Auditing
which of the following best describes the auditors responsibility for detecting financial reporting fraud vs. detecting a defalcation
C. The auditor is responsible for detecting material misstatements in the financial statements , thus there is no difference in the responsibility of detecting financial reporting fraud or a defalcation as long as it is material
fraudulent financial reporting includes all of the following except: a. Misappropriation of assets for personal use b. manipulation, falsification, or alteration of accounting records or supporting documents c. Misrepresentation or omission of events, transactions or significant information d. intentional misapplication of accounting principles.
A. Misappropriation of assets for personal use
during a review of the financial statements of the nonpublic entity, an accountant becomes aware of the lack of adequate disclosure that is material to the financial statements. if management refuses to correct the financial statement presentations, which of the following should the accountant do?
C. disclose this departure from GAAP in a separate paragraph of the report.
Which of the following statements is correct regarding the auditors responsibilities related to fraud? a. the auditor is required to report all incidences of material fraud to the audit committee b. the discovery of material fraud indicates that a company has a material weakness in internal control c. there is no diff. in the dollar amount of planning materiality when searching for a defalcation versus searching for financial reporting fraud d. in determining the materiality of fraud, the auditor must consider qualitative factors such as whether or not senior management is involved
E. All of the above
which of the following would not be considered a motivation to commit fraud?
Poor internal controls
the auditor wishes to test the assertion related to the existence of accounts receivable. Which of the following would be the best approach to gathering the audit evidence
Take a MUS sample and send confirmations to customers
the largest form of defalcation (both in dollars and frequency) is :
Theft of cash through disbursement schemes
An advantage of using statistical techniques is that such techniques: a) mathematically measure risk b) Eliminate the need for Judgmental decisions c) Define the values of precision and reliability to provide audit satisfaction d) have been established in the courts to be superior judgmental sampling
a) mathematically measure risk
Which of the following best describes an inherent limitation of the Monetary unit Sampling MUS method?
a). The upper estimate of misstatements tends to be conservative.
An auditors report would be designated a special report when it is issued in connection with which of the following?
a. Compliance with aspects of regulatory requirements related to audited financial statements
when an accountant is engaged to compile a nonpublic entity's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are:
a. Not designed for those who uniformed about the omitted disclosures
Laura baker (look at book)
a. baker is not required to modify the accountants review report.
the objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether:
a. material modifications should be made to conform to GAAP
Which of the following would be considered a "red flag" that should alert the auditor to the increased possibility that financial reporting fraud might be occurring a. a privately held company is experiencing a period of financial distress b. a publicly held company has experienced a significant increase in earnings in an industry with widely fluctuating earnings c. the client needlessly engages in many complex and difficult accounting transactions and is very discretionary in its use of estimates d. managers receive bonuses based on meeting performance goals that have been approved by the board
all would be considered red flags
An auditor selects a statistical sample from a large inventory of replacement parts. Which of the following audit objectives would be most appropriate if the sampling method used is MUS?
b) The auditor plans to make a statement concerning the total dollar amount of misstatement in the population from the recorded book value.
which of the following statements should be included in an accountants standard report based on the complication of a nonpublic entity's financial statements?
b. A compilation is limited to presenting in the form of financial statements information that is the representation of management.
An auditors report on financial statements prepared on the cash receipts and disbursements basis of accounting should include
b. A statement that the cash receipts and disbursements basis of accounting is not a comprehensive basis of accounting
eagle company's financial statements contain a departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is:
b. Unqualified, and describe the departure in a separate paragraph
Which of the following statements regarding the incidence of fraud is incorrect a. fraud is estimated to cost U.S businesses between 5 and 7 cents of every dollar of sales b. fraudulent financial reporting occurs more often than defalcations c. financial reporting frauds are generally larger in dollar amounts than defalcations d. research shows that only about one-fifth of all frauds are discovered and prosecuted
b. fraudulent financial reporting occurs more often than defalcations
comparative financial statements include the prior year statements that were audited by a predecessor auditor whose report is not presented. if the predecessors report were unqualified the successor should do which of the following?
b. indicate in the auditors report that the predecessor auditor expresses an unqualified opinion
in which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph
b. the auditor decides to refer the report of another auditor as a basis in part for the auditor's opinion
which of the following procedures is least likely to be performed by an auditor using GAS?
c) Calculating an estimate of the allowance for doubtful accounts
which of the following combinations results in a decrease in an attribute estimation sample size?
c) sampling risk INCREASE tolerable rate INCREASE expected population failure rate DECREASE
Which of the following is an example of sampling risk? a) improperly assessing the risk of material misstatement b) testing the wrong population to achieve the audit objective c) selecting a sample that is not representative of the population sample d) Inaccurately identifying misstatements in a sample
c) selecting a sample that is not representative of the population
In which of the following circumstances would an auditor usually choose between issuing a qualified opinion or a disclaimer of opinion
c. inability to obtain sufficient competent evidential matter for a reason other than a management-imposed scope restriction
The auditor of a public company believes there is a material weakness in the clients internal controls over financial reporting. which of the following statements is true
c.The auditor should express an adverse opinion on the internal controls even though no material misstatements were found in the financial statements
which of the following would not be an appropriate use of GAS?
d) submitting transactions to be tagged and traced though the computer system
tech company has an uncertainty because of pending litigation. The auditors decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by which of the following?
d. Adequacy of the disclosures
Analytical procedures are best used as a substantive audit procedure in which of the following scenarios? a) the auditors primary objective is to reduce audit cots to a min. b. internal control risk is high and therefore it does not make sense to test the controls c. preliminary analytical review indicates that there are likely to be misstatements in significant account balance d. None of above
d. None of above
Tread corp. accounts for the effect of a material accounting change prospectively when the inclusion of the cumalative effect of the change is required in the current year. The auditor would choose which of the following opinions?
d. Qualified opinion or adverse opinion
before issuing a report on the compilation of financial statements of a nonpublic entity, the accountant should do which of the following
d. Read the financial statements to consider whether they are free from obvious material errors
which of the following is NOT a correct statement regarding the use of brainstorming as part of a financial statement audit: a. it is required as a normal part of every engagement b. it should include all members of the audit team c. it should include an analysis of known internal control deficiencies d. it should be performed jointly with the internal audit
d. it should be performed jointly with the internal audit
Which of the following items would indicate the highest likelihood of financial fraud
d. store maintenance costs as % revenue 3.2% (THIS YEAR) but last year (5.9%)
In which of the following circumstances would an auditor be most likely to express an adverse opinion on a company's financial statements?
d. the financial statements are not in conformity with FASB statements regarding the capitalization of leases
Which of the following statements are correct regarding sampling and non sampling risk
non sampling risk is best addressed through staff training and supervision. Sampling risk is set in advance by the auditor as a basis for determining sample size.
Frauds are more likely to take place during periods of recession. should auditors detect more frauds during a recessionary period that a non-recessionary period?
yes because the the auditor should adjust audit techniques because of the higher likelihood of fraud
