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Exam 5: Fraud in Financial Statements and Auditor Responsibilities

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Question 41

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Which of the following is not correct about materiality?

A) The concept of materiality recognizes that some matters are more important for fair presentation of financial statements
B) Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments
C) Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality
D) An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements

E) None of the above
F) B) and C)

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Question 42

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Why is materiality one of the most difficult judgments to make in auditing financial statements?

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Materiality underlies financial statemen...

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Question 43

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Audit documentation is critical to evidence gathering because:

Which of the following is NOT addressed in the Diamond Foods case?

In which of the following circumstances would a qualified opinion be appropriate?

Identify the deficiencies in the following audit report of the AICPA.Explain why each item is a deficiency. Report of the Independent Registered Public Accounting Firm To the Board of Directors and Stockholders,XYZ Company We have audited the accompanying consolidated financial statements of XYZ Company and its subsidiaries,which comprise the consolidated balance sheets as of December 31,2015 and 2014,and the related consolidated statements of income,changes in stockholders' equity,and cash flows for the years then ended,and the related notes to the financial statements.These statements are the responsibility of the Company's management.Our responsibility is to express an opinion on these financial statements based on our audits. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design,implementation,and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.The procedures selected depend on the management's judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal controls relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by during the audit,as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion,the consolidated financial statements referred to above present fairly,in all material respects,the financial position of XYZ Company and its subsidiaries as of December 31,2013,and 2012,and the results of its operations and its cash flows for the years then ended in accordance with auditing standards of the Public Company Accounting Oversight Board. Optional Paragraph Report on Other Legal and Regulatory Requirements [Auditor's signature] [Auditor's city and state]

Which of the following is NOT something external auditors are expected to do in looking for fraud?

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed.The auditor is most likely to withdraw from the engagement when the:

In the ZZZZ best case,Barry Minkow was charged with:

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections?

The best explanation why the fraud at Tyco was not discovered and acted on is:

The primary accounting issue in the Royal Ahold case is:

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:

Which of the following is NOT a pressure that might lead to fraud?

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when:

Which of the following elements were NOT part of the fraud at Tyco?

Internal controls,an internal audit function,and an audit committee are all elements of a strong corporate governance system.How should an external auditor evaluate these elements in making a risk assessment? What are the ethical signs that each system is operating as intended?

The case which deals with assigning a quality review partner to an audit is:

Which of the following is NOT an element of the auditor's responsibility of the AICPA's auditor's report?

Misstatements in the financial statements are most likely to occur when there are: