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Material misstatements may emanate from all of the following except.


a. fraud
b.
error
c. Noncompliance with laws and regulations
d. Inadequacy of accounting records.
2. The level of assurance provided by an audit of detecting a material misstatement is referred to as:
a. Reasonable assurance
b. Moderate assurances
c. Absolute assurance
d. Negative assurance
3. An intentional act by one or more individuals among management, employees, or third parties which
results in misrepresentation of financial statements refers to
a. Error
c. Fraud
b. Noncompliance
d. Illegal acts
4. In the context of financial statement presentation, fraud occurs when:
a. A misstatement is made and there is both knowledge of its falsity and the intent to deceive.
b. A misstatement is made and there is knowledge of its falsity but no intent to deceive.
c. The auditor fails to comply with PSA.
d.
The auditor has an absence of reasonable care in the performance of the audit.
5. The responsibility for the detection and prevention of errors, fraud and noncompliance with laws and
regulations rests with
a. Auditor
c. client management
b. Clients legal counsel d. internal auditor
6. The responsibility of adopting sound accounting policies, maintaining adequate internal control, and
making fair representation in the financial statement rests
a. With the management
b. With the independent auditor
c. Equally with management and the auditor
d. With the internal audit department
7. The management responsibility to detect and prevent fraud end error is accomplished by
a. Implementing adequate quality control
b. Having an annual audit of financial statements
c. Implementing adequate accounting and internal control system
d. Issuing a representation letter to the auditor
8. Which of the following statements best describes the auditors responsibility regarding the detection of
materials errors and frauds?
a. The auditor is responsible for the failure to detect material errors and frauds only when such failure
results from the misapplication of PSA.
b. The audit should be designed to provide reasonable assurance the material errors and frauds will be
detected
c. The auditor is responsible for the failure to detect material errors and fraud only when the auditor fails
to confirm receivables or observe inventories.
d. Extended auditing procedures are required to detect unrecorded transactions even if there is no
evidence that material errors and frauds may exist.
9. The auditors best defense when material misstatements in the financial statements are not uncovered in
the audit is that
a. The audit was conducted in accordance with generally accepted accounting principles.
b. Client is guilty of contributory negligence
c. The audit was conducted in accordance with PSA.
d. The financial statements are clients responsibility
10. Which is the following is most correct regarding the distinction(s) between the auditors responsibilities for
searching for errors and frauds
a. Little
b. A significant
c. No
d. Various
11. The following statements relate to the auditors responsibility for the detection of errors and fraud. Identify
the correct statements.
I.
Due to the inherent limitations of the audit, there is a possibility that material
misstatements in the financial statements may not be detected
II.
The subsequent discovery of material misstatement of the financial information resulting
from fraud or error does not, in itself, indicate that the auditor failed to follow the basic
principles and procedures of an audit.
a. I only
b. II only
c. Both statements are correct
d. Both statements are incorrect

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a.
b.
c.
d.
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auditors responsibility for failure to detect fraud arises


When the failure clearly results from non-compliance to PSA
Whenever the amounts involved are material
Only when the examination was specially designed to detect fraud
Only when such failure clearly results from negligence so gross as to sustain an inference of fraud on
the part of the auditor
Which of the following statements is correct regarding errors and fraud?
a. An error is unintentional, whereas fraud is intentional
b. Frauds occur more often than errors in financial statements
c. Errors are always fraud and frauds are always errors
d. Auditors have more responsibility for finding fraud than errors
The primary factor that distinguishes errors from frauds is
a. Whether the underlying cause of misstatement relates to misapplication of accounting principles or to
clerical processing
b. Whether the misstatement is perpetrated by an employee or by a member of management
c. Whether the misstatement is concealed
d. Whether the underlying cause of misstatement is intentional or unintentional
The term error refers to unintentional misrepresentation of financial information. Examples of errors are
when
I.
Assets have been misappropriated
II.
Transactions without substance have been recorded
III.
Records and documents have been manipulated and falsified
IV.
The effects of the transactions have been omitted from the records
a. All of the above statements are true
b. Only statements I and III are true
c. All of the above are false
d. Only statements II and IV are true
Which of the following is an example of an error?
a. Defalcation
b. Suppression or omission of the effects of transactions from the records or documents
c. Recording of transactions without substance
d. Misapplication of accounting policies
Which of the following is an error as distinguished from fraud
a. Embezzlement of companys furid
b. Window dressing
c. Clerical mistakes in the processing of transactions
d. Lapping
Which of the following could be an example of fraud?
a. Mistakes in the application of the accounting principles
b. Clerical errors in accounting data underlying the financial statements
c. Misinterpretation of facts that existed when financial statements were prepared
d. Misappropriation of assets or group of assets
Which of the following statements best identifies the two types of fraud?
a. Theft of assets and employee fraud
b. Misappropriation of asset and defalcation
c. Management fraud and employee fraud
d. Fraudulent financial reporting and management fraud
Fraudulent financial reporting is often called
a. Management fraud
b. Defalcation
c. Misappropriation of assets
d. Employee fraud
Which of the following is an example of fraudulent financial reporting?
a. Company management changes inventory count tags and overstates ending inventory, while
understanding cost of goods sold
b. The treasurer diverts customer payments to his personal due, concealing his actions by debiting an
expense account, thus overstating expenses.
c. An employee steals small tools from the company and neglects to return them; the cost is reported as
a miscellaneous operating expense
d. An employee omitted an entry to record a bank transfer to cover a cash shortage.
Fraudulent financial reporting is most likely to be committed by whom?
a. Line employees of the entity
b. Outside members of the entitys board of directors
c. Entitys management
d. The entitys auditors
Which one of the following terms relates to the embezzling of receipts?
a. Manipulation
b. Misrepresentation

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c. Misappropriation
d. Misapplication
Which of the following statements best describes an auditors responsibility to detect errors and fraud?
a. An auditor should assess the risk that errors and fraud may cause the financial statements to contain
material misstatements and should design the audit to provide reasonable assurance of detecting
errors and fraud that are material to the financial statements
b. An auditor is responsible to detect material errors, but has no responsibility to detect material fraud
that are concealed through employee collusion or management override of the internal control
structure
c. An auditor has no responsibility to detect errors and fraud unless analytical procedures or tests of
transactions identify conditions causing a reasonably prudent auditor to suspect that the financial
statements were materially misstated
d. An auditor has no responsibility to detect errors and fraud because an auditor is not an insurer and an
audit does not constitute a guarantee
In connection with the audit of financial statements, an independent auditor could be responsible for
failure to detect a material fraud if
a. Statistical sampling techniques were not used on the audit engagement.
b. The auditor planned the audit in a negligent manner
c. Accountants performing important parts of the work failed to discover a close relationship between the
treasurer and the cashier
d. The fraud was perpetrated by one employee who circumvented the existing internal controls
the auditor would ordinarily expect to find evidence to support management representations and not
assume that they are necessarily correct. This is an example of
a. An unprofessional behavior
b. An attitude of professional skepticism
c. Due diligence
d. A rule in the code of professional ethics
Professional skepticism dictates that when management to the auditors, the auditors should\
a. Require that the statement be out in writing
b. Disregard the statement because it ranks low of the evidence quality scale
c. Corroborate the evidence with other supporting documentation whenever possible
d. Believe on the statement in order to maintain the professional client-auditor relationship
Which of the following statements is true?
a. It is usually easier for the auditor to uncover fraud than errors
b. It is usually easier for the auditor to uncover errors than fraud
c. It is usually equally difficult for the auditor to uncover errors or fraud
d. Usually, the auditor does not design procedures to uncover fraud or errors
In comparing management fraud with employee fraud, the auditors risk of failing to discover the fraud is:
a. Greater for management fraud because managers are inherently more deceptive than employees
b. Greater for management fraud because of managements ability to override existing internal controls
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\
The most difficult type of misstatement to detect is fraud based on
a. The overrecording of transactions
b. The nonrecording of transactions
c. Recorded transactions in subsidiaries
d. Related party receivable
If several employees collude to falsify documents, the chance a normal audit would uncover such acts is:
a. Very low
b. Very high
c. Zero
d. None of the above
If an auditor conducted an audit in accordance with auditing standards, which of the following would the
auditor likely detect?
a. Unrecorded transactions
b. Errors in postings recorded transactions
c. Counterfeit signatures on paid checks
d. Fraud involving collusion
Which of the following statements is incorrect?
a. The responsibility for the prevention and detection of fraud and error rests with management
b. The auditor is not and cannot be held responsible for the detection of fraud or errors
c. In planning an audit, the auditor should assess the risk that fraud or error may cause the financial
statements to contain material misstatements
d. The risk of not detecting material fraud is higher than the risk of not detecting a material
misstatement arising from error
Which of the following statements about fraud or error is incorrect?
a. The auditor is not and cannot be held responsible for the prevention of fraud and error

b.
c.

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The responsibility for the prevention and detection of fraud and error rests with management
The auditor should plan and perform the audit with an attitude of professional skepticism, recognizing
that conditions or events may be found that fraud or error may exist
d.
The likelihood of detecting fraud is ordinarily higher than that of detecting error
In performing a financial statement audit, which of the following would an auditor least likely consider?
a. Internal control
b. Compliance with PFRS
c. Quality of managements business decision s
d. Fairness of the financial statement amounts
Which of the following is not an assurance that the auditors give to the parties who rely on the financial
statements?
a. Auditors know how the amounts and disclosures in the financial statements were produced
b. Auditors give assurance that the financial statements are accurate
c. Auditors gathered enough evidence to provide a reasonable basis for performing an opinion\
d. If the evidence allows the auditors to do so, auditors give assurance in the form of opinion, as to
whether the financial statements taken as a whole are fairly presented in conformity with PFRS
The risk of not detecting material misstatement resulting from fraud is greater than the risk of not
detecting a material misstatement arising from error, because:
a. The auditor designs only procedures to detect material error but no procedures are designed to detect
material fraud
b. Fraud ordinarily involves acts designed conceal it, such as collusion, forgery, or deliberate failure to
record transactions
c. The professional standards do not require the auditor to discover information that is indicative of fraud
d. It is the responsibility of the management to detect fraud and auditors responsibility is confined only
to the detection of material errors
When performing a financial statement audit, auditors are required to explicitly assess the risk of material
misstatement due to
a. Errors
b. Fraud
c. Noncompliance
d. Business risk
Audits of financial statements are designed to obtain assurance of detecting misstatement due to
Errors
Fraudulent
Misappropriation
financial reporting
of assets
a. YES
YES
YES
b. YES
YES
NO
c. YES
NO
YES
d. NO
YES
NO
Which of the following best describes what is meant by the term fraud risk factor
a. Factor whose presence indicates that the risk of fraud is high
b. Factor whose presence often has been observed in circumstances where fraud has occurred
c. Factor whose presence requires modification of planned audit procedures
d. Factor that indicates internal control weaknesses
At which stage(s) of the audit may fraud risk factors be identified?
Planning Obtaining
Conducting
Understanding
fieldwork
a. YES
YES
YES
b. YES
YES
NO
c. YES
NO
NO
d. NO
YES
YES
Which of the following is a category of risk factors that should be considered when assessing risk of
misstatements arising from misappropriation of assets?
a. Condition of internal control
b. Management characteristics
c. Financial stability of the entity industry condition
When considering fraud risk factors relating to managements characteristics, which of the following is
least likely to indicate a risk of possible misstatements due to fraud?
a. Failure to correct known material internal control weaknesses on timely basis
b. Nonfinancial managements preoccupation with the selection of accounting principles
c. significant portion of managements compensation represented by bonuses based upon achieving
unduly aggressive operating results
d. Use of unusually conservative accounting practices
Which of the following is most likely to be a response to the auditors assessment that the risk of material
misstatement due to fraud for the existence of inventory is high?
a. Observe test counts of inventory at certain locations on an unannounced basis
b. Perform analytical procedures rather than taking test counts.

c.
d.
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Request that inventories be counted prior to year end.


Request that inventory counts at the various locations be counted on different dates so as to allow the
same auditor to be present at every count
Which of the following characteristics most likely would heighten an auditors 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 entitys stock
c. Management places substantial emphasis on meeting earnings projections
d. The rate of change in the entitys industry is slow
Individuals who commit fraud are ordinarily able to rationalize the act and also have an
Incentive
Opportunity
a. Yes
Yes
b. Yes
No
c. No
Yes
d. No
No
Which of the following most likely to be considered a risk factor relating to fraudulent financial reporting?
a. Domination of management by top executives
b. Large amount of cash processed
c. Negative cash flows from operations
d. Small high-peso inventory items
Which of the following is most likely to be presumed to represent fraud risk on an audit?
a. Capitalization of repairs and maintenance into the property, plant and equipment asset account
b. Improper revenue recognition
c. Improper interest expense accrual
d. Introduction of significant new products
Which of the following conditions or events would least likely increase the risk of fraud or error?
a. Questions with respect to competence or integrity of management
b. Unusual pressures within the entity
c. Unusual transactions
d. Lack of transaction trail
Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditors
assessment of the risk of misstatement due to fraud?
a. Checks for significant amounts outstanding at year end
b. Computer generated documents
c. Missing documents
d. Year-end adjusting journal entries
Which of the following would be least likely to suggest to an auditor that the clients statements are
materially misstated?
a. There are numerous delays in preparing timely internal financial reports
b. Management does not correct material internal control weakness that it knows about
c. Differences are reflected in the customers confirmation replies
d. There have been two new controllers this year
Which of the following circumstances would least likely cause an auditor to consider whether material
misstatement exist in an entitys financial statements?;
a. Management is dominated by several individuals
b. The industry in which the entity operates is declining
c. There is inadequate working capital due to declining profit
d. Supporting records that should be readily available are frequently not produced when requested
Which of the following circumstances would least likely cause an auditor to consider whether a material
misstatement exists?
a. The turnover of senior accounting personnel is exceptionally low
b. Management places substantial emphasis on meeting earning projections
c. There are significant unusual transactions near year-end
d. Operating and financing decisions are dominated by one person
Which of the following circumstances most likely would cause an auditor to believe that material
misstatements exist in an entitys financial statement?
a. Operating and financing decisions are dominated by top management
b. Audit trials of computer-generated transactions exist only for a short period of time
c. The chief financial officer does not sign the management representation letter until the last day of the
auditors fieldwork
d. There were substantial payments for services that appear excessive in relation to services provided
Which of the following conditions would not normally cause the auditor to question whether material errors
or possible fraud exists?
a. The accounting department is overstaffed
b. Differences exist between control accounts and supporting subsidiary records
c. Transactions are not supported by proper documentation
d. There are frequent changes of auditors and lawyers

56. Which of the following characteristics most likely would heighten an auditors concern about the risk of
material misstatements in an auditors financial statements?
a. The entitys industry is experiencing declining customer demand
b. The rate of change in the entitys industry is slow
c. Bank reconciliation statements usually include in-transit deposits
d. Equipment is often sold at a loss before being fully depreciated
57. Which of the following conditions or events increase the risk of error or fraud?
a. Management is dominated by several individuals
b. There are frequent changes of auditors or legal counsel
c. There is a significantly low turnover of senior accounting personnel
d. The entity does not correct internal control deficiencies that it knows about
58. All of the following conditions are indicators of possible pressures on an entity except
a. The industry in which the entity operates is declining
b. There is inadequate working capital due to declining profits or too rapid expansion
c. The client is heavily dependent on one or a few products or customers
d. There is a significant and prolonged understaffing of the accounting department
59. Which of the following is most likely to be an overall response to fraud risk identified in an audit?
a. Supervise members of the audit team less closely and rely more upon judgment
b. Use less predictable audit procedures
c. Only use certified public accountants on the engagement
d. Place increased emphasis on the audit of objective transactions rather than subjective transactions
60. During the course of an audit engagement, the CPA discovers specific circumstances that led him to the
belief that employee fraud that has a material effect on the financial statements may have occurred. In
such a case the CPA should
a. Tract fully approach the suspected employee and attempt to resolve the matter with him
b. Ascertain that the client understand that the ordinary examination is not primarily designed to
disclose fraud or defalcations
c. Perform appropriate modified or additional procedures to confirm or dispel the auditors suspicion
d. After advising the client of his findings suggest that an investigation be made to discover whether
fraud has in fact occurred
61. If an auditor believes that material errors or fraud exist, the auditor should
a. Consider the implications and discuss the matter with appropriate levels of management
b. Make the investigation necessary to determine whether errors or fraud have in fact occurred
c. Request that management investigate whether errors or fraud have in fact occurred
d. Consider whether errors or fraud were the result of employees failure to comply with specific controls
62. When the auditor believes a misstatement is or may be the result of the fraud but that the effect of the
misstatements is not material to the financial statements, which of the following steps is required?
a.
Consider the implications for other aspects of the audit
b. Resign from the audit
c. Commence a fraud examination
d. Contact regulatory authorities
63. Which of the following is an incorrect statement?
a. The auditor cannot assume that fraud or error is an isolated occurrence unless there is an evidence to
the contrary
b. If the auditor suspects that error may exist, he should immediately communicate it to the
management even if the potential effect on financial statements is immaterial
c. Fraud and error should be reported to a level of management at least one level above those involved
d. Normally, the CPA does not have any responsibility confidential information noted during the audit to
the regulatory authorities
64. If the auditor believes that the fraud or error has a material effect on the financial statements but the
client is not willing to correct the misstatement, the auditor would most likely issue a(n)
a. Unmodified report
b. Qualified or adverse opinion
c. Qualified or disclaimer of opinion
d. Unmodified opinion with emphasis of matter paragraph
65. If the auditor is precluded by the entity from obtaining evidence to evaluate whether fraud or error that
may be material to that financial statements has occurred, the auditor should issue a report that contains
a. An adverse opinion
b. An unmodified opinion
c. Either qualified or adverse opinion
d. Either qualified opinion or a disclaimer of opinion
66. When a user sees that a unmodified opinion has been expressed by an external auditor, he or she may
correctly infer that:
a. No material errors were found during the engagement
b. No embezzlements remain undetected
c. Any system defects encountered during the engagement have been corrected to the auditors
satisfaction

d.
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Any differences between management and the auditor on accounting matters have been resolved to
the auditors satisfaction
When comparing the auditors 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 detecting employee fraud
Judgments about the increased risk of misstatement of the financial statements due to fraud may influence
the auditors professional judgments in the following ways except:
a. The auditors ability to assess control risk below the maximum may be reduced and the auditor should
be sensitive to the ability of management to override controls
b. The audit team may be selected in ways that ensure that the knowledge, skill, and ability of personnel
assigned significant engagement responsibilities are commensurate with the auditors assessment of
the level of risk
c. The auditor should plan and audit to provide a guarantee that the financial statements are free of
material misstatements, whether due to fraud or error
d. The audit team may approach the audit with a heighten level of professional skepticism
What is an auditors responsibility who discovers that management is involved in a potentially immaterial
fraud?
a. Report the fraud to the audit committee
b. Report the fraud to the SEC
c. Report the fraud to a level of management at least one level below those involved in the fraud
d. Determine that the amounts involved are immaterial, and if so, there is no reporting responsibility
Which of the following statements best describes the auditors responsibility regarding the detection of
fraud?
a. The auditor is responsible for the failure to detect fraud only when such failure clearly results from non
performance of audit procedures specifically described in the engagement letter
b. The auditor is required to provide reasonable assurance that the both material errors and fraud are
detected
c. The auditor is not and cannot be held responsible for the detection of fraud and error
d. The auditor is responsible for the failure to detect fraud only when an unmodified opinion is issued
The auditors evaluation of the likelihood of material employee fraud is normally done initially as a part of :
a. Tests of controls
b. Tests of transactions
c. Understanding the entitys internal control
d. The assessment of whether to accept the audit engagement
An auditor should recognize that the application of auditing procedures may produce evidence indicating
the possibility of errors or fraud and therefore should:
a. Plan and perform the engagement with an attitude of professional skepticism
b. Not rely on internal controls that are designed to prevent or detect errors or fraud
c. Design audit tests to detect unrecorded transactions
d. Extend the work to audit most recorded transactions and records of an entity
These are acts of omissions or commissions by the entity being audited, either intentional or unintentional,
which are contrary to the prevailing laws and regulations
a. Fraud
b. Misappropriation
c. Noncompliance
d. Defalcation
Most noncompliance affect the financial statements:
a. Directly
b. Only indirectly
c. Both directly and indirectly
d. Materially if direct; immaterially if indirect
When then auditor knows that a noncompliance with laws and regulation has occurred, the auditor must
a. Issue an adverse opinion
b. Withdraw from the engagement
c. Consider the effects on the financial statements, including the adequacy of disclosure
d. Report the matter to the proper government authorities
Generally the decision to notify parties outside the clients organization regarding noncompliance with laws
and regulations is the responsibility of the
a.
Independent auditor
b. Clients legal counsel
c. Management
d. Internal auditors
Which of the following is the auditor least likely to do when aware of a noncompliance
a. Discuss the matter with the clients legal counsel

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b. Obtain evidence about the potential effect of the noncompliance on the financial statements
c. Contact the local law enforcement officials regarding potential criminal wrongdoing
d. Consider the impact of the noncompliance on the relationship with the companys management
Which of the following statements about noncompliance is incorrect?
a. An audit in accordance with PSA cannot be expected all noncompliance with laws and regulations
b. It is managements responsibility to ensure that entitys operations are conducted in accordance with
laws and regulations
c. An auditor cannot be held responsible for preventing noncompliance
d. The determination of whether a particular act constitutes noncompliance is ultimately based on the
judgment of the auditor
Which of the following circumstances is not an indication of possible noncompliance?
a. Payment of fines or penalties
b. Payment for unspecified services to consultants, related parties, or government employees
c. Purchasing at prices significantly above or below market price
d. Payment for goods or services to the country from which the goods or services originated
Which of the following conditions would least likely indicate the occurrence of rioncompliance?
a.
Investigation by government agencies
b. Payments without proper documentation
c. Purchasing a real property for a price that is significantly higher than the sellers book value
d. Existence of an accounting system which fails to provide an adequate audit trail or sufficient evidence
Which of the following conditions would most likely indicate a possible noncompliance with laws and
regulations?
a. Media comment
b. Purchasing land for a price significantly different from the sellers recorded amount
c. Payment of commission to sales agent
d. Payment for specified services to consultant
According to PSA250, the risk of not detecting material misstatement due to noncompliance is high. This
can be attributed to all of the following factors, except:
a. There are many laws and regulations, relating principally to the operating aspects of the entity, that
typically do not have a material; effect on the financial statements.
b. Auditors usually rely on lawyers representations to detect noncompliance
c. The effectiveness of audit procedures may be affected by the limitations of the audit
d. Noncompliance may involve conduct designed to conceal it
When the auditor becomes aware of information concerning a possible instance of noncompliance, the
auditor should
a. Notify the regulatory agencies
b. Determine who was responsible for the act
c. Obtain understanding of the nature of the act, and the circumstances in which it has occurred and
sufficient other information to evaluate the possible effect on the financial statements
d. Modify the opinion on the clients financial statements
An auditor who discovers that the client has not complied with laws and regulations that has a material
effect on the financial statements most likely would withdraw from the engagement if the
a. Noncompliance was a violation of PFRS
b. Client does not take remedial action that the auditor considers necessary
c. Noncompliance was committed last year when financial statements were not audited
d. Auditor has already assessed control risk at the maximum level
If specific information comes to an auditors attention that implies an existence of noncompliance with
laws that could result in a material, but indirect effect on the financial statements, the auditor should next
a. Apply audit procedures specifically directed to ascertaining whether noncompliance has occurred
b. Seek the advice of an informed expert qualified to practice law as to possible contingent liabilities
c. Report the matter to an appropriate level of management at least one level above those involved
d. Discuss the evidence with the clients audit committee, or others with equivalent authority and
responsibility
Which of the following does not properly described a procedure that the auditor normally performs in
connection with noncompliance?
a. The auditor should obtain a general understanding of legal and regulatory framework applicable to the
entity
b. The auditor should perform procedures to identify instances of noncompliance with laws and
regulations
c. The auditors should obtain oral representation that management has disclosed to the auditor all
known actual or possible noncompliance with laws and regulations
d. The auditor should obtain sufficient appropriate evidence about compliance with laws and regulations
Which of the following procedures would an auditor be unlikely to perform when obtaining a general
understanding about the laws and regulations affecting the clients business?
a. Inquire of management concerning the entitys policies and procedures regarding compliance with
laws and regulations

b.

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Inquire of management as to the laws or regulations that may be expected to have a fundamental
effect on the operations of the entity
c. Discuss with management the policies or procedures adopted for identifying, evaluating and
accounting for litigation claims and assessments
d. Obtain a representation letter from the clients legal counsel
After obtaining sufficient level of understanding about the clients legal and regulatory framework, the
auditor should
a. Develop a code of conduct and ensure that these employees comply with such code
b. Perform procedures to help identify instance of noncompliance with laws and regulations
c. Monitor entitys legal requirements and ensure that operating procedures are designed to meet these
requirements
d. Inquire of management as to the laws or regulations that may ne expected to have a fundamental
effect on the operations of the entity
Which of the following procedures would assist the auditor in identifying noncompliance with laws and
regulations?
a. Inquiring from the clients lawyers
b. Inspecting correspondence with relevant regulatory agencies
c. Inquire of management concerning entitys policies and procedures regarding compliance with laws
and regulations
d. Discuss with the client management the policies or procedures adopted for identifying, evaluating and
accounting for litigation, claims and assessments
If the client refuses to accept an audit report that is qualified due to noncompliance with laws and
regulations, the auditor should:
a. With from the engagement and indicate the reasons to the audit committee in writing
b. Issue an adverse opinion if management agrees to fully disclose the matter
c. Withdraw from the engagement and indicate the reasons to the SEC or other regulatory body in
writing
d. Issue a disclaimer of opinion instead
During the annual audit of Joax Corp., a publicly held company, Joy, CPA, a continuing auditor, determined
that illegal political contributions had been made during each of the past seven years, including the ear
under audit. Joy notified the board of directors about the illegal contributions, but they refused to take any
action because the amounts involved were immaterial to the financial statements. Joy should reconsider
the intended degree of reliance to be placed on the
a. Letter of audit inquiry to the clients attorney
b. Prior years audit programs
c. Management representation letter
d. Preliminary judgment about materially levels
An auditor who discovers that a clients employees have paid small bribes to public officials most likely
would withdraw from the engagement if the
a. Client receives financial assistance from various government agencies
b. Evidence that is necessary to p-rove that the illegal acts were committed does not exist
c. Employees actions affect the auditors ability to rely on managements representations
d. Notes to the financial statements fail to disclose the employees actions