Question 1

Discuss the actions an auditor should take when an illegal act is identified or suspected.

Accepted Answer

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Question 2

It is not difficult for the auditor to quantify a measure of materiality while performing the audit.

Accepted Answer

Quantifying materiality is a subjective task that requires professional judgment and experience. The auditor needs to consider multiple factors such as the financial statement users, the company's size and industry, and the inherent risks of the audit. The auditor should also consider the tolerable misstatement level, which is the maximum amount of error that the auditor can accept without affecting the overall conclusion of the audit. Therefore, quantifying materiality is not a straightforward or simple process.

Question 3

As the impact from noncompliance is further removed from affecting the financial statements, the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

Accepted Answer

As the impact of noncompliance becomes more remote from affecting the financial statements, it becomes more difficult for the auditor to identify such noncompliance during the audit, and they may be less likely to become aware of it.

Question 4

One of the characteristics of professional skepticism is ________, which is a desire to investigate beyond the obvious.
A) self-esteem
B) an interpersonal understanding
C) a search for knowledge
D) a questioning mindset

Accepted Answer

A search for knowledge is a characteristic of professional skepticism, as it involves a desire to investigate beyond the obvious and seek deeper understanding.

Question 5

A questioning mindset
A) means the auditor must prove every statement that management makes to them.
B) means the auditor should approach the audit with a "do not trust anyone" mental outlook.
C) assures that the auditor will only accept honest clients.
D) means the auditor should approach the audit with a "trust but verify" mental outlook.

Accepted Answer

A questioning mindset means that the auditor should approach the audit with a "trust but verify" mental outlook, meaning that they should have a healthy skepticism towards what they are told by management and seek evidence to support the information provided. It does not mean that the auditor should assume dishonesty or try to prove every statement as in option A and B, respectively. Option C is also incorrect as auditors cannot solely rely on a client's honesty but must obtain sufficient and appropriate evidence to support their findings.

Question 6

An audit client is notified that the client is not in compliance with a number of pension laws and regulations. In this situation, the auditor is not required to obtain sufficient appropriate evidence of the impact of this noncompliance on the financial statements.

Accepted Answer

The auditor is required to obtain sufficient appropriate evidence of the impact of noncompliance with pension laws and regulations on the financial statements. Ignoring or not investigating this matter could result in a material misstatement of the financial statements.

Question 7

________ is the self-confidence to resist persuasion and to challenge assumptions or conclusions.
A) Self-esteem
B) Interpersonal understanding
C) Suspension of judgment
D) Autonomy

Accepted Answer

The answer of ________ is the self-confidence to resist persuasion...

Question 8

One of the paragraphs of the auditor's report includes a paragraph addressing the auditor's responsibility for not detecting material misstatements in the financial statements, as this is management's responsibility, not the auditors.

Accepted Answer

The auditor's responsibility is to express an opinion on the financial statements based on their audit. They are responsible for planning and performing the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error. This includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Question 9

Misappropriation of assets are, generally, in dollar amounts which are never material to the financial statements.

Accepted Answer

Misappropriation of assets can often involve large dollar amounts that can have a material impact on the financial statements.

Question 10

Discuss the differences in the auditor's responsibilities for discovering (1) material errors,
(2) material fraud, (3) illegal acts having a direct effect on the financial statements, and (4) illegal acts that do not have a direct effect on the financial statements.

Accepted Answer

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Question 11

Statistical sampling is an example of a specially designed auditing approach taken by the auditor designed to provide absolute assurance that the financial statements are free of material misstatements.

Accepted Answer

Statistical sampling is a sampling approach that provides the auditor with a reasonable level of assurance but not absolute assurance that the financial statements are free of material misstatements. Absolute assurance is not possible due to the inherent limitations of any audit process, including sampling.

Question 12

Which of the following is an accurate statement about professional skepticism?
A) Professional skepticism involves a critical assessment of the evidence.
B) Professional skepticism is easy to implement in practice.
C) It is easy for auditors to understand that their clients may try to deceive them throughout the audit process.
D) Professional skepticism is only necessary for the audits of public companies.

Accepted Answer

Professional skepticism involves a critical assessment of the evidence gathered during an audit. Auditors must question evidence and be alert for clues that suggest information may not be reliable. This is an important element of the audit process and helps ensure that auditors arrive at the correct conclusions.

Question 13

One of the characteristics of professional skepticism is ________, which is the conviction to decide for oneself, rather than accepting the claims of others.
A) interpersonal understanding
B) autonomy
C) suspension of judgment
D) self-esteem

Accepted Answer

Autonomy refers to the ability to make independent decisions based on one's own judgment and beliefs, which is a key characteristic of professional skepticism. This enables the auditor to question claims made by others and critically evaluate the evidence presented to them. Interpersonal understanding, suspension of judgment, and self-esteem are also important traits, but they do not capture the essence of autonomy in professional skepticism.

Question 14

An audit must be performed with an attitude of professional skepticism. Professional skepticism consists of two primary components: a questioning mind and
A) the assumption that upper-level management is dishonest.
B) a critical assessment of the audit evidence.
C) the assumption that all employees are motivated by greed.
D) verification of all critical information by independent third parties.

Accepted Answer

Professional skepticism means being cautious and alert in looking for potential fraud or errors. It involves having a questioning mind and critically assessing the information obtained. However, assuming upper-level management or employees are dishonest is not an appropriate approach, and verification by independent third parties is not always feasible or necessary.

Question 15

The preparation of the financial statements by management contain complex estimates; therefore, the auditor has to rely upon evidence which is convincing, not just persuasive.

Accepted Answer

The auditor's objective is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error, which means the evidence obtained needs to be persuasive enough to support the auditor's opinion, not necessarily convincing beyond any doubt.

Question 16

It is possible that an audit performed in accordance with generally accepted auditing standards may fail to detect a material misstatement in the financial statements.

Accepted Answer

While an audit performed in accordance with generally accepted auditing standards is designed to provide reasonable assurance that the financial statements are free from material misstatement, there is still a risk that some misstatements may not be detected due to factors such as the nature of the misstatement, limitations in the audit procedures or evidence available, or intentional efforts to conceal or misrepresent information. Therefore, it is possible for an audit to fail to detect a material misstatement in the financial statements.

Question 17

Discuss the differences between errors, frauds, and illegal acts. Give an example of each.

Accepted Answer

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Question 18

Auditing standards make a distinction between the auditor's responsibility for searching for errors and searching for fraud.

Accepted Answer

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Question 19

Discuss three reasons why auditors are responsible for "reasonable" but not "absolute" assurance.

Accepted Answer

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Question 20

The overall objectives of the auditor including reporting on the financial statements and communicating, as required by accounting standards, must be in accordance with the auditor's findings.

Accepted Answer

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Quiz 6: Audit Responsibilities and Objectives

Discuss the actions an auditor should take when an illegal act is identified or suspected.

It is not difficult for the auditor to quantify a measure of materiality while performing the audit.

As the impact from noncompliance is further removed from affecting the financial statements, the less likely the auditor is to become aware of or recognize noncompliance when auditing the financial statements.

One of the characteristics of professional skepticism is ________, which is a desire to investigate beyond the obvious.

A questioning mindset

An audit client is notified that the client is not in compliance with a number of pension laws and regulations. In this situation, the auditor is not required to obtain sufficient appropriate evidence of the impact of this noncompliance on the financial statements.

________ is the self-confidence to resist persuasion and to challenge assumptions or conclusions.

One of the paragraphs of the auditor's report includes a paragraph addressing the auditor's responsibility for not detecting material misstatements in the financial statements, as this is management's responsibility, not the auditors.

Misappropriation of assets are, generally, in dollar amounts which are never material to the financial statements.

Discuss the differences in the auditor's responsibilities for discovering (1) material errors, (2) material fraud, (3) illegal acts having a direct effect on the financial statements, and (4) illegal acts that do not have a direct effect on the financial statements.