A generally the auditor is under no obligation to

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Unformatted text preview: sible for the failure to detect fraud only when an unqualified opinion is issued. 61. medium b The essence of the attest function is to: a. assure the consistent application of correct accounting procedures. b. determine whether the client’s financial statements are fairly stated. c. examine individual transactions so that the auditor may certify as to their validity. d. detect collusion and fraud. 62. medium a The primary difference between an audit of the balance sheet and an audit of the income statement is that the audit of the income statement deals with the verification of: a. transactions. b. authorizations. c. costs. d. cutoffs. 63. The auditor’s evaluation of the likelihood of material employee fraud is normally done initially 1-98 challenging c as a part of: a. tests of controls. b. tests of transactions. c. understanding the entity’s internal control. d. the assessment of whether to accept the audit engagement. 64. challenging c When using the cycle approach to segmenting the audit, the reason for treating capital acquisition and repayment separately from the acquisition of goods and services is that: a. the transactions are related to financing a company rather than to its operations. b. most capital acquisition and repayment cycle accounts involve few transactions, but each is often highly material and therefore should be audited extensively. c. both a and b are correct. d. neither a nor b is correct. 65. challenging c Illegal acts are defined in SAS 54 (AU217) as: a. violations of laws or government regulations. b. violations of laws or government regulations other than errors. c. violations of laws or government regulations other than fraud. d. violations of law which would result in the arrest of the perpetrator. 66. challenging b Most illegal acts affect the financial statements: a. directly. b. only indirectly. c. both directly and indirectly. d. materially if direct; immaterially if indirect. 67. challenging a With respect to the detection of illegal acts, auditing standards state that the auditor provides: a. no assurance that they will be detected. b. the same reasonable assurance provided for other items. c. assurance that they will be detected, if material. d. assurance that they will be detected, if highly material. 68. challenging d In describing the cycle approach to segmenting an audit, which of the following statements is not true? a. All general ledger accounts and journals are included at least once. b. Some journals and general ledger accounts are included in more than one cycle. c. The “capital acquisition and repayment” cycle is closely related to the “acquisition of goods and services and payment” cycle. d. The “inventory and warehousing” cycle may be audited at any time during the engagement since it is unrelated to the other cycles. 69. challenging c Which of the following journals would be included most often in the various audit cycles? a. Cash receipts journal. b. Cash disbursements journal. c. General journal. d. Sales journal. 70. challenging d Transaction cycles begin and end: a. at the beginning and end of the fiscal period. b. each start of the annual audit. c. at January 1 and December 31. d. at the origin and final disposition of the company. 71. challenging a After general audit objectives are understood, specific audit objectives for each account balance on the financial statements can be developed. Which of the following statements is true? a. There should be at least one specific objective for each relevant general objective. b. There will be only one specific objective for each relevant general objective. 1-99 c. d. 72. challenging a There will be many specific objectives developed for each relevant general objective. There must be one specific objective for each general objective. An auditor should recognize that the application of auditing procedures may produce evidence indicating the possibility of errors or fraud and therefore should: a. plan and perform the engagement with an attitude of professional skepticism. b. not rely on internal controls that are designed to prevent or detect errors or fraud. c. design audit tests to detect unrecorded transactions. d. extend the work to audit most recorded transactions and records of an entity. Essay Questions 73. easy Discuss the differences between errors, frauds, and illegal acts. Give an example of each. Answer: The primary difference between errors and frauds is that errors are unintentional misstatements of the financial statements, whereas frauds are intentional misstatements. Illegal acts are violations of laws or government regulations, other than frauds. An example of an error is a mathematical mistake when footing the columns in the sales journal. An example of a fraud is the creation of fictitious accounts receivable. An example of an illegal act is the dumping of toxic waste in violation of the federal environmental protection laws. 1-100 74. medium Discuss the actions an auditor should take when the auditor discovers an illegal act. Answe...
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