Question 1

Audits are expected to provide a higher degree of assurance for the detection of material frauds than is provided for an equally material error.

Accepted Answer

Audits are designed to provide reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error, but they do not guarantee the detection of material frauds more than material errors.

Question 2

When an auditor believes that an illegal act may have occurred,the first step he or she should take is to gather additional evidence to determine the extent of the illegality and if there is a direct impact on the financial statements.

Accepted Answer

This is the appropriate first step for an auditor to take in response to suspected illegal activity. They must gather additional evidence before making any conclusions or taking further action.

Question 3

Auditing standards indicate that reasonable assurance is a moderate,but not absolute,level of assurance that the financial statements are free of material misstatement.

Accepted Answer

The answer of Auditing standards indicate that reasonable assurance is...

Question 4

Errors are usually more difficult for an auditor to detect than frauds.

Accepted Answer

Fraud involves intentional deception or misstatements, which may leave behind clues that can be detected by an auditor through various techniques. Errors, on the other hand, are unintentional mistakes and may not be easily detectable since they occur due to negligence, human error, or system failure. As a result, errors are often more difficult to detect than fraud.

Question 5

Other than inquiring of management about policies they have established to prevent illegal acts and whether management knows of any laws or regulations that the company has violated,the auditor should not search for illegal acts that do not have a direct effect on the financial statements unless there is reason to believe they may exist.

Accepted Answer

The statement is correct. The auditor's main focus is on the financial statements and ensuring they comply with GAAP. However, if the auditor does come across information that suggests illegal acts exist, they may need to investigate further and report their findings to appropriate parties.

Question 6

One of the characteristics of professional skepticism is_______,which is a desire to investigate beyond the obvious.
A) self-esteem
B) an interpersonal understanding
C) a search for knowledge
D) a questioning mindset

Accepted Answer

The answer of One of the characteristics of professional skepticism...

Question 7

Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.

Accepted Answer

The answer of Discuss three reasons why auditors are responsible...

Question 8

The concept of professional skepticism has been a foundational element of auditing standards for year and continues to be difficult to implement in practice.Recent academic research on the topic of professional skepticism suggests that there are six characteristics to skepticism.List and briefly describe each of these characteristics.

Accepted Answer

The answer of The concept of professional skepticism has been...

Question 9

Discuss the differences between errors,frauds,and illegal acts.Give an example of each.

Accepted Answer

The answer of Discuss the differences between errors,frauds,and illegal acts.Give...

Question 10

Discuss the actions an auditor should take when an illegal act is identified or suspected.

Accepted Answer

The answer of Discuss the actions an auditor should take...

Question 11

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:
A) plan and perform the engagement with an attitude of professional skepticism.
B) not rely on internal controls that are designed to prevent or detect errors or fraud.
C) design audit tests to detect unrecorded transactions.
D) extend the work to audit the majority of the recorded transactions and records of an entity.

Accepted Answer

An auditor should plan and perform the engagement with an attitude of professional skepticism because it helps in evaluating the audit evidence obtained and reduces the risk of overlooking material misstatements due to errors or fraud. Option B is incorrect as internal controls designed to prevent or detect errors or fraud can be relied upon if they are effective. Option C is not the best choice because designing audit tests to detect unrecorded transactions does not directly address the issue of errors or fraud. Option D is excessive and unnecessary as auditing the majority of recorded transactions and records of an entity may not necessarily identify errors or fraud.

Question 12

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:
A) tests of controls.
B) tests of transactions.
C) understanding the entity's internal control.
D) the assessment of whether to accept the audit engagement.

Accepted Answer

The auditor's evaluation of the likelihood of material employee fraud is initially done as a part of understanding the entity's internal control. This includes considering the potential for fraud risks, assessing the entity's system of internal controls, and identifying areas where controls may be weak or ineffective in detecting or preventing fraud. Tests of controls and tests of transactions are performed later in the audit process to test the effectiveness of the internal controls and to detect any instances of fraud that may have occurred. The assessment of whether to accept the audit engagement also includes considering the potential for fraud risks, but it is not the initial evaluation of the likelihood of material employee fraud.

Question 13

Auditors have a higher degree of responsibility for detecting illegal acts that have a direct effect on the financial statements than illegal acts that do not have a direct effect on the financial statements.

Accepted Answer

The auditor's responsibility for detecting illegal acts is greater when those illegal acts have a direct effect on the financial statements, as they can materially misstate the financial statements. However, the auditor still has a responsibility to consider illegal acts that may not directly affect the financial statements but could impact the client's reputation or potential future financial performance.

Question 14

Most illegal acts affect the financial statements:
A) directly.
B) only indirectly.
C) both directly and indirectly.
D) materially if direct; immaterially if indirect.

Accepted Answer

The answer of Most illegal acts affect the financial statements:
A)...

Question 15

The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities,including but not limited to,law enforcement and the Securities and Exchange Commission.

Accepted Answer

When an auditor uncovers an illegal act, their first course of action should be to discuss the matter with an appropriate level of management and, when appropriate, those charged with governance, to determine the effect of the act on the financial statements and to consider the need for disclosure. Notifying authorities is not the immediate first step without first going through internal channels and assessing the situation according to auditing standards and the legal counsel's advice.

Question 16

The essence of the attest function is to:
A) assure the consistent application of correct accounting procedures.
B) determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework.
C) examine individual transactions so that the auditor may certify as to their validity.
D) detect collusion and fraud.

Accepted Answer

The attest function is performed by an auditor to determine whether the client's financial statements are fairly stated in accordance with an applicable financial reporting framework. This involves examining the financial statements and underlying accounting records, testing internal controls, and gathering and evaluating evidence to provide assurance to stakeholders about the accuracy and reliability of the financial reporting. While detecting fraud and ensuring the consistent application of correct accounting procedures may be part of the attest process, the primary purpose is to determine the fairness of the financial statements.

Question 17

Asking the right questions and probing further until the auditor is satisfied with the responses can help the auditor to detect a material misstatement in the financial statements.

Accepted Answer

By asking the right questions and probing further, the auditor can gain a deeper understanding of the company's financial activities, which can help them to detect any material misstatements in the financial statements. Therefore, it is true that asking the right questions and probing further can assist auditors in detecting material misstatements.

Question 18

If a client has violated federal tax laws:
A) the auditor must notify the IRS.
B) and the amount is significant, the auditor should communicate with those charged with governance.
C) the noncompliance generally will not impact the financial statements.
D) the auditor does not need to evaluate the effects of the noncompliance on other aspects of the audit.

Accepted Answer

The auditor should communicate with those charged with governance, such as the board of directors, if the violation is significant. This is because the noncompliance may have an impact on the financial statements or reputation of the company, and those charged with governance should be informed and may take appropriate action. The auditor should also evaluate the effects of the noncompliance on other aspects of the audit. While the auditor is not required to notify the IRS, they may choose to do so if they believe it is necessary. Noncompliance with federal tax laws may have an impact on the financial statements, as it may result in additional tax liabilities or penalties.

Question 19

An audit generally provides no assurance that illegal acts that do not have a direct effect on the financial statements will be detected.

Accepted Answer

Auditors are not specifically looking for illegal acts, and their procedures may not detect such acts if they do not have a direct impact on the financial statements. However, if the auditors do become aware of illegal acts during the course of their audit, they may be required to report them to the appropriate authorities.

Question 20

Discuss the differences in the auditor's responsibilities for discovering (1)material errors,(2)material fraud (3)illegal acts having a direct effect on the financial statements,and (4)illegal acts that do not have a direct effect on the financial statements.

Accepted Answer

The answer of Discuss the differences in the auditor's responsibilities...

Quiz 6: Audit Responsibilities and Objectives

Audits are expected to provide a higher degree of assurance for the detection of material frauds than is provided for an equally material error.

When an auditor believes that an illegal act may have occurred,the first step he or she should take is to gather additional evidence to determine the extent of the illegality and if there is a direct impact on the financial statements.

Auditing standards indicate that reasonable assurance is a moderate,but not absolute,level of assurance that the financial statements are free of material misstatement.

Errors are usually more difficult for an auditor to detect than frauds.

One of the characteristics of professional skepticism is_______,which is a desire to investigate beyond the obvious.

Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.

Discuss the differences between errors,frauds,and illegal acts.Give an example of each.

Discuss the actions an auditor should take when an illegal act is identified or suspected.

An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should:

The auditor's evaluation of the likelihood of material employee fraud is normally done initially as a part of:

Auditors have a higher degree of responsibility for detecting illegal acts that have a direct effect on the financial statements than illegal acts that do not have a direct effect on the financial statements.

Most illegal acts affect the financial statements:

The auditor's first course of action when an illegal act is uncovered should be to immediately notify the appropriate authorities,including but not limited to,law enforcement and the Securities and Exchange Commission.

The essence of the attest function is to:

Asking the right questions and probing further until the auditor is satisfied with the responses can help the auditor to detect a material misstatement in the financial statements.

If a client has violated federal tax laws:

An audit generally provides no assurance that illegal acts that do not have a direct effect on the financial statements will be detected.

Discuss the differences in the auditor's responsibilities for discovering (1)material errors,(2)material fraud (3)illegal acts having a direct effect on the financial statements,and (4)illegal acts that do not have a direct effect on the financial statements.