(Objective 6-3) The following questions deal with errors and fraud. Choose the best response.
a. An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?
(1) Misappropriation of an asset or groups of assets.
(2) Clerical mistakes in the accounting data underlying the financial statements.
(3) Mistakes in the application of accounting principles.
(4) Misinterpretation of facts that existed when the financial statements were prepared.
b. What assurance does the auditor provide that errors and fraud that are material to the financial statements will be detected?
Errors
Fraud
(1) Limited
Negative
(2) Reasonable
Reasonable
(3) Limited
Limited
(4) Reasonable
Limited
c. Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud?
(1) Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.
(2) An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud.
(3) The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements.
(4) The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole.
Objective 6-3
Explain the auditor’s responsibility for discovering material misstatements due to fraud or error, and the need to maintain professional skepticism when conducting the audit.
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