Fraud AND Error PDF

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0 / 1 pointWhich of the following is incorrect about the auditor's responsibility forevaluating noncompliance by the entity to laws and regulations?Noncompliance includes personal misconduct of the entity's management or employees though they are unrelated to the entity's business activities.Noncomp...

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0 / 1 point

Which of the following is incorrect about the auditor's responsibility for evaluating noncompliance by the entity to laws and regulations? Noncompliance includes personal misconduct of the entity's management or employees though they are unrelated to the entity's business activities. Noncompliance includes transactions entered into by, or in the name of, the entity, or on its behalf, by those charged with governance, management or employees. Detection of noncompliance, regardless of materiality, requires considerations of the implications for the integrity of management or employees. Noncompliance refers to acts of omission or commission by the entity being audited which are contrary to prevailing laws and regulations. Question 2

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Which of the following should the auditor likely to do when the application of planned audit procedures indicates the possible existence of fraud or error? He should refer the suspected fraud or error to the internal auditor. He should discuss the matter with the person whom he believes is involved with the irregularities. The auditor should resign in order to avoid legal responsibility. He should consider the potential effect on the financial statements. Question 3

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Auditing standards require that auditors be aware of relevant factors relating to fraudulent financial reporting. Which of the following statements is false concerning fraudulent reporting? Fraud involves actions of management but excludes the actions of employees or third parties. An audit rarely involves the authentication of documentation; thus, fraud may go undetected by the auditor. Two types of fraud relevant to the auditor include material misstatements arising from fraudulent financial reporting and material misstatements arising from misappropriation of assets. Fraud frequently involves a pressure or an incentive to commit fraud and a perceived opportunity to do so. Question 4

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Under which of the circumstances below would the auditor conclude that withdrawal from the engagement is necessary?

The entity does not take the remedial action that the auditor considers necessary in the circumstances. The auditor is unable to determine whether noncompliance has occurred because of limitations imposed by the circumstances rather than by the entity. The auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to evaluate whether noncompliance that may be material to the financial statements, has, or is likely to have, occurred. The auditor concludes that the noncompliance has a material effect on the financial statements and has not been properly reflected in the financial statements. Question 5

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Which statement is incorrect regarding the auditor's responsibility to consider fraud and error in an audit of financial statements? In planning the audit, the auditor shoud discuss with other members of the audit team the susceptibility of the entity to material misstatements in the financial statements resulting from fraud or error. All of the three other choices. The auditor should design tests of control to reduce to an acceptably low level the risk that misstatements resulting from fraud and error that are material to the financial statements as a whole will not be detected. The auditor is not and cannot be held responsible for the prevention of fraud and error. Question 6 1 / 1 point

Which statement is incorrect regarding the auditor's consideration of laws and regulations in an audit of financial statements? In order to plan the audit, the auditor should obtain a general understanding of the legal and regulatory framework applicable to the entity and the industry and how the entity is complying with that framework. Generally, the further removed noncompliance is from the events and transactions reflected in the financial statements, the more likely the auditor is to become aware of it or to recognize the possible noncompliance. It is the responsibility of management, with the oversight of those charged with governance, to ensure that the entity's operations are conducted in accordance with laws and regulations, including compliance with laws and regulations that determine the form or content of the entity's financial statements. This includes responsibility for the prevention and detection of noncompliance with laws and regulations. An audit cannot be expected to detect noncompliance with all laws and regulations. Question 7

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An instance of fraud is unlikely to be an isolated occurrence. usually an isolated case. most likely to be an isolated occurrence. always an isolated occurrence. Question 8

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As used in PSA 250 (Consideration of Laws and Regulations in an Audit of Financial Statements), this term refers to acts of omission or commission by the entity being audited, either intentional or unintentional, which are contrary to prevailing laws or regulations. Unforgivable acts Deplorable acts Illegal acts Noncompliance Question 9

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Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatement arising from fraudulent financial reporting? Management is dominated by a single person or a small group with compensating controls such as affective oversight by those charged with governance. Low turnover of senior management, legal counsel, or those charged with governance. Excessive interest by management in increasing stock price or earnings trend through aggressive accounting practices. Effective accounting and internal control systems. Question 10

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When the auditor identifies a misstatement in the financial statements, the auditor should consider whether such a misstatement may be indicative of fraud and if there is such an indication, the auditor should Withdraw from the engagement Communicate the information to regulatory and enforcement authorities Report the matter to the person or persons who made the audit appointment

Consider the implications of the misstatement in relation to other aspects of the audit Question 11

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Who has responsibility for communicating matters of governance interest to those charged with governance? Neither the auditor nor management. Auditor Both the auditor and management. Management Question 12

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The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatement resulting from fraud, except documents that appear to have been altered. missing documents. significant explained items on reconciliations. unavailability of other than photocopied or electronically transmitted documents when documents in original form are expected to exist. Question 13 0 / 1 point

The auditor's responses to address the assessed risks of material misstatement due to fraud at the assertion level may include changing the nature, timing, and extent of audit procedures in the following ways, except Review the need to intensify test of controls to ascertain the ability of the entity's system of internal control to prevent and detect fraud. The extent of the procedures applied reflects the assessment of the risks of material misstatement due to fraud.. The timing of substantive procedures may need to be modified. The nature of audit procedures to be performed may need to be changed to obtain audit evidence that is more reliable and relevant or to obtain additional corroborative information. Question 14 1 / 1 point

PSA 250 states that in order to plan the audit, the auditor should obtain general understanding of the legal and regulatory framework applicable to the entity and the industry and how the entity is complying with that

framework. To obtain this understanding, the following procedures would ordinarily be considered by the auditor, except Inquire of management concerning the entity's policies and procedures regarding compliance with laws and regulations. Use the existing understanding of the entity's industry, regulatory, and other external factors. Inspect correspondence with relevant licensing or regulatory authorities. Inquire of management as to the laws and regulations that may be expected to have a fundamental effect on the operations be expected to have a fundamental effect on the operations of the entity. Question 15

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When planning and performing audit procedures and evaluating and reporting the results thereof, the auditor should consider the risk of material misstatements in the financial statements resulting from fraud. consider the risk of misstatements in the financial statements resulting from fraud. search for errors that would have a material effect and for fraud that would have either material or immaterial effects on the financial statements. search for fraud that would have a material effect and for errors that would have either material or immaterial effects on the financial statements. Question 16 1 / 1 point

When the auditor becomes aware of information concerning a possible instance of noncompliance, the auditor should obtain an understanding of: i. The nature of the act; ii. The circumstances in which it has occurred; iii. Sufficient other information to evaluate the possible effect on financial statements Yes, Yes, Yes No, Yes, Yes Yes, No, No No, No, Yes Question 17

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When the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should perform procedures to determine whether the financial statements are materially misstated. The nature, timing, and extent

of the procedures to be performed depend on the auditor's judgment as to the Likelihood that a particular type of fraud or error could have a material effect on the financial statements Type of fraud or error indicated All of the three other choices Likelihood of occurrence Question 18

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The term fraud refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Which statement is correct regarding fraud? Misstatement of the financial statements may not be the objective of some frauds. Fraud involving only employees of the entity is referred to as management fraud. Fraud involving one or more members of management or those charged with governance is referred to as employee fraud. Auditors make legal determinations of whether fraud has actually occurred. Question 19

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Audits of financial statements are designed to obtain assurance of detecting material misstatements due to (1) errors; (2) fraudulent financial reporting; (3) misappropriation of assets no, yes, no yes, yes, no yes, no, yes yes, yes, yes Question 20

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A minor defalcation by an employee at a low level in the entity's organization is considered consequential but trivial and thus, should not be considered by the auditor. inconsequential and thus, should be ignored by the auditor. inconsequential but should still be brought to the attention of the appropriate level of management as soon as practicable.

consequential and thus, the nature, timing, and extent of the audit procedures should be reviewed to consider the impact of this fraud on the financial statements. 1 / 1 point

The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatement resulting from fraud, except accounting policies that appear to be consistent with industry norms. tolerance or violations of the entity's Code of Conduct. frequent changes in accounting estimates that do not appear to result from changed circumstances. unwillingness by management to permit the auditor to meet privately with those charged with governance. 1 / 1 point

Question 2

Auditing standards require that auditors be aware of relevant factors relating to fraudulent financial reporting. Which of the following statements is false concerning fraudulent reporting? Fraud frequently involves a pressure or an incentive to commit fraud and a perceived opportunity to do so. Fraud involves actions of management but excludes the actions of employees or third parties. An audit rarely involves the authentication of documentation; thus, fraud may go undetected by the auditor. Two types of fraud relevant to the auditor include material misstatements arising from fraudulent financial reporting and material misstatements arising from misappropriation of assets. Question 3 1 / 1 point

Which statement is incorrect regarding the auditor's responsibility to consider fraud and error in an audit of financial statements? The auditor is not and cannot be held responsible for the prevention of fraud and error. All of the three other choices. In planning the audit, the auditor shoud discuss with other members of the audit team the susceptibility of the entity to material misstatements in the financial statements resulting from fraud or error.

The auditor should design tests of control to reduce to an acceptably low level the risk that misstatements resulting from fraud and error that are material to the financial statements as a whole will not be detected. Question 4 0 / 1 point

In the absence of identified or suspected non-compliance the auditor should conduct the audit with a heightened sense of professional skepticism. the auditor should still continue to perform audit procedures regarding the entity's compliance with laws and regulations. the auditor should consider expanding the extent of testing to reduce the risk that instances of noncompliance that actually exist have not been identified yet. the auditor is not required to perform audit procedures regarding the entity's compliance with laws and regulations. Question 5 0 / 1 point

Fraudulent financial reporting involves intentional misstatements or omissions of amounts or disclosure in the financial statements to deceive financial statement users. Fraudulent financial reporting least likely involve deception such as manipulation, falsification, or alteration of accounting records or supporting documents from which the financial statements are prepared. intentional misapplication of accounting principles relating to measurement, recognition, classification, presentation, or disclosure. embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for goods and services not received. misrepresentation in, or intentional omission from, the financial statements of events, transactions, or other significant information. Question 6 1 / 1 point

The following are examples of risk factors relating to misstatements arising from misappropriation of assets under the category OPPORTUNITIES, except lack of mandatory vacations for employees performing key control functions. easily convertible assets, such as bearer bonds, diamonds, or lacking observable identification of ownership. promotions, compensation, or other rewards inconsistent with expectations. fixed assets that are small in size, marketable, or lacking observable identification of ownership. Question 7

Identify which statement is true.

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The auditor's legal responsibility may override the auditor's duty of confidentiality. The auditor's legal responsibility has no effect on the auditor's duty of confidentiality. The auditor's duty of confidentiality is equally prioritized with the auditor's legal responsibility. The auditor's duty of confidentiality may override the auditor's legal responsibility. 1 / 1 point

Question 8

The term fraud refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Which statement is correct regarding fraud? Misstatement of the financial statements may not be the objective of some frauds. Fraud involving only employees of the entity is referred to as management fraud. Auditors make legal determinations of whether fraud has actually occurred. Fraud involving one or more members of management or those charged with governance is referred to as employee fraud. Question 9 1 / 1 point

The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatement resulting from fraud, except unavailability of other than photocopied or electronically transmitted documents when documents in original form are expected to exist. documents that appear to have been altered. missing documents. significant explained items on reconciliations. Question 10

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In some entities, particularly smaller entities, the focus of management's assessment may be on the risks of misappropriation of assets and/or fraudulent financial reporting. the risks of employee fraud and/or misappropriation of assets. the risks of management fraud and/or fraudulent financial reporting.

the risks of employee fraud and/or fraudulent financial reporting. Question 11

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In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is greater for employee fraud because of the higher crime rate among blue collar workers. greater for employee fraud because of the larger number of employees in the organization. greater for management fraud because of management's ability to override existing internal controls. greater for management fraud because managers are inherently smarter than employees. Question 12

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The following are examples of risk factors relating to misstatements arising from fraudulent financial reporting under opportunity category, except non financial management's excessive participation in or preoccupation with the selection of accounting policies or the determination of significant estimates. high turnover of senior management, legal counsel, or those charged with governance. domination of management by a single person or a small group (in a non ownermanaged business) without compensating controls. significant related party transactions not in the ordinary course of business or with related entities not audited or audited by another firm. Question 13

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If the auditor suspects that management or those charged with governance are involved in non-compliance, the auditor shall withdraw from the engagement. refuse to be associated with the financial statements. consider the need to obtain legal advice communicate the matter to the next higher level of authority at the entity, if it exists, such as an audit committee or supervisory board. Question 14 1 / 1 point

When the auditor becomes aware of information concerning a possible instance of noncompliance, the auditor should obtain an understanding of: i. The nature of the act; ii. The circumstances in which it has occurred; iii.

Sufficient other information to evaluate the possible effect on financial statements No, Yes, Yes No, No, Yes Yes, Yes, Yes Yes, No, No Question 15

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Which of the following should the auditor likely to do when the application of planned audit procedures indicates the possible existence of fraud or error? He should consider the potential effect on the financial statements. The auditor should resign in order to avoid legal responsibility. He should refer the suspected fraud or error to the internal auditor. He should discuss the matter with the person whom he believes is involved with the irregularities. Question 16 0 / 1 poin...