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d. identify the details of the internal control system. 20.
c Which of the following is the auditor least likely to do when aware of an illegal act?
a. Discuss the matter with the client’s legal counsel.
b. Obtain evidence about the potential effect of the illegal act on the financial statements.
c. Contact the local law enforcement officials regarding potential criminal wrongdoing.
d. Consider the impact of the illegal act on the relationship with the company’s management. 21.
c The auditor gives an audit opinion on the fair presentation of the financial statements and
associates his or her name with it when, on the basis of adequate evidence, the auditor
concludes that the financial statements are unlikely to mislead:
c. a prudent user.
d. the reader. 22.
b The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to:
a. the auditor.
c. both management and the auditor equally.
d. management for the statements and the auditor for the notes. 23.
a When engaged to audit the financial statements, it is acceptable for the auditor to draft:
a The client’s financial statements
No The footnotes to the client’s financial statements
Yes The auditor has considerable responsibility for notifying users as to whether or not the
statements are properly stated. This imposes upon the auditor a duty to:
a. provide reasonable assurance that material misstatements will be detected.
b. be a guarantor of the fairness in the statements. 1-93 c.
d. be equally responsible with management for the preparation of the financial statements.
be an insurer of the fairness in the statements. 25.
b “The auditor should not assume that management is dishonest, but the possibility of dishonesty
must be considered.” This is an example of:
a. unprofessional behavior.
b. an attitude of professional skepticism.
c. due diligence.
d. a rule in the AICPA’s Code of Professional Conduct. 26.
d If the auditor were responsible for making certain that all of management’s assertions in the
financial statements were absolutely correct:
a. bankruptcies could no longer occur.
b. bankruptcies would be reduced to a very small number.
c. audits would be much easier to complete.
d. audits would not be economically feasible. 27.
d The auditor’s best defense when existing material misstatements in the financial statements are
not uncovered in the audit is:
a. the audit was conducted in accordance with generally accepted accounting principles.
b. the financial statements are the client’s responsibility.
c. the client is guilty of contributory negligence.
d. the client is guilty of fraudulent misrepresentation. 28.
a Fraudulent financial reporting is often called:
a. management fraud.
b. theft of assets.
d. embezzlement. 29.
c Which of the following statements is usually true?
a. It is easier for the auditor to uncover fraud than errors.
b. It is easier for the auditor to uncover indirect-effect illegal acts than fraud.
c. The auditor’s responsibility for detecting direct-effect illegal acts is similar to the
responsibility to detect fraud.
d. The auditor’s responsibility for detecting indirect-effect illegal acts is similar to the
responsibility to detect fraud. 30.
c Auditing standards make _____ distinction(s) between the auditor’s responsibilities for
searching for errors and fraud.
b. a significant
d. various 31.
b In comparing management fraud with employee fraud, the auditor’s risk of failing to discover
the fraud is:
a. greater for management fraud because managers are inherently more deceptive than
b. greater for management fraud because of management’s ability to override existing
c. greater for employee fraud because of the higher crime rate among blue collar workers.
d. greater for employee fraud because of the larger number of employees in the organization. 32.
a Which of the following statements is correct with respect to the auditor’s responsibilities
relative to the detection of indirect-effect illegal acts?
a. The auditor has no responsibility for searching for indirect-effect illegal acts. 1-94 b.
d. The auditor has the same responsibility for searching for indirect-effect illegal acts as any
other potential misstatement that may occur.
Auditors have responsibility for searching for any illegal act, whether direct-effect or
Discovery of indirect-effect illegal acts is usually easier than discovery of fraud. 33.
c When comparing the auditor’s responsibility for detecting employee fraud and for detecting
errors, the profession has placed the responsibility:
a. more on discovering errors than employee fraud.
b. more on discovering employee fraud than errors.
c. equally on discovering either one.
d. on the senior auditor for detecting errors and on the manager for dete...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.
- Fall '13