Fraud vs Error
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CPA Auditing and Attestation (AUD) › Fraud vs Error
Misstatements discovered by an auditor were immaterial in the aggregate in prior years. Such misstatements should be:
Removed from the prior year summary because they were immaterial
Retested during the current year test of controls
Considered in the current year evaluation of audit findings
Disclosed by the current year client’s financial statements
Explanation
Misstatements discovered by an auditor were immaterial in the aggregate in prior years. Such misstatements should be considered in the current year evaluation of audit findings.
Which of the following groups within an entity is typically in the best position to perpetrate a material fraud?
Directors
Customers
Management
Entry level personnel
Explanation
Management is typically in the best position to perpetrate a material fraud because management can override controls to manipulate accounting records and prepare fraudulent financial statements.
According to PCAOB standards which one of the following statements does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement or error?
The dollar amount of the error
The cost of the correction
The effects of misclassification
The significance of the misstatement
Explanation
The dollar amount of the error does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement or error.
An employee at a company being audited may be more likely to commit fraud if he or she feels which of the following?
Opportunity
Pressure
Rationalization
All of the answer choices are correct
Explanation
These three factors in the fraud environment are the key components of the reasons someone would commit fraud.
Of the following, which best characterizes the auditor's exercise of professional skepticism?
Taking past relationships and experiences with management into account
Having a questioning mind and attitude
Conducting all fraud-related inquiries in a respectful manner
Obtaining adequate evidence in support of the fairness of financial statements
Explanation
Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence.
Prior to or during the information gathering procedures for an audit, team members should discuss the potential for material misstatement dur to fraud. Of the following, which best characterizes the mind set that the audit team should maintain during this discussion?
Judgemental
Criticizing
Questioning
Presumptive
Explanation
During an audit, the CPA should maintain an attitude of professional skepticism which includes a questioning mind and a critical assessment of audit evidence.