The major categories of risk factors must be identified, but the particular responses to risk factors identified need not be documented.

d.            No specific documentation is required.

 

21.          If there is fraud involving the collusion of several employees that includes the falsification of documents, the chance that such a fraud would be uncovered in a normal audit is

a.            zero

b.            unlikely c.            50–50

d.   very high

 

22.          When the auditor’s regular examination leading to an opinion on the financial statement discloses specific circumstances that make him suspect that fraud may exist and he concludes that the results of such fraud, if any, could not be so material as to affect his opinion, he should

 

a.            make a note in his working papers of the possibility of a fraud of immaterial amount so as to pursue the matter next year.

 

b.            reach an understanding with the client as to whether the auditor or the client, subject to auditor’s review, is to make the investigation necessary to determine whether fraud has occurred and, if so, the amount thereof.

 

c.             refer the matter to the appropriate representatives of the clients with the recommendations that is to be pursued to a conclusion.

 

d.            immediately extend his audit procedures to determine if fraud has occurred and, if so, the amount thereof.

 

23.          In the regular audit of ABC Company, Mr. X, CPA, discovered a material fraud being perpetrated by the cashier. What do you expect most of Mr. X to do?

a.            Report the incident to the Securities and Exchange Commission.

 

b.            Communicate the existence and details of the fraud to the audit committee of the board of directors and to at least one managerial level higher than the position occupied by the fraudster.

c.             Advise the shareholders of the client enterprise regarding the fraud.

d.            Make an extensive investigation as well as examination in order to account the extent of the fraud.

 

24.          What differentiates fraud from an error?

a.            Materiality b. Intent

c.             Effect on financial statements

d.            Frequency of occurrence

 

25.          Which of the following acts are considered fraud?

I.             Changing of records and documents

35.          Misinterpretation of facts.

III.           Misappropriation of assets Clerical mistakes

III only

I and II only

I, III and IV only I, II, III, IV and V

 

Z.            While performing tax services for a new client, the CPA discovered a material error in a previously filed tax return prepared by another CPA. In such case, he should:

a.            Prepare an affidavit with respect to the error.

b.            Recommend compensating for the prior year’s error in the current year’s tax return where such action will mitigate the client’s cost and inconvenience.

 

C.            Advise the client to file a corrected return regardless of whether or not the error resulted in an overstatement of tax.

D.            Inform the BIR of the error.

 

 

27.          Which of the following characteristics most likely would heighten an auditor’s concern about risk of intentional

manipulation of financial statements?

a.            Turnover of senior accounting personnel is low.

b.            Insiders recently purchased additional shares of the entity’s stock.

c.             Management places substantial emphasis on meeting earnings projections.

d.            The rate of change in the entity’s industry is slow.

 

28.          The regular examination of financial statements is not primarily designed to disclose fraud and other irregularities although their discovery may result. Normal audit procedures are more likely to detect a fraud arising from:

a.            Forgeries on company checks.

b.            Failure to record cash receipts for services rendered. c. Theft of inventories

d.            Collusion on the part of several employees.

 

29.          The auditor, in his plan for an examination in accordance with generally accepted auditing standards, being influenced by the possibility of material errors will therefore conduct the examination with an attitude of

 

b.            subjective mistrust

c.             objective indifference

d.            professional responsiveness

 

30.          An error in which an item is posted to the wrong personal account, or the incorrect calculation of an amount constituting an original entry is an

a.            error of omission

 

c.             error of principle

d.            counter-balancing error

 

31.          A kind of fraud committed by making entry of fictitious payments or failure to enter receipts is

a.            misappropriation of goods

 

c.             falsification of accounts

d.            lapping

 

32.          The practice of withholding receipts from customer(s) of one date and giving the customer(s) credit at a later date out of cash received from customer is known as:

 

b.            kiting

c.             payroll padding

d.            window dressing

 

33.          Coverage of shortage in one bank account by means of an unrecorded check drawn on another bank account is known as:

a.            lapping

 

c.             reconciling

d.            adjusting

 

34.          It is any illegal misappropriation of bank accounts. Thus, a teller who pockets a portion of his receipts with intent to defraud the bank for the day is guilty of

a.            kiting on bank funds

b.            embezzlement

 

d.            lapping of bank funds

 

35.          When an independent auditor’s examination of financial statements discloses special circumstances that make the

auditor suspect that material errors and irregularities may exist, the auditor’s initial course of action should be to

a.            Recommend that the client pursue the suspected fraud to a conclusion that is agreeable to the auditor.

b.            Extend normal audit procedures in an attempt to detect the full extent of the suspected fraud.

 

c.             Reach an understanding with the proper client representative as to whether the auditor or client is to make the investigation necessary to determine if a fraud has in fact occurred.

 

report on the financial statements.

 

 

36           Which of the following most accurately summarizes what is meant by the term “material misstatement”?

a.            Fraud and direct-effect illegal acts

b.            Fraud involving senior management and material fraud. c.           Material error, material fraud and certain illegal acts.

d.            Material error and material illegal acts.

 

37           Which of the following illegal acts should an audit be designed to obtain reasonable assurance for detecting?

a.            Securities purchased by relatives of management based on knowledge of inside information. b.                Accrual and billing of an improper amount of revenue under government contracts.

c.             Violations of ant- trust laws.

d.            Price fixing

 

38           The most likely explanation why the auditor’s examination cannot reasonably be expected to bring all illegal acts by the client to the auditor’s attention is that

a.            Illegal acts are perpetrated by management override of internal control.

b.            Illegal acts by clients often relate to operating aspects rather than accounting aspects.

c.             The client’s internal control may be so strong that the auditor performs only minimal substantive testing.

 

d.            Illegal acts may be perpetrated by the only person in the client’s organization with access to both assets and the accounting records.

 

39           What assurance does the auditor provide that errors, irregularities and direct effect illegal acts that are material to the financial statements will be detected?

 

                                Direct Effect       Illegal

                Errors    Irregularities      Acts

                                               

a..           Limited Negative              Limited

 

b.            Limited Limited Reasonable

c.             Reasonable        Limited Limited

d.            Reasonable        Reasonable        Reasonable

 

 

40.          Which of the following is not an example of fraud? a                       Entity personnel falsify accounting records.

b             Entity personnel make mistakes in the application of accounting principles. c       Entity personnel intentionally omit transactions.

d             Entity personnel intentionally misapply accounting principles.

 

41.          Which of the following statements is true?

a              The auditor’s responsibilities to detect errors and fraud in client’s financial statements are basically the

same.

 

b             The auditor has a greater responsibility to detect errors in client’s financial statements than to detect fraud in client’s financial statements.

c              The auditor has responsibility to detect errors in client’s financial statements but no responsibility to

detect fraud.

d             The auditor has responsibility to detect fraud in client’s financial statements but no responsibility to

detect errors.

 

42.          Which of the following statements is true?

a              Errors in the financial statements can be ignored because they are intentional.

b             Errors in the financial statements require adjustment of the client’s accounting records.

c              Fraud requires attention of the auditor, but errors do not.

d             Fraud has serious implications only because of their monetary effect on the financial statements.

 

43.          If the auditor has determined that there may be fraud that may have material effect on the financial statements, all of the following should be done except

a              Consider the implications for other aspects of the audit.

b             Discuss the matter with a level of management where fraud might have occurred.

 

c              Try to obtain evidence to determine whether the fraud is material and what its effect will be on the financial statements.

d             If appropriate, suggest that the client consult with legal counsel on matters of law.

 

44.          If necessary, the financial statements should be revised for material fraud or a                  An unqualified or qualified opinion should be issued.

A disclaimer of opinion or an adverse opinion should be issued. A qualified or adverse opinion should be issued.

An unqualified opinion or a disclaimer of opinion should be issued.

 

SS.          Intentional or reckless conduct, whether act or omission, that results in materially misleading financial statements is called:

An error Fraud

Fraudulent financial reporting An illegal act

 

TT.          A violation of laws or governmental regulations by the audited entity or its management or employees acting on behalf of the entity is called

An error Fraud

Fraudulent financial reporting An illegal act

 

UU. The auditor should assess the risk that illegal acts may have a material and direct effect on financial statements. Based on that assessment, the auditor should

Design the audit to provide reasonable assurance of detecting the act.

Design the audit to provide absolute assurance of detecting the act because of its nature. Design the audit in the usual way because of the small likelihood of detecting illegal acts. Design the audit in the usual way because illegal acts are outside the scope of the audit.

VV.         Illegal acts may be Indirect and immaterial Direct and immaterial Direct and material

All of the above

 

WW. If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to evaluate whether noncompliance that may be material to the financial statement has, or is likely to have occurred, the auditor should express unqualified or disclaimer of opinion

qualified or adverse opinion disclaimer of opinion or adverse qualified or a disclaimer of opinion

 

XX.         Which of the following statements describes why a properly designed and executed audit may not detect material fraud?

 

Audit procedures that are effective for detecting an unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.

 

An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning material fraud.

 

The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional errors in the financial statements.

 

The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the financial statements taken as a whole.

 

YY.          Which of the following statements best describes an auditor’s responsibility to detect errors and

irregularities?

The auditor should study and evaluate the client’s internal control system, and design the audit to provide reasonable

assurance of detecting all errors and irregularities.

 

The auditor should assess the risk that errors and irregularities may cause the financial statements to contain material misstatements, and determine whether the necessary internal control procedures have been prescribed and are being followed satisfactorily.

 

The auditor should consider the types of errors and irregularities that could occur, and determine whether the necessary internal control procedures have been prescribed and are being followed.

 

The auditor should assess the risk that errors and irregularities may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and irregularities.

 

ZZ.          Fraud may be perpetrated with the intent to benefit a company. Which of the following is an example of such a fraud?

Acceptance of bribes or kickbacks by a purchasing agent.

Claims submitted for services or goods not actually provided to the company. Sale or assignment of fictitious or misrepresented assets.

Diversion by an employee or outsider of a transaction that would normally generate profits for the company.

 

aaa.        The risk of management of fraud increases in the presence of Management incentive system based on operating income.

Improved internal control. Substantial increases in sales. Frequent changes in suppliers.

 

bbb.       The risk that an auditor’s procedures will lead to the conclusion that a material error does exist in an account

balance when, in fact, such error does exist, is referred to as:

audit risk inherent risk control risk detection risk

 

ccc. Jones, CPA, is auditing the financial statements of ABC Retailing, Inc. What assurance does Jones provide that the audit will detect either direct-effect illegal acts that are material to ABC’s financial statements or illegal acts that have a material but indirect effect on the financial statements?

 

                Direct-Effect                      Indirect-Effect

                Illegal Acts                           Illegal Acts

a.            Reasonable                        None

b.            Reasonable                        Reasonable

c.             Limited                 None

d.            Limited                 Reasonable

 

 

56.          Which of the following ordinarily is designed to detect possible material peso errors on the financial statements?

Control testing Analytical procedures Computer controls

Post-audit working paper review

 

57.          An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the possibility of errors or irregularities and therefore should

Design audit tests to detect unrecorded transactions.

Extend the work to audit most recorded transactions and records of an entity. Plan and perform the engagement with an attitude of professional skepticism.

Not depend on internal accounting control features that are designed to prevent or detect errors or irregularities.

 

58.          Which of the following statements describes why a properly designed and executed audit may not detect a material fraud?

 

Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional misstatement that is concealed through collusion.

 

An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning material fraud.

 

The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional errors in the financial statements.

 

The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the financial statements taken as a whole.

 

59.          An auditor concludes that a client’s illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the materiality of the effect on the financial statements, the auditor should express either a(n)

Adverse opinion or a disclaimer of opinion. Qualified opinion or an adverse opinion.

Disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph. Unqualified opinion with a separate explanatory paragraph or a qualified opinion.

 

60.          What assurance does the auditor provide that errors, fraud and direct-effect illegal acts that are material to the financial statements will be detected?

Negative Limited Absolute Reasonable

 

III.           Which of the following is an incorrect statement?

 

The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatement.

 

The auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

The auditor is not an insurer, and his or her report does not constitute a guarantee.

 

The subsequent discovery that a material misstatement exists in the financial statements is evidence of inadequate planning, performance or judgment on the part of the auditor.

 

JJJ.          Which of the following statements best describes an auditor’s responsibility to detect errors and fraud?

The auditor should study and evaluate the client’s internal control and design the audit to provide reasonable assurance of

detecting all errors and fraud.

 

The auditor should assess the risk that errors and fraud may cause the financial  statements to contain material misstatements, and determine whether the necessary internal controls are prescribed and are being followed satisfactorily.

 

The auditor should consider the types of errors and fraud that could occur, and determine whether the necessary internal controls are prescribed and are being followed.

 

The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and fraud.

 

KKK. During the annual audit of Ajax Corp., a publicly held company, Jones, CPA , a continuing auditor determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts were immaterial to the financial statements.

Jones should reconsider the intended degree of reliance to be placed on the

Letter of audit inquiry to the client’s attorney. Prior year’s audit programs.

Management representation letter. Preliminary judgment about materiality levels.

 

LLL.         Which of the following statements reflects an auditor’s responsibility for detecting errors and fraud?

 

An auditor is responsible for detecting employee errors and simple fraud, but not for discovering fraud involving employee collusion or management override.

An auditor should plan the audit to detect errors and fraud that are caused by departures from GAAP.

An auditor is not responsible for detecting errors and fraud unless the application of GAAS would result in such detection.

 

An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

 

MMM.   Which of the following characteristics most likely would heighten the auditor’s concern about the risk of intentional

manipulation of financial statements?

Turnover of senior accounting personnel is low.

Insiders recently purchased additional shares of the entity’s stock. Management places substantial emphasis on meeting earnings projection. The rate of change in the entity’s industry is slow.

 

NNN.     An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if

Auditor is precluded from obtaining sufficient competent evidence about the illegal act. Illegal act has an effect on the financial statements that is both material and direct.

Auditor cannot reasonably estimate the effect of the illegal act on the financial statements.

Client refuses to accept the auditor’s report as modified for the illegal act.

 

OOO.     When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain understanding of the nature of the act to

Increase the assessed level of control risk. Recommend remedial actions to the audit committee. Evaluate the effect on the financial statements.

Determine the reliability of management’s representations.

 

68           Which of the following is not an example of an error?

 

a.            Entity personnel make mistakes in gathering or processing accounting data from which a financial statements are prepared.

 

c.             Entity personnel overlook or misinterpret facts, causing accounting estimates to be incorrect.

d.            Entity personnel make mistakes in the application of accounting principles.

 

69           The auditor faces a risk that the examination will not detect material errors that could occur in the accounting process. In regard to minimizing this risk, the auditor primarily relies on

 

b.            Compliance tests

c.             Internal control

d.            Statistical analysis

 

70           An audit should be designed to achieve reasonable assurance of detecting material

 

b.            errors and irregularities.

c.             errors

d.            errors, irregularities and illegal acts

71           When is the auditor responsible for detecting fraud?

a.            When the fraud did not result from collusion.

b.            When third parties are likely to rely on the client’s financial statements.

c.             When the client’s system of internal control is judged by the auditor to be inadequate.

 

 

72           An attitude that includes a questioning mind and a critical assessment of audit evidence is referred to as:

a.            Due professional care

 

c.             Reasonable assurance

d.            Supervision

 

73           Professional skepticism requires the auditor assume that management is

a.            Honest, in the absence of fraud risk factors.

b.            Dishonest until completion of audit tests.

 

d.            Offering reasonable assurance of honesty.

 

74           Reportable conditions are matters that come to an auditor’s attention that should be communicated to an entity’s audit committee because they represent

a.            material irregularities or illegal acts perpetrated by high-level management.

 

c.             flagrant violations of the entity’s documented conflict-of-interest policies.

d.            intentional attempts by client personnel to limit the scope of the auditor’s field work.

 

75           Which of the following matters is an auditor required to communicate to the entity’s audit committee?

a.            The basis for assessing control risk below the maximum.

 

c.             The auditor’s preliminary judgments about materiality levels.

d.            The justification for performing substantive procedures at interim dates.

 

76           Should an auditor communicate the following matters to an audit committee of a public entity?

 

Significant Audit Adjustments    Management’s Consultation

Recorded by the Entity  With Other Accountants

                                About Significant

                                Accounting Matters

a.            Yes         Yes

b.            Yes         No

c.             No          Yes

d.            No          No

 

 

77.          Which of the following statements is correct concerning an auditor’s required communication with an entity’s audit committee?

a.            This communication should include disagreements with management about significant

2              If matters are communicated orally, it is necessary to repeat the communication of recurring matters each year.

 

3              If matters are communicated in writing, the report is required to be distributed to both the audit committee and management.

4              This communication is required to occur before the auditor’s report on the financial statements is issued.

 

78           One means of informing the client that the auditor is not responsible for the discovery of fraud is the 1.                                engagement letter

 

2.            representation letter

3.            responsibility letter

4.            client letter

 

 

79           Which of the following is correct concerning requirements about auditor communications about fraud?

 

1.            Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved.

 

2.            Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission.

3.            Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor

through use of an “emphasis of a matter” paragraph added to the audit report.

4.            The auditor has no responsibility to disclose fraud outside the entity under any circumstances.

 

80           Audits of financial statements are designed to obtain assurance of detecting misstatements due to

 

                Errors                    Fraudulent Financial       Misappropriation

                                                Reporting            of Assets

a.            Yes                         Yes         Yes

b.            Yes                         Yes         No

c.             Yes                         No          Yes

d.            No                          Yes         No

 

 

 

 

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