auditing theory no. 1 guide to understanding auditing

8/9/2019 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



12/13

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


13/13

:. 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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