auditing theory no. 1 guide to understanding auditing
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GORDON COLLEGECOLLEGE OF BUSINESS AND ACCOUNTANCY
Auditing Theory
Audit Sampling, Completing the Audit, Reports-Other Assurance andRelated Services, Auditors Responsibilities to Fraud in an Audit of
FS, Consideration of a!s and Regulations in an Audit of FS,Communication !ith those Charged !ith "overnance
Source : CPA Review Schools
Choose the best answer.
1. In designing audit procedures, the
auditor required to determine
appropriate means of selecting items
for testing to gather audit evidence.
Which of the following means is/areavailable to the auditor?
I. Selecting all items 1!!"
e#amination$
II. Selecting speci%c items
III. &uditing sampling
&. &nd II onl'(. III onl'
C. I and III onl'D. I II !"# III
). It will be appropriate to audit all of
the items that ma*e up class of
transactions or account balance
1!!" e#amination$, e#cept
A. $he" %he cl!ss o& %r!"s!c%io"s
or !ccou"% '!l!"ce co"sis% o&
l!r(e "u)'er o& s)!ll v!lue
i%e)s.
(. When the class of transactions or
account balance consist of a small
number of large value items.
C. When there is a signi%cant ris* of
misstatement and other selection
methods do not provide su+cient
appropriate audit evidence.
. When the repetitive nature of acalculation or other process performed
automaticall' b' the client-s computer
information s'stem CIS$ ma*es a
1!!" e#amination cost eective.
. &udit sampling involves the
&. Selection of all items over a certain
amount.
B. A**lic!%io" o& !u#i% *roce#ures
%o less %h!" +,,- o& i%e)s wi%hi"! cl!ss o& %r!"s!c%io"s or !"
!ccou"% '!l!"ce such %h!% !ll
i%e)s h!ve ! ch!"ce o& selec%io".
C. &pplication of audit procedures to
all items that comprise a class of
transactions or an account balance.
. &pplication of audit procedures to
all items over a certain amount and
those that are unusual or have ahistor' of error.
0. &n advantage of statistical over
nonstatistical sampling methods in
test of controls is that the statistical
methods
&. &ord greater assurance than a
nonstatistical sample of equal sie.
B. Provi#e !" o'ec%ive '!sis &or
/u!"%i%!%ivel0 ev!lu!%i"( s!)*le
ris1.
C. Can more easil' convert the sample
into a dual purpose test useful for
substantive testing.
. 2liminate the need top used
3udgment in determining appropriate
sample sies.
4. 5he ris* of incorrect acceptanceand the li*elihood of assessing control
ris* too low relate to the
A. E2ec%ive"ess %o %he !u#i%
(. 2+cienc' of the audit
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C. 7reliminar' estimates of materialit'
levels.
. 5olerable misstatement.
:. 5he li*elihood of assessing control
ris* too high is the ris* that the
sample selected to test controls.
A. Does "o% su**or% %he !u#i%or3s
*l!""e# !ssesse# level o& co"%rol
ris1 whe" %he %rue o*er!%i"(
e2ec%ive"ess o& i"%er"!l co"%rol
us%i4es such !" !ssess)e"%.
(. Contains misstatement that could
be material to the %nancial statement
when aggregated with misstatement
in other account balances of
transactions classes.
C. Contains proportionatel' fewer
deviations from prescribed internal
controls than e#ist in the balance or
class as a whole.
. oes not support the tolerable
misstatement for some or all of
management-s assertions.
;. Which of the following sample
planning factors would inesB. Yes YesC. =o >es. >es =o
. &n underl'ing feature of random9
based selection of items is that each
&. Stratum of the accounting
population is given equal
representation in the sample.
(. Item in the accounting population is
randoml' ordered.
C. I%e) i" %he !ccou"%i"(
*o*ul!%io" shoul# h!ve !"
o**or%u"i%0 %o 'e selec%e#.
. Selected using replacement
@. Which of the following statistical
selection techniques is least desirable
for use b' an auditor?
&. S'stematic selection
(. Strati%ed selection
C. Bloc1 selec%io"
. Sequential selection
1!. 5he e#pected population deviation
rate of client billing errors is ". 5he
auditor has established a tolerable
rate of 4". In the review client
invoices the auditor should use
&. Strati%ed sampling
(. Aariable sampling
C. iscover' sampling
D. A%%ri'u%e s!)*li"(
11. Which of the following statement
is correct concerning statistical
sampling in test of controls?
&. eviations from control procedure
at given rate usuall' result in
misstatements at a higher rate.
(. &s the population sie doubles, the
sample sie should also double.
C. 5he qualitative aspects of
deviations are not considered b' the
auditor.
D. There is !" i"verse rel!%io"shi*
'e%wee" %he s!)*le si5e !"# %he
%oler!'le r!%e.
1). Which of the following statistical
sampling plans does not use a %#ed
sample sie for tests of controls?
&. &ttributes sampling
B. Se/ue"%i!l s!)*li"(
C. 77S sampling
. Aariables sampling
1. When performing a test of a
control with respect to control over
cash receipts, an auditor ma' use a
s'stematic sampling technique with a
start at an' randoml' selected item.
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5he biggest disadvantage of this t'pe
of sampling is that the items in the
population
&. Bust be s'stematicall' replaced in
the population after sampling.
(. Ba' s'stematicall' occur more than
once in the sample.
C. Bust be recorded in a s'stematic
pattern before the sample can be
drawn.
D. 6!0 occur i" ! s0s%e)!%ic
*!%%er" %hus #es%ro0i"( %he
s!)*le r!"#o)"ess.
10. Which of the following
combinations results in a decrease in
sample sie in a sample for attributes?
&.Increase ecrease
Increase
B.Decre!se I"cre!se
Decre!se
C. Increase Increase
ecrease
. Increase Increase
Increase
14. &n auditor is testing internal
control procedures that are evidenced
on an entit'-s vouchers b' matching
random numbers with voucher
numbers. If a random number
matches the number of a voided
voucher, that voucher ordinaril'
should be replaced b' another
voucher in the random sample if the
voucher.
&. Constitutes a deviation.
B. 7!s 'ee" *ro*erl0 voi#e#.
C. Cannot be located.
. epresents an immaterial peso
amount.
1:. &n auditor plans to e#amine a
sample of )! purchase orders for
proper approvals as prescribed b' the
client-s internal control procedures.
Dne of the purchase orders in the
chosen sample cannot be found, and
the auditor is unable to use alternative
procedures to test whether that
purchase was properl' approved. 5he
auditor should
&. Choose another purchase order to
replace the missing purchase order in
the sample.
(. Consider this test of control invalid
and proceed with substantive test
since internal control cannot be relied
upon.
C. Tre!% %he )issi"( *urch!se
or#er h!s ! #evi!%io" &or %he
*ur*ose o& ev!lu!%i"( %he s!)*le.
. Select to a completel' new set of
)! purchase orders.
1;. Which of the following courses of
action would an auditor most li*el'
follow in planning a sample of cash
disbursement if the auditor is aware of
several unusuall' large cash
disbursements?
&. Set the tolerable rate of deviation at
a lower level than originall' planned.
B. S%r!%i&0 %he c!sh #is'urse)e"%
*o*ul!%io" so %h!% %he u"usu!ll0
l!r(e #is'urse)e"%s !re selec%e#.
C. Increase the sample sie to reduce
the eect of the unusuall' large
disbursement.
. Continue to draw new samples until
all the large disbursements appear in
the sample.
1. Ese of the ratio estimation
sampling technique to estimated peso
amounts in appropriate when
&. 5he total boo* value is *nown and
corresponds to the sum of all the
individual boo* values.
B. A 'oo1 v!lue &or e!ch s!)*le
i%e) is 1"ow".
C. 5here are some observed
dierences between audited values
and boo* values.
. 5he audited values are nearl'
proportional to the boo* values.
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1@. What is an auditor-s evaluation of
a statistical sample for attributes when
a test of 4! documents results in three
deviations if the tolerable rate is ;",
the e#pected population deviation rate
is 4", and the allowance for sampling
ris* is )"?
&. Bodif' the planned assessed levelof control ris* because the tolerable
rate plus the allowance for sampling
ris* e#ceeds the e#pected population
deviation rate.
B. Acce*% %he s!)*le resul%s !s
su**or% &or %he *l!""e# !ssesse#
level o& co"%rol ris1 'ec!use %he
s!)*le #evi!%io" r!%e *lus %he
!llow!"ce &or s!)*li"( ris1
e8cee#s %he %oler!'le r!%e.
C. &ccept the sample results as
support for the planned assessed level
of control ris* because the tolerable
rate minus the allowance for sampling
ris* equals the e#pected population
deviation rate.
. Bodif' the planned assessed level
of control ris* because the sample
deviation rate plus the allowance for
sampling ris* e#ceeds the tolerable
rate.
For questions G)! and )1
&n auditor desired to test credit
approval on 1!,!!! sales invoices
processed during the 'ear. 5he auditor
designed a statistical sample that
would provide 1" ris* assessing
control ris* too low @@" con%dence$
that not more than ;" of the sales
invoices lac*ed approval. 5he auditor
estimated from previous e#perience
that about ) H " of the sales invoices
lac*ed approval. & sample of )!!
invoices was e#amined and seven of
them were lac*ing approval. 5he
auditor then determined the achieved
upper precision limit to be ".
)!. In the evaluation of this sample,
the auditor decided to increase the
level of the preliminar' assessment of
control ris* because the
A. Toler!'le r!%e 9;-< w!s less
%h!" %he !chieve# u**er *recisio"
li)i% 9=-
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)0. &nal'tical procedures performed in
the overall review stage of an audit
suggest that several account have
une#pected relationships. 5he results
of these procedures most li*el'
indicate that
&. 5he communication with the audit
committee should be revised.
(. Irregularities e#ist among the
relevant account balances.
C. A##i%io"!l su's%!"%ive %es% o&
#e%!ils !re re/uire#.
. Internal control activities are not
operating eectivel'.
)4. Which of the following events most
li*el' indicates the e#istence of related
parties?
A. 6!1i"( ! lo!" wi%hou%
sche#ule# %er)s &or *!0)e"% o&
%he &u"#s.
(. iscussing merger terms with a
compan' that is a ma3or competitor.
C. Selling real estate at a price that
diers signi%cantl' from its boo*value.
. (orrowing a large sum of mone' at
a variable rate of interest.
):. &fter determining that a related
part' transaction has, in fact,
occurred, an auditor should
A. O'%!i" !" u"#ers%!"#i"( o& %he
'usi"ess *ur*ose o& %he%r!"s!c%io".
(. Substantive that the transaction
was consummated on terms
equivalent to an arm-s9length
transaction.
C. &dd separate paragraph to the
auditor-s report to e#plain the
transaction.
. 7erform anal'tical procedure to
verif' whether similar transactions
occurred, but were not recorded.
);. Which of the following statements
best describes the Kdate of the
%nancial statements?L
&. 5he date on which those with the
recognied authorit' assert that the'
have prepared the entit'-s complete
set of %nancial statement, including
the related notes, and that the' haveta*en responsibilit' for them.
(. 5he date that the auditor-s report
and audited %nancial statements are
made available to third parties.
C. The #!%e o& %he e"# o& %he
l!%es% *erio# covere# '0 %he
4"!"ci!l s%!%e)e"%s which is
"or)!ll0 %he #!%e o& %he )os%
rece"% '!l!"ce shee% i" %he4"!"ci!l s%!%e)e"% su'ec% %o
!u#i%.
. 5he date on which the auditor has
obtained su+cient appropriate audit
evidence on which to base the opinion
on the %nancial statement.
). &fter issuing a report, an auditor
has no obligation to ma*e continuing
inquiries or perform other proceduresconcerning the audited %nancial
statements, unless
&. Final determinations or resolutions
are made of contingencies that had
been disclosed in the %nancial
statements.
(. Information about an event that
occurred after the date of the auditor-s
report comes to the auditor-sattention.
C. 5he control environment changes
after issuance of the report.
D. I"&or)!%io" which e8is%e# !%
%he re*or% #!%e !"# )!0 !2ec% %he
re*or% co)es %o %he !u#i%or3s
!%%e"%io".
)@. Which of the following statementsbest describes the auditor-s
responsibilit' concerning the
appropriateness of the going concern
assumption in the preparation of the
%nancial statements?
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&. 5he auditor-s responsibilit' is to
ma*e a speci%c assessment of the
entit'-s abilit' to continue as a going
concern.
(. 5he auditor-s responsibilit' is to
predict future events or conditions
that ma' cause the entit' to cease to
continue as going concern.
C. The !u#i%or3s res*o"si'ili%0 is
%o co"si#er %he !**ro*ri!%e"ess o&
)!"!(e)e"%3s use o& %he (oi"(
co"cer" !ssu)*%io" !"# co"si#er
whe%her %here !re )!%eri!l
u"cer%!i"%ies !'ou% %he e"%i%03s
!'ili%0 %o co"%i"ue !s ! (oi"(
co"cer" %h!% "ee# %o 'e #isclose#
i" %he 4"!"ci!l s%!%e)e"%s.
. 5he auditor-s responsibilit' is to
give a guarantee in the audit report
that the entit' has the abilit' to
continue as a going concern.
!. Which of the following conditions
or events most li*el' would cause an
auditor to have substantial doubt
about an entit'-s abilit' to continue as
a going concern?
A. C!sh @ows &ro) o*er!%i"(
!c%ivi%ies !re "e(!%ive.
(. Stoc* dividends replace annual cash
dividends.
C. Signi%cant related part'
transactions are pervasive.
. esearch and development pro3ects
are postponed.
1. Marold, C7&, believes there is
substantial doubt about the abilit' of
Nersamtan Co. to continue as a going
concern for a reasonable period of
time. In evaluating Nersamtan-s plans
for dealing with the adverse eects of
future conditions and events, Marold
most li*el' would consider, as a
mitigating factor, Nerssamtan-s plans
to
A. Pos%*o"e e8*e"#i%ures &or
rese!rch !"# #evelo*)e"%
*roec%s.
(. 7urchase production facilities
currentl' being leased from related
part'.
C. Strengthen internal controls over
cash disbursement.
. iscuss with lenders the terms of all
debt and loan agreements.
). When an audit is made in
accordance with generall' accepted
auditing standards, the auditor should
alwa's
&. Dbserve the ta*ing of ph'sical
inventor' on the balance sheet date.
B. O'%!i" cer%!i" wri%%e"
re*rese"%!%io"s &ro)
)!"!(e)e"%.
C. 2mplo' anal'tical procedures as
substantive test to obtain evidence
about assertions related to account
balances.
. ocument the understanding of the
client-s internal control and the basis
for all conclusions about the assessed
level of control ris* for %nancial
statement assertions.
. 5he date of the management
representation letter should coincide
with the date of the
&. (alance sheet
(. Oatest related part' transaction
C. Au#i%or3s re*or%
. Oatest interim %nancial information
0. Which of the following statements
concerning management
representations is incorrect?
A. Re*rese"%!%io"s '0
)!"!(e)e"% c!" 'e ! su's%i%u%e
&or o%her !u#i% evi#e"ce %h!% %he
!u#i%or coul# re!so"!'l0 e8*ec%
%o 'e !v!il!'le.
(. If the auditor is unable to obtain
su+cient appropriate audit evidence
regarding a matter, which has, or ma'
have, a material eect on the %nancial
statements and such audit evidence is
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e#pected to be availableP this will
constitute a limitation in the scope of
the audit, even if a representation
from management has been received
on the matter.
C. If a representation b' management
is contradicted b' other audit
evidence, the auditor shouldinvestigate the circumstances and,
when necessar', reconsider the
reliabilit' of other representations b'
management.
. 5he auditor-s wor*ing papers would
ordinaril' include a summar' of oral
discussions with management or
written representations from
management.
4. What t'pe of opinion should be
e#pressed if the client-s management
refuses to provide a representation
that the auditor considers necessar'?
A. u!li4e# o*i"io" or !
#iscl!i)er o& o*i"io".
(. 8uali%ed opinion or an adverse
opinion.
C. &dverse opinion or a disclaimer of
opinion.
. Enquali%ed opinion.
:. 5he primar' reason an auditor
request that letters of inquir' be sent
to a client-s attorne's is to provide the
auditor with
&. & description and evaluation of
litigation, claims, and assessment that
e#isted at the balance sheet date.
(. 5he attorne's- opinion of the
client-s historical e#periences in recent
similar litigation.
C. Corro'or!%io" o& %he
i"&or)!%io" &ur"ishe# '0
)!"!(e)e"% !'ou% li%i(!%io"
cl!i)s !"# !ssess)e"%s.
. 5he probable outcome of asserted
claims and pending or threatened
litigation.
;. 5he letter of audit inquir' should
be
&. 7repared and sent b' the auditor.
B. Pre*!re# '0 )!"!(e)e"% !"#
se"% '0 %he !u#i%or.
C. 7repared and sent b' management.
. 7repared b' the auditor and sent b'
the management.
. In which of the following
circumstances would an auditor most
li*el' meet with the client-s legal
counsel to discuss the li*el' outcome
of the litigation and claims?
I. 5he auditor determines that the
matter is a signi%cant ris*.
II. 5here is a disagreement between
management and the entit'-s legalcounsel.
III. 5he sub3ect matter of the litigation
is comple#.
&. I and II onl'(. II and III onl'C. I and III onl'D. I II !"# III
@.Which of the following statements
e#tracted from a client-s law'er-s
letter concerning litigation, claims, and
assessment most li*el' would cause
the auditor to request clari%cation?
A. I 'elieve %h!% %he !c%io" c!"
'e se%%le# &or less %h!" %he
#!)!(es cl!i)e#.
(.L I believe that the compan' will be
able to defend this action
successfull'.L
C.L I believe that the plainti-s case
against the compan' is without merit.L
.L I believe that the possible liabilit'
to the compan' is nominal in amount.L
0!. Financial statement of an entit'
that have been reviewed b' an
accountant should be accompanied b'
a report stating that a review
&. 7rovides onl' limited assurance that
the %nancial statement are fairl'
presented.
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D. A s%!%e)e"% %h!% %he
!ccou"%!"% #oes "o% e8*ress !"
o*i"io" 'u% *rovi#es o"l0
"e(!%ive !ssur!"ce o" %he
s%!%e)e"%s.
0:. Jiven one or more h'pothetical
assumptions, a responsible part' ma'
prepare, to the best of its *nowledgeand belief, an entit'-s e#pected
%nancial position, results of
operations, and cash
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A. 6!"!(e)e"% &r!u#.
(. 2mplo'ee fraud.
C. Fraudulent %nancial reporting.
. Bisappropriation of assets.
4. 5he auditor is concerned with the
fraud that causes a materialmisstatement in the %nancial
statements. 5here are two t'pes of
intentional misstatement that are
relevant to the auditorQ misstatement
resulting from fraudulent %nancial
reporting and misstatements resulting
from
&. Banagement fraud.
(. 2mplo'ee fraud.
C. 6is!**ro*ri!%io" o& !sse%s.
. Collusion within the entit' or with
third parties.
40. Fraudulent %nancial reporting
involves intentional misstatement
including omissions of amount or
disclosures in %nancial statements to
deceive %nancial statement users. Itma' be accomplished in a number of
wa's, including
&. 2mbeling receipts.
(. Stealing ph'sical assets or
intellectual propert'.
C. Esing an entit'-s assets for personal
use.
D. 6!"i*ul!%io" &!lsi4c!%io" or!l%er!%io" o& !ccou"%i"( recor#s
or su**or%i"( #ocu)e"%!%io" &ro)
which %he 4"!"ci!l s%!%e)e"%s !re
*re*!re#.
44. Which of the following statements
best describes an auditor-s
responsibilit' regarding
misstatements?
A. A" !u#i%or shoul# o'%!i"re!so"!'le !ssur!"ce %h!% %he
4"!"ci!l s%!%e)e"%s %!1e" !s !
whole !re &ree &ro) )!%eri!l
)iss%!%e)e"% whe%her c!use# '0
&r!u# or error.
(. &n auditor should obtain absolute
assurance that material
misstatements in the %nancial
statements will be detected.
C. &n auditor is responsible to detect
material errors but has no
responsibilit' to detect material fraud
that is concealed through emplo'eecollusion or management override of
internal control.
. &n auditor-s failure to detect a
material misstatement resulting from
fraud is an indication of non
compliance with the requirements of
the 7hilippine Standards on &uditing
7S&s$.
4:. When obtaining an understandingof the entit' and its environment,
including its internal control, the
auditor ma' identif' events or
conditions that indicate an incentive or
pressure to commit fraud or provide
an opportunit' to commit fraud. Such
events or conditions are referred to as
&. Fraud conditions.
B. Fr!u# ris1 &!c%ors.
C. Fraudulent activities.
. Fraud environment.
4;. 5he following are e#amples of
fraud ris* factors relating to
misstatement arising from
misappropriation of assets, e#cept
A. Recurri"( "e(!%ive c!sh @ows
&ro) o*er!%i"( !c%ivi%ies while
re*or%i"( e!r"i"(s !"# e!r"i"(s
(row%h.
(. Inadequate ph'sical safeguards
over cash, investments, inventor', or
%#ed assets.
C. Inadequate segregation of duties or
independent chec*s.
. &dverse relationship between theentit' and emplo'ees with access to
cash or other assets susceptible to
theft created b' recent changes made
to emplo'ee compensation or bene%t
plans.
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4. Dpportunities to misappropriate
assets increase when there are
&. 6nown or anticipated future
emplo'ee la'os.
(. 7romotions, compensation, or other
rewards inconsistent with
e#pectations.
C. ecent or anticipated changes to
emplo'ee compensation or bene%ts
plans.
D. I"ve"%or0 i%e)s %hose !re s)!ll
i" si5e or hi(h v!lue or i" hi(h
#e)!"#.
4@. Which of the following conditions
or events ma' create
incentives/pressures to commit fraud?
&. Inadequate s'stem of authoriation
and approval of transactions.
(. Oac* of mandator' vacations for
emplo'ees performing *e' control
functions.
C. E8cessive *ressure o"
)!"!(e)e"% or o*er!%i"(
*erso""el %o )ee% 4"!"ci!l%!r(e%s es%!'lishe# '0 %hose
ch!r(e# wi%h (over"!"ce
i"clu#i"( s!les or *ro4%!'ili%0
i"ce"%ive (o!ls.
. Inadequate access controls over
automated records.
:!. When planning the audit, the
auditor should ma*e inquiries of
management. Such inquiries shouldaddress the following, e#cept
&. Banagement-s assessment of the
ris* that the %nancial statements ma'
be misstated due to fraud.
(. Banagement-s process for
identif'ing and responding to the ris*
of fraud in the entit'.
C. 6!"!(e)e"%3s co"si#er!%io" o&how !" ele)e"% o&
u"*re#ic%!'ili%0 will 'e
i"cor*or!%e# i"%o %he "!%ure
%i)i"( !"# e8%e"% o& %he !u#i%
*roce#ures %o 'e *er&or)e#.
. Banagement-s communication, if
an', to those charged with governance
regarding its processes for identif'ing
and responding to the ris* of fraud in
the entit'.
:1. When the auditor identi%es
misstatement in the %nancial
statements, the auditor shouldconsider whether such a misstatement
ma' be indicative of fraud and if there
is such an indication, the auditor
should
A. Co"si#er %he i)*lic!%io"s o& %he
)iss%!%e)e"% i" rel!%io" %o o%her
!s*ec%s o& !u#i%.
(. Withdraw from the engagement.
C. Communicate the information to
regulator' and enforcement
authorities.
. eport the matter to the person or
persons who made the audit
appointment.
:). 5he following statements relate to
communication of misstatements
resulting from fraud to managementand to those charged with
governance. Which is false?
A. The !u#i%or "ee# "o% 'ri"( %o
%he !%%e"%io" o& %hose ch!r(e#
wi%h (over"!"ce !"0 )!%eri!l
we!1"esses i" i"%er"!l co"%rol
rel!%e# %o %he *reve"%io" !"#
#e%ec%io" o& &r!u#.
(. If the auditor has identi%ed fraud,whether or not it results in a material
misstatement in the %nancial
statements, the auditor should
communicate these matters to the
appropriate level of management on a
timel' basis, and consider the needs
to report such matter to those charged
with governance.
C. If the auditor has obtained evidence
that indicates that fraud ma' be e#isteven if the potential eect on the
%nancial statements would not be
material$, the auditor should
communicate these matters to the
appropriate level of management on a
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timel' basis, and consider the need to
report such matters to those charged
with governance.
. 5he auditor-s communication with
those charged with governance ma'
be made orall' or in writing.
:. &s used in 7S& )4! Considerationof Oaws and egulations in an &udit
Financial Statements$, this term refers
to acts of omission or commissions b'
the entit' being audited, either
intentional or unintentional, which are
contrar' to prevailing laws or
regulations.
A. No"co)*li!"ce
(. Illegal acts
C. 2rotic acts
. Enforgivable acts
:0. 7S& )4! states that in order to
plan to audit, the auditor should
obtain a general understanding of the
legal and regulator' framewor*
applicable to the entit' and the
industr' and how the entit' is
compl'ing with that framewor*. 5o
obtain this understanding, the
following procedures would ordinaril'
be considered b' the auditor, e#cept
&. Ese the e#isting understanding of
the entit'-s industr', regulator', and
other e#ternal factors.
(. Inquire of management concerning
the entit'-s policies and procedures
regarding compliance with law and
regulations.
C. Inquire management as to the law
and regulations that ma' be e#pected
to have a fundamental eect on the
operations of the entit'.
D. I"s*ec% corres*o"#e"ce wi%h
relev!"% lice"si"( or re(ul!%or0
!u%hori%ies.
:4. If the auditor concludes that the
noncompliance has a material eect
on the %nancial statements, and has
not been properl' re
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:. Which of the following statements
relating to the communication of audit
matters of governance interest is
incorrect?
&. &udit matters of governance
interest include onl' those matters
that have come to the attention of the
auditor as a result of the performanceof the audit.
B. I" !" !u#i% !ccor#!"ce wi%h
PSAs %he !u#i%or shoul# #esi("
!u#i% *roce#ures &or %he s*eci4c
*ur*ose o& i#e"%i&0i"( )!%%ers o&
(over"!"ce i"%eres%.
C. 5he auditor should identif' relevant
persons who are charged with
governance and with whom auditmatters of governance interest are to
be communicated.
. 5he auditor-s communication with
those charged with governance ma'
be made orall' or in writing.
:@. &udit matters of governance
interest to be communicated to those
charged with governance ordinaril'
include
&. &udit ad3ustments, whether or not
recorded b' the entit' that have, or
could have, a material eect on its
%nancial statements.
(. 2#pected modi%cations to the
auditor-s report.
C. Baterial uncertainties related to
events and conditions that ma' cast
signi%cant doubt on the entit'-s abilit'
to continue as a going concern.
D. All o& %he !'ove.
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