FEU - Makati

Auditing Theory AT – Quizzer 5

Prof. Francis H. Villamin
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Consideration of Fraud in an Audit of FS

1. Fraud include all of the following except:

a. recording of transactions without substance
b. suppression or omission of the effects of transactions from records or documents
c. mathematical or clerical mistakes in the underlying records and accounting data.
d. misappropriation of assets

2. Error include all of the following except:

a. misapplication of accounting policies
b. manipulation, falsification or alteration of records and documents.
c. mathematical or clerical mistakes in the underlying records and accounting data
d. oversight of accounting policies
st
3. 1 statement – The responsibility for the prevention and detection of fraud and error rests with the
auditor through implementation of accounting and internal control systems.
nd
2 statement – The accounting and internal control systems eliminate the possibility of fraud and
error.
st nd
a. 1 statement is True ; 2 statement is False
st nd
b. 1 statement is False ; 2 statement is True
c. Both statements are True
d. Both statements are False
st
4. 1 statement – The auditor is not and cannot be held responsible for the prevention of fraud and
error.
nd
2 statement – Annual audits may be carried out which may not; however, act as deterrent.
st nd
a. 1 statement is True ; 2 statement is False
st nd
b. 1 statement is False ; 2 statement is True
c. Both statements are True
d. Both statements are False

5. Under PSA 240, which of the following would be classified as an error?

a. Misappropriation of assets for the benefit of management.
b. Misinterpretation by management of facts that existed when the financial statements
were prepared.
c. Preparation of records by employees to cover a fraudulent scheme.
d. Intentional omission of the recording of a transaction to benefit a third party.

6. The types of intentional misstatements that are relevant to the auditor’s consideration of fraud
include
I. Misstatements resulting from fraudulent financial reporting
II. Misstatements resulting from misappropriation of assets.
a. I and II
b. I only
c. II only
d. Neither I nor II

7. The primary responsibility for the prevention and diction of fraud and error rests with
a. the auditor
b. those charged with governance
c. the management of the entity
d. both b and c

8. According to PSA 250, “Consideration of Laws and Regulations in an Audit of Financial

Statements”, the following are indications that noncompliance may have occurred, except
a. Investigation by government departments or payment of fines or penalties.
b. Management is dominated by one person or a small group and there is no effective
oversight board or committee.
c. Unauthorized transactions or improperly recorded transactions.
d. Purchasing at prices significantly above or below market price.
AT Quizzer 5 Consideration of Fraud in Audit of FS 2

9. This refers to acts of omission or commission by the entity being audited, either intentional or
unintentional which are contrary to the prevailing laws and regulations.
a. Error
b. Fraud
c. Noncompliance
d. Defalcation

10. An auditor who discovers that client employees have committed an illegal act that has a material
effect on the client’s financial statements, most likely would withdraw from the engagement if
a. The illegal act is a violation of generally accepted accounting principles.
b. The client does not take the remedial action that the auditor considers necessary.
c. The illegal act was committed during a prior year that was not audited.
d. The auditor has already assessed control risk at the maximum level.

11. Which of the following statements concerning illegal acts by clients is correct?
a. An auditor’s responsibility to detect illegal acts that have a direct and material effect on
the financial statements is the same as that for errors and irregularities.
b. An audit in accordance with generally accepted auditing standards normally includes
audit procedures specifically designed to detect illegal acts that have an indirect but
material effect on the financial statements.
c. An auditor considers illegal acts from the perspective of the reliability of management’s
representation rather than their relation to audit objectives derived from financial
statement assertions.
d. An auditor has no responsibility to detect illegal acts by clients that have an indirect effect
on the financial statements.

12. Which of the following is least likely a category of fraud risk factors that relate to misstatements,
resulting from fraudulent financial reporting?
a. Management’s characteristics and influence over the control environment.
b. Industry conditions
c. Operating characteristics and financial stability
d. Susceptibility of assets to misappropriation

13. In comparing management fraud with employee fraud, the auditor’s risk of failing to discover the
fraud is
a. Greater for employee fraud because of the higher crime rate among blue collar workers.
b. Greater for management fraud because of management’s ability to override existing
internal controls.
c. Greater for employee fraud because of the larger number of employees in the
organization.
d. Greater for management fraud because managers are inherently smarter than
employees.

14. Whether the auditor has performed an audit in accordance with PSA is determined by
a. The adequacy of the audit procedures performed in the circumstances and the suitability
of the auditor’s report based on the result of these procedures.
b. The absence of material misstatements
c. The absence of material errors
d. The Securities and Exchange Commission
st
15. 1 Statement – The auditor should communicate audit matters of governance interest arising
from the audit of financial statements with those charged with governance of an entity.
nd
2 statement – The auditor should determine the relevant persons who are charged with
governance and with whom audit matters of governance interest are not
st nd
communicated. a. 1 statement is True ; 2 statement is False
st nd
b. 1 statement is False ; 2 statement is True
c. Both statements are True
d. Both statements are False

16. Under PSA 260, “Communications of Audit Matters With Those Charged with Governance”, the
effectiveness of communications is enhanced by developing a constructive working relationship
between the auditor and those charged with governance. This relationship is developed while
maintaining an attitude of
a. professional independence and objectivity
b. loyalty and objectivity
c. professional independence and confidentiality
d. objectivity and confidentiality
AT Quizzer 5 Consideration of Fraud in Audit of FS 3

17. The auditor’s communication with those charged with governance may be made orally or in
writing. The auditor’s decision whether to communicate orally or in writing is affected by factors
except:
a. The nature, sensitivity and significance of the audit matters of governance interest to be
communicated.
b. The arrangements made with respect to periodic meetings or reporting of audit matters of
governance interest.
c. The size, operating structure, legal structure and communications processes of the entity
being audited.
d. The amount of past contact and dialogue the auditor has with those charged with
governance.

Other References

18. Which of the following best describes what is meant by the term “fraud risk factor”?
a. Factors whose presence indicates that the risk of fraud is high.
b. Factors whose presence often has been observed in circumstances where frauds have
occurred.
c. Factors whose presence requires modifications of planned audit procedures.
d. Reportable conditions identified during audit.

19. When conducting an audit, errors that arouse suspicion of fraud should be given greater attention
than other errors. This is an example of applying the criterion of
a. reliability of evidence
b. materiality
c. risk
d. dual-purpose testing

20. Which of the following is correct concerning the required documentation in the working papers of
the performance of the assessment of the risk of material misstatements due to fraud?
a. All risk factors considered should be documented and the response to each documented.
b. Those risk factors identified and the auditor’s response to them should be documented.
c. The major categories of risk factors must be identified, but the particular responses to risk
factors identified need not be documented.
d. No specific documentation is required.

21. If there is fraud involving the collusion of several employees that includes the falsification of
documents, the chance that such a fraud would be uncovered in a normal audit is
a. zero
b. unlikely
c. 50 – 50
d. very high

22. When the auditor’s regular examination leading to an opinion on the financial statement discloses
specific circumstances that make him suspect that fraud may exist and he concludes that the
results of such fraud, if any, could not be so material as to affect his opinion, he should
a. make a note in his working papers of the possibility of a fraud of immaterial amount so as
to pursue the matter next year.
b. reach an understanding with the client as to whether the auditor or the client, subject to
auditor’s review, is to make the investigation necessary to determine whether fraud has
occurred and, if so, the amount thereof.
c. refer the matter to the appropriate representatives of the clients with the
recommendations that is to be pursued to a conclusion.
d. immediately extend his audit procedures to determine if fraud has occurred and, if so, the
amount thereof.

23. In the regular audit of ABC Company, Mr. X, CPA, discovered a material fraud being perpetrated
by the cashier. What do you expect most of Mr. X to do?
a. Report the incident to the Securities and Exchange Commission.
b. Communicate the existence and details of the fraud to the audit committee of the board
of directors and to at least one managerial level higher than the position occupied by the
fraudster.
c. Advise the shareholders of the client enterprise regarding the fraud.
d. Make an extensive investigation as well as examination in order to account the extent of
the fraud.

24. What differentiates fraud from an error?

a. Materiality
b. Intent
c. Effect on financial statements
d. Frequency of occurrence
AT Quizzer 5 Consideration of Fraud in Audit of FS 4

25. Which of the following acts are considered fraud?

I.Changing of records and documents
II. Misinterpretation of facts.
III. Misappropriation of assets

V. Clerical mistakes
a. III only
b. I and II only
c. I, III and IV only
d. I, II, III, IV and V

26. While performing tax services for a new client, the CPA discovered a material error in a previously
filed tax return prepared by another CPA. In such case, he should:
a. Prepare an affidavit with respect to the error.
b. Recommend compensating for the prior year’s error in the current year’s tax return where
such action will mitigate the client’s cost and inconvenience.
c. Advise the client to file a corrected return regardless of whether or not the error resulted
in an overstatement of tax.
d. Inform the BIR of the error.

27. Which of the following characteristics most likely would heighten an auditor’s concern about risk
of intentional manipulation of financial statements?
a. Turnover of senior accounting personnel is low.
b. Insiders recently purchased additional shares of the entity’s stock.
c. Management places substantial emphasis on meeting earnings projections.
d. The rate of change in the entity’s industry is slow.

28. The regular examination of financial statements is not primarily designed to disclose fraud and
other irregularities although their discovery may result. Normal audit procedures are more likely to
detect a fraud arising from:
a. Forgeries on company checks.
b. Failure to record cash receipts for services rendered.
c. Theft of inventories
d. Collusion on the part of several employees.

29. The auditor, in his plan for an examination in accordance with generally accepted auditing
standards, being influenced by the possibility of material errors will therefore conduct the
examination with an attitude of
a. professional skepticism
b. subjective mistrust
c. objective indifference
d. professional responsiveness
30. An error in which an item is posted to the wrong personal account, or the incorrect calculation of
an amount constituting an original entry is an
a. error of omission
b. error of commission
c. error of principle
d. counter-balancing error

31. A kind of fraud committed by making entry of fictitious payments or failure to enter receipts is
a. misappropriation of goods
b. misappropriation of cash
c. falsification of accounts
d. lapping
32. The practice of withholding receipts from customer(s) of one date and giving the customer(s)
credit at a later date out of cash received from customer is known as:
a. lapping
b. kiting
c. payroll padding
d. window dressing

33. Coverage of shortage in one bank account by means of an unrecorded check drawn on another
bank account is known as:
a. lapping
b. kiting
c. reconciling
d. adjusting

34. It is any illegal misappropriation of bank accounts. Thus, a teller who pockets a portion of his
receipts with intent to defraud the bank for the day is guilty of
a. kiting on bank funds
b. embezzlement
c. abstraction of bank funds
d. lapping of bank funds
AT Quizzer 5 Consideration of Fraud in Audit of FS 5

35. When an independent auditor’s examination of financial statements discloses special

circumstances that make the auditor suspect that material errors and irregularities may exist, the
auditor’s initial course of action should be to
a. Recommend that the client pursue the suspected fraud to a conclusion that is agreeable
to the auditor.
b. Extend normal audit procedures in an attempt to detect the full extent of the suspected
fraud.
c. Reach an understanding with the proper client representative as to whether the auditor or
client is to make the investigation necessary to determine if a fraud has in fact occurred.
d. Decide whether the fraud, if in fact it should exist, might be of such a magnitude as to
affect the auditor’s report on the financial statements.

36. Which of the following most accurately summarizes what is meant by the term “material
misstatement”?
a. Fraud and direct-effect illegal acts
b. Fraud involving senior management and material fraud.
c. Material error, material fraud and certain illegal acts.
d. Material error and material illegal acts.

37. Which of the following illegal acts should an audit be designed to obtain reasonable assurance for
detecting?
a. Securities purchased by relatives of management based on knowledge of inside
information.
b. Accrual and billing of an improper amount of revenue under government contracts.
c. Violations of anti trust laws.
d. Price fixing

38. The most likely explanation why the auditor’s examination cannot reasonably be expected to
bring all illegal acts by the client to the auditor’s attention is that
a. Illegal acts are perpetrated by management override of internal control.
b. Illegal acts by clients often relate to operating aspects rather than accounting aspects.
c. The client’s internal control may be so strong that the auditor performs only minimal
substantive testing.
d. Illegal acts may be perpetrated by the only person in the client’s organization with access
to both assets and the accounting records.

39. What assurance does the auditor provide that errors, irregularities and direct effect illegal acts
that are material to the financial statements will be detected?

Direct Effect Illegal

Errors Irregularities Acts
a.. Limited Negative Limited

b. Limited Limited Reasonable

c. Reasonable Limited Limited
d. Reasonable Reasonable Reasonable

40. Which of the following is not an example of fraud?

a. Entity personnel falsify accounting records.
b. Entity personnel make mistakes in the application of accounting principles.
c. Entity personnel intentionally omit transactions.
d. Entity personnel intentionally misapply accounting principles.

41. Which of the following statements is true?

a. The auditor’s responsibilities to detect errors and fraud in client’s financial statements are
basically the same.
b. The auditor has a greater responsibility to detect errors in client’s financial statements
than to detect fraud in client’s financial statements.
c. The auditor has responsibility to detect errors in client’s financial statements but no
responsibility to detect fraud.
d. The auditor has responsibility to detect fraud in client’s financial statements but no
responsibility to detect errors.

42. Which of the following statements is true?

a. Errors in the financial statements can be ignored because they are intentional.
b. Errors in the financial statements require adjustment of the client’s accounting records.
c. Fraud requires attention of the auditor, but errors do not.
d. Fraud has serious implications only because of their monetary effect on the financial
statements.
AT Quizzer 5 Consideration of Fraud in Audit of FS 6

43. If the auditor has determined that there may be fraud that may have material effect on the
financial statements, all of the following should be done except
a. Consider the implications for other aspects of the audit.
b. Discuss the matter with a level of management where fraud might have occurred.
c. Try to obtain evidence to determine whether the fraud is material and what its effect will
be on the financial statements.
d. If appropriate, suggest that the client consult with legal counsel on matters of law.

44. If necessary, the financial statements should be revised for material fraud or
a. An unqualified or qualified opinion should be issued.
b. A disclaimer of opinion or an adverse opinion should be issued.
c. A qualified or adverse opinion should be issued.
d. An unqualified opinion or a disclaimer of opinion should be issued.

45. Intentional or reckless conduct, whether act or omission, that results in materially misleading
financial statements is called:
a. An error
b. Fraud
c. Fraudulent financial reporting
d. An illegal act

46. A violation of laws or governmental regulations by the audited entity or its management or
employees acting on behalf of the entity is called
a. An error
b. Fraud
c. Fraudulent financial reporting
d. An illegal act

47. The auditor should assess the risk that illegal acts may have a material and direct effect on
financial statements. Based on that assessment, the auditor should
a. Design the audit to provide reasonable assurance of detecting the act.
b. Design the audit to provide absolute assurance of detecting the act because of its nature.
c. Design the audit in the usual way because of the small likelihood of detecting illegal acts.
d. Design the audit in the usual way because illegal acts are outside the scope of the audit.

48. Illegal acts may be

a. Indirect and immaterial
b. Direct and immaterial
c. Direct and material
d. All of the above

49. If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to
evaluate whether noncompliance that may be material to the financial statement has, or is likely
to have occurred, the auditor should express
a. unqualified or disclaimer of opinion
b. qualified or adverse opinion
c. disclaimer of opinion or adverse
d. qualified or a disclaimer of opinion

50. Which of the following statements describes why a properly designed and executed audit may
not detect material fraud?
a. Audit procedures that are effective for detecting an unintentional misstatements may be
ineffective for an intentional misstatement that is concealed through collusion.
b. An audit is designed to provide reasonable assurance of detecting material errors, but
there is no similar responsibility concerning material fraud.
c. The factors considered in assessing control risk indicated an increased risk of intentional
misstatements, but only a low risk of unintentional errors in the financial statements.
d. The auditor did not consider factors influencing audit risk for account balances that have
pervasive effects on the financial statements taken as a whole.

51. Which of the following statements best describes an auditor’s responsibility to detect errors and
irregularities?
a. The auditor should study and evaluate the client’s internal control system, and design
the audit to provide reasonable assurance of detecting all errors and irregularities.
b. The auditor should assess the risk that errors and irregularities may cause the financial
statements to contain material misstatements, and determine whether the necessary
internal control procedures have been prescribed and are being followed satisfactorily.
c. The auditor should consider the types of errors and irregularities that could occur, and
determine whether the necessary internal control procedures have been prescribed and
are being followed.
d. The auditor should assess the risk that errors and irregularities may cause the financial
statements to contain material misstatements, and design the audit to provide reasonable
assurance of detecting material errors and irregularities.
AT Quizzer 5 Consideration of Fraud in Audit of FS 7

52. Fraud may be perpetrated with the intent to benefit a company. Which of the following is an
example of such a fraud?
a. Acceptance of bribes or kickbacks by a purchasing agent.
b. Claims submitted for services or goods not actually provided to the company.
c. Sale or assignment of fictitious or misrepresented assets.
d. Diversion by an employee or outsider of a transaction that would normally generate
profits for the company.

53. The risk of management of fraud increases in the presence of

a. Management incentive system based on operating income.
b. Improved internal control.
c. Substantial increases in sales.
d. Frequent changes in suppliers.

54. The risk that an auditor’s procedures will lead to the conclusion that a material error does exist in
an account balance when, in fact, such error does exist, is referred to as:
a. audit risk
b. inherent risk
c. control risk
d. detection risk

55. Jones, CPA, is auditing the financial statements of ABC Retailing, Inc. What assurance does
Jones provide that the audit will detect either direct-effect illegal acts that are material to ABC’s
financial statements or illegal acts that have a material but indirect effect on the financial
statements?

Direct-Effect Indirect-Effect
Illegal Acts Illegal Acts
a. Reasonable None

b. Reasonable Reasonable
c. Limited None
d. Limited Reasonable

56. Which of the following ordinarily is designed to detect possible material peso errors on the
financial statements?
a. Control testing
b. Analytical procedures
c. Computer controls
d. Post-audit working paper review

57. An auditor should recognize that the application of auditing procedures may produce evidential
matter indicating the possibility of errors or irregularities and therefore should
a. Design audit tests to detect unrecorded transactions.
b. Extend the work to audit most recorded transactions and records of an entity.
c. Plan and perform the engagement with an attitude of professional skepticism.
d. Not depend on internal accounting control features that are designed to prevent or detect
errors or irregularities.

58. Which of the following statements describes why a properly designed and executed audit may
not detect a material fraud?
a. Audit procedures that are effective for detecting an unintentional misstatement may be
ineffective for an intentional misstatement that is concealed through collusion.
b. An audit is designed to provide reasonable assurance of detecting material errors, but
there is no similar responsibility concerning material fraud.
c. The factors considered in assessing control risk indicated an increased risk of intentional
misstatements, but only a low risk of unintentional errors in the financial statements.
d. The auditor did not consider factors influencing audit risk for account balances that have
pervasive effects on the financial statements taken as a whole.

59. An auditor concludes that a client’s illegal act, which has a material effect on the financial
statements, has not been properly accounted for or disclosed. Depending on the materiality of the
effect on the financial statements, the auditor should express either a(n)
a. Adverse opinion or a disclaimer of opinion.
b. Qualified opinion or an adverse opinion.
c. Disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph.
d. Unqualified opinion with a separate explanatory paragraph or a qualified opinion.

60. What assurance does the auditor provide that errors, fraud and direct-effect illegal acts that are
material to the financial statements will be detected?
a. Negative
b. Limited
c. Absolute
d. Reasonable
AT Quizzer 5 Consideration of Fraud in Audit of FS 8

61. Which of the following is an incorrect statement?

a. The auditor should assess the risk that errors and fraud may cause the financial
statements to contain material misstatement.
b. The auditor should design the audit to provide reasonable assurance of detecting errors
and fraud that are material to the financial statements.
c. The auditor is not an insurer, and his or her report does not constitute a guarantee.
d. The subsequent discovery that a material misstatement exists in the financial statements
is evidence of inadequate planning, performance or judgment on the part of the auditor.

62. Which of the following statements best describes an auditor’s responsibility to detect errors and
fraud?
a. The auditor should study and evaluate the client’s internal control and design the audit to
provide reasonable assurance of detecting all errors and fraud.
b. The auditor should assess the risk that errors and fraud may cause the financial
statements to contain material misstatements, and determine whether the necessary
internal controls are prescribed and are being followed satisfactorily.
c. The auditor should consider the types of errors and fraud that could occur, and determine
whether the necessary internal controls are prescribed and are being followed.
d. The auditor should assess the risk that errors and fraud may cause the financial
statements to contain material misstatements, and design the audit to provide reasonable
assurance of detecting material errors and fraud.

63. During the annual audit of Ajax Corp., a publicly held company, Jones, CPA , a continuing auditor
determined that illegal political contributions had been made during each of the past seven years,
including the year under audit. Jones notified the board of directors about the illegal contributions,
but they refused to take any action because the amounts were immaterial to the financial
statements.
Jones should reconsider the intended degree of reliance to be placed on the
a. Letter of audit inquiry to the client’s attorney.
b. Prior year’s audit programs.
c. Management representation letter.
d. Preliminary judgment about materiality levels.

64. Which of the following statements reflects an auditor’s responsibility for detecting errors and
fraud?
a. An auditor is responsible for detecting employee errors and simple fraud, but not for
discovering fraud involving employee collusion or management override.
b. An auditor should plan the audit to detect errors and fraud that are caused by departures
from GAAP.
c. An auditor is not responsible for detecting errors and fraud unless the application of
GAAS would result in such detection.
d. An auditor should design the audit to provide reasonable assurance of detecting errors
and fraud that are material to the financial statements.

65. Which of the following characteristics most likely would heighten the auditor’s concern about the
risk of intentional manipulation of financial statements?
a. Turnover of senior accounting personnel is low.
b. Insiders recently purchased additional shares of the entity’s stock.
c. Management places substantial emphasis on meeting earnings projection.
d. The rate of change in the entity’s industry is slow.

66. An auditor concludes that a client has committed an illegal act that has not been properly
accounted for or disclosed. The auditor should withdraw from the engagement if
a. Auditor is precluded from obtaining sufficient competent evidence about the illegal act.
b. Illegal act has an effect on the financial statements that is both material and direct.
c. Auditor cannot reasonably estimate the effect of the illegal act on the financial
statements.
d. Client refuses to accept the auditor’s report as modified for the illegal act.

67. When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain
understanding of the nature of the act to
a. Increase the assessed level of control risk.
b. Recommend remedial actions to the audit committee.
c. Evaluate the effect on the financial statements.
d. Determine the reliability of management’s representations.

68. Which of the following is not an example of an error?

a. Entity personnel make mistakes in gathering or processing accounting data from which a
financial statements are prepared.
b. Entity personnel alter accounting records from which financial statements are prepared.
c. Entity personnel overlook or misinterpret facts, causing accounting estimates to be
incorrect.
d. Entity personnel make mistakes in the application of accounting principles.
AT Quizzer 5 Consideration of Fraud in Audit of FS 9

69. The auditor faces a risk that the examination will not detect material errors that could occur in the
accounting process. In regard to minimizing this risk, the auditor primarily relies on
a. Substantive tests
b. Compliance tests
c. Internal control
d. Statistical analysis

70. An audit should be designed to achieve reasonable assurance of detecting material

a. errors, irregularities and those illegal acts with a direct effect on financial statements
amounts.
b. errors and irregularities.
c. errors
d. errors, irregularities and illegal acts

71. When is the auditor responsible for detecting fraud?

a. When the fraud did not result from collusion.
b. When third parties are likely to rely on the client’s financial statements.
c. When the client’s system of internal control is judged by the auditor to be inadequate.
d. When the application of generally accepted auditing standards would have uncovered the
fraud.

72. An attitude that includes a questioning mind and a critical assessment of audit evidence is
referred to as:
a. Due professional care
b. Professional skepticism
c. Reasonable assurance
d. Supervision

73. Professional skepticism requires the auditor assume that management is

a. Honest, in the absence of fraud risk factors.
b. Dishonest until completion of audit tests.
c. Neither honest nor dishonest.
d. Offering reasonable assurance of honesty.

74. Reportable conditions are matters that come to an auditor’s attention that should
be communicated to an entity’s audit committee because they represent
a. material irregularities or illegal acts perpetrated by high-level management.
b. significant deficiencies in the design or operation of the internal control system.
c. flagrant violations of the entity’s documented conflict-of-interest policies.
d. intentional attempts by client personnel to limit the scope of the auditor’s field work.

75. Which of the following matters is an auditor required to communicate to the entity’s audit
committee?
a. The basis for assessing control risk below the maximum.
b. The process used by management in formulating sensitive accounting estimates.
c. The auditor’s preliminary judgments about materiality levels.
d. The justification for performing substantive procedures at interim dates.

76. Should an auditor communicate the following matters to an audit committee of a public entity?

Significant Audit Adjustments Management’s Consultation

Recorded by the Entity With Other Accountants
About Significant
Accounting Matters
a. Yes Yes

b. Yes No
c. No Yes
d. No No

77. Which of the following statements is correct concerning an auditor’s required communication
with an entity’s audit committee?
a. This communication should include disagreements with management about significant
audit adjustments, whether or not satisfactorily resolved.
b. If matters are communicated orally, it is necessary to repeat the communication of
recurring matters each year.
c. If matters are communicated in writing, the report is required to be distributed to both the
audit committee and management.
d. This communication is required to occur before the auditor’s report on the financial
statements is issued.
AT Quizzer 5 Consideration of Fraud in Audit of FS 10

78. One means of informing the client that the auditor is not responsible for the discovery of fraud is
the
a. engagement letter
b. representation letter
c. responsibility letter
d. client letter

79. Which of the following is correct concerning requirements about auditor communications about
fraud?
a. Fraud that involves senior management should be reported directly to the audit
committee regardless of the amount involved.
b. Fraud with a material effect on the financial statements should be reported directly by the
auditor to the Securities and Exchange Commission.
c. Fraud with a material effect on the financial statements should ordinarily be disclosed by
the auditor through use of an “emphasis of a matter” paragraph added to the audit report.
d. The auditor has no responsibility to disclose fraud outside the entity under any
circumstances.

80. Audits of financial statements are designed to obtain assurance of detecting misstatements due
to

Errors Fraudulent Financial Misappropriation

Reporting of Assets
a. Yes Yes Yes

b. Yes Yes No
c. Yes No Yes
d. No Yes No

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