CPA REVIEW SCHOOL OF THE PHILIPPINESM a n i l a AUDITING THEORY PROFESSIONAL AND LEGAL RESPONSIBILITIES Show
Related PSAs : PSA 240rev, 250 and 260 PSA 240(rev) – The Auditor’s Responsibility to Consider Fraud and Error in the Audit of FS
a. The auditor. c. The management of an entity.b. Those charged with governance. d. Both b and c.
a. Auditors make legal determinations of whether fraud has actually occurred.b. Misstatement of the financial statements may not be the objective of some frauds.c. Fraud involving one or more members of management or those charged with governance isreferred to as “employee fraud”. d. Fraud involving only employees of the entity is referred to as “management fraud”.
a. Deception such as manipulation, falsification, or alteration of accounting records orsupporting documents from which the financial statements are prepared. b. Misrepresentation in, or intentional omission from, the financial statements of events,transactions or other significant information. c. Intentional misapplication of accounting principles relating to measurement, recognition,classification, presentation, or disclosure. d. Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay forgoods and services not received.
a. Individuals are living beyond their means.b. Management is under pressure, from sources outside or inside the entity, to achieve anexpected (and perhaps unrealistic) earnings target. c. An individual believes internal control could be circumvented because the individual is in aposition of trust or has knowledge of specific weaknesses in the internal control system. d. All of the above.
a. The auditor is not and cannot be held responsible for the prevention of fraud and error.b. In planning the audit, the auditor should discuss with other members of the audit team thesusceptibility of the entity to material misstatements in the financial statements resulting from fraud or error. c. The auditor should design test of controls to reduce to an acceptably low level the risk thatmisstatements resulting from fraud and error that are material to the financial statements taken as a whole will not be detected. d. When the auditor encounters circumstances that may indicate that there is a materialmisstatement in the financial statements resulting from fraud or error, the auditor should perform procedures to determine whether the financial statements are materially misstated.
a. The effect of fraudulent act is likely omitted in the accounting records.b. Fraud is ordinarily accompanied by acts specifically designed to conceal its existence.c. Fraud is always a result of connivance between or among employees.d. The auditor is responsible to detect errors but not fraud.
a. There is a strained relationship between management and the current or predecessorauditor. b. Inability to generate cash flows from operations while reporting earnings and earningsgrowth. c. Significant related party transactions which are not in the ordinary course of business.d. Significant, unusual or highly complex transactions (especially those close to year-end) thatpose difficult questions concerning substance over form.
a. Large amounts of cash on hand or processed.b. Inventory characteristics, such as small size combined with high value and high demand.c. Easily convertible assets, such as bearer bonds, diamonds or computer chips.d. Lack of appropriate management oversight.
a. The application of professional skepticism may include increased sensitivity in the selectionof the nature and extent of documentation to be examined in support of material transactions. b. The knowledge, skill and ability of members of the audit team assigned significant auditresponsibilities need to be commensurate with the auditor’s assessment of the level of risk for the engagement. c. The auditor may decide to consider further management’s selection and application ofsignificant accounting policies, particularly those related to revenue recognition, asset valuation or capitalizing versus expensing. d. The auditor’s ability to assess control risk at high level may be reduced.
a. The nature of audit procedures performed may need to be changed to obtain evidence thatis more reliable or to obtain additional corroborative information. b. The timing of substantive procedures may need to be altered to be closer to, or at, year-end.c. The extent of the procedures applied will need to reflect the assessment of the risk ofmaterial misstatement resulting from fraud. d. All of the above.
a. Unrealistic time deadlines for audit completion imposed by management.b. Conflicting or unsatisfactory evidence provided by management or employees.c. Information provided unwillingly or after unreasonable delay.d. Transactions recorded in accordance with management’s general or specific authorization.
a. Management engages in frank communication with appropriate third parties, such asregulators and bankers. b. Evidence of an unduly lavish lifestyle by officers or employees.c. Conservative application of accounting principles.d. Minimal differences from expectations disclosed by analytical procedures.
a. Fraud risk factors identified as being present during the auditor’s assessment process.b. The auditor’s response to fraud risk factors identified.c. Both a and b.d. Neither a nor b.
a. Acknowledges its responsibility for the implementation and operations of accounting andinternal control systems that are designed to prevent and detect fraud and error. b. Believes the effects of those uncorrected financial statement misstatements aggregated bythe auditor during the audit are material, both individually and in the aggregate, to the financial statements taken as a whole. c. Has disclosed to the auditor all significant facts relating to any frauds or suspected fraudsknown to management that may have affected the entity. d. Has disclosed to the auditor the results of its assessment of the risk that the financialstatements may be materially misstated as a result of fraud.
a. At least equal to the level of the persons who appear to be involved with the misstatement orsuspected fraud. b. At least one level above the persons who appear to be involved with the misstatement orsuspected fraud. c. The audit committee of the board of directors.d. The head of internal audit department.
a. The entity does not take the remedial action regarding fraud that the auditor considersnecessary in the circumstances, even when the fraud is not material to the financial statements. b. The auditor’s consideration of the risk of material misstatement resulting from fraud and theresults of audit tests indicate a significant risk of material and pervasive fraud. c. The auditor has significant concern about the competence or integrity of management orthose charged with governance. d. All of the above.PSA 250 – Consideration of Laws and Regulations in an Audit of Financial Statements
c. The determination as to whether a particular act constitutes or is likely to constitute noncompliance is generally based on the understanding of the auditor but ultimately can only be determined by an expert who is qualified to practice law. d. In order to plan the audit, the auditor should obtain a general understanding of the legal and regulatory framework applicable to the entity and the industry and how the entity is complying with the framework.
PSA 260 – Communications of Audit Matters with Those Charged with Governance
Other Professional Responsibilities
c. Provide the CPA with evidence and documentation which may be helpful in the event of a lawsuit. d. Establish a continuity of relationship with the client whereby indiscriminate replacement of CPAs is discouraged.
- end of AT-5904 - Who is responsible for the prevention and detection of nonThe auditor's responsibility regarding mis- statements resulting from noncompliance with laws and regulations having a direct effect on the determination of material amounts and disclosures in the financial statements is the same as that for misstatements caused by fraud or error, as described in section 200.
Who is responsible for the prevention and detection of material misstatements in the financial statements?12 As indicated in paragraph . 01, the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error.
What is basically responsible for prevention and detection of errors and frauds?Responsibility of Management
According to Standards on Auditing (SAs) the primary responsibility for the prevention and detection of fraud rests with the Management and Those Charged with the Governance (governing body).
What is the duty of the auditor in case of nonThe auditor must also consider whether the non-compliance has a material effect on the financial statements and, in turn, the impact the non-compliance will have on their report.
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