AUDITING

AUD19.M2005. AUDRES
FRAUD AND ERROR. Definition of Error

CERTS Academics and Knowledge Engineering Team

MARGINAL
AUDRES.01.01 DEFINITION OF ERROR
MULTIPLE CHOICE QUESTIONS NOTES

1. An attitude that includes a questioning mind and a critical assessment of audit

evidence is referred to as
A. Due professional care C. Reasonable assurance
B. Professional scepticism D. Supervision

2. Professional skepticism requires that an auditor assumes 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

3. Which of the following would be classified as an error?

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

4. Misstatements in the financial statements can arise from fraud or error. The
distinguishing factor between fraud and error is whether the underlying action
that results in the misstatement of the financial statements is
I. Intentional or unintentional.
II. Rational or irrational.
A. I only C. Both I and II
B. II only D. Neither I nor II.

5. “Error” includes
A. Engaging in complex transactions that are structured to misrepresent the
financial position or financial performance of the entity.
B. Concealing, or not disclosing, facts that could affect the amounts recorded
in the financial statements.
C. An incorrect accounting estimate arising from oversight or misinterpretation
of facts.
D. Intentional misapplication of accounting policies relating to amounts,
classification, manner of presentation, or disclosure.

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 AUD AUD19.M2005-AUDRES. Fraud and Error. Definition of Error
MARGINAL 6. Which of the following would be classified as an error?
A. Misappropriation of assets for the benefit of management
NOTES B. Intentional omission of the recording of a transaction to benefit a third party.
C. Preparation of records by employees to cover a fraudulent scheme
D. Misinterpretation by management of facts that existed when the financial
statements were prepared

7. 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

8. Which of the following statements best describes the auditor’s responsibility to

detect conditions relating to financial stress of employees or adverse
relationships between a company and its employees?
A. The auditor is required to plan the audit to detect these conditions on all
audits.
B. These conditions relate to fraudulent financial reporting, and an auditor is
required to plan the audit to detect these conditions when the client is
exposed to a risk of misappropriation of assets.
C. The auditor is required to plan the audit to detect these conditions whenever
they may result in misstatements.
D. The auditor is not required to plan the audit to discover these conditions, but
should consider them if he or she becomes aware of them during the audit.

9. When the auditor believes a misstatement is or may be the result of fraud but
that the effect of the misstatement 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.

10. Which of the following factors or conditions is an auditor least likely to plan an
audit to discover?
A. Financial pressures affecting employees
B. High turnover of senior management
C. Inadequate monitoring of significant controls
D. Inability to generate positive cash flows from operations

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