Question 1

The auditor must perform a brainstorming session with client management in order to plan the procedures to be performed.

Accepted Answer

Brainstorming sessions are typically conducted within the audit team to discuss potential fraud risks and other audit concerns, not with client management as part of planning procedures.

Question 2

Auditors must keep a questioning mind when analyzing management responses to inquiry,and auditors should strive to obtain corroborating evidence before accepting management's responses.

Accepted Answer

Auditors need to maintain an unbiased and skeptical approach to management responses and should seek supporting evidence before accepting them as valid. This helps auditors to avert any potential fraud, errors, or misrepresentations in the financial reporting process.

Question 3

The auditor can be satisfied with less than persuasive evidence in the audit process because of the belief that management is honest.

Accepted Answer

The auditor cannot solely rely on management's honesty and must obtain sufficient and persuasive evidence to support their conclusions.

Question 4

Audit tests do not relate to fraud testing because testing for fraud is conducted in a separate engagement.

Accepted Answer

While audit tests may not be specifically designed to detect fraud, they are still an important tool in detecting and preventing fraud. Auditors should be aware of the potential for fraud and incorporate appropriate procedures into their audit to address that risk. Additionally, some audit tests may indirectly reveal signs of fraud. However, it is important to note that fraud testing is typically conducted in a separate, more focused engagement specifically designed to detect and investigate fraud.

Question 5

Auditors are responsible to detect fraud even if it has an immaterial effect on the financial statements.

Accepted Answer

Auditors primarily focus on detecting material misstatements in the financial statements, including those resulting from fraud, rather than identifying all instances of fraud, especially those with an immaterial effect on the financial statements.

Question 6

When fraud risk is great in the organization under audit,procedures applied are likely to be more extensive.

Accepted Answer

When fraud risk is high, auditors are required to design and perform more extensive procedures to obtain sufficient and appropriate audit evidence. This is to ensure that material misstatements due to fraud are detected or prevented. Therefore, the answer is true.

Question 7

According to professional audit standards,the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" meeting in order to determine the types of fraud that may occur with the client.

Accepted Answer

According to professional audit standards, it is true that the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" meeting in order to determine the types of fraud that may occur with the client. This is in line with the responsibility of auditors to obtain an understanding of the client's business and assess the risks of material misstatement due to fraud or error. As part of this process, the auditor needs to consider the potential for fraud and to plan the audit procedures accordingly. The brainstorming meeting provides an opportunity for the audit team to share their knowledge and experience and to identify areas of the audit that may be susceptible to fraud. This helps the audit team to tailor their approach to the specific circumstances of the audit and to design procedures that are responsive to the assessed risks of fraud.

Question 8

The audit team should develop its own ideas about how fraud may be performed by the client and then covered up.

Accepted Answer

The audit team should develop its own ideas about how fraud may be performed by the client and then covered up in order to effectively identify and assess fraud risks during the audit process.

Question 9

Once the fraud risk assessment is complete in the planning stage,the auditor need not consider fraud further.

Accepted Answer

Even though the fraud risk assessment is completed in the planning stage, the auditor must remain alert to the potential changes in fraud risk throughout the audit engagement. The assessment should be ongoing throughout each stage of the audit.

Question 10

Professional skepticism is required on audit engagements that have a high risk of fraud but can be disregarded for all other engagements.

Accepted Answer

Professional skepticism is a fundamental principle of auditing that should be applied in every audit engagement, regardless of the assessed level of risk of fraud.

Question 11

The auditor is responsible for actively considering fraud risks in order to obtain reasonable assurance that the financial statements are free of material fraud.

Accepted Answer

The auditor has a responsibility to actively consider fraud risks and obtain reasonable assurance that the financial statements are free of material fraud. This is in line with auditing standards and the auditor's ethical obligations.

Question 12

When the risk of fraud is high in financial statements,the auditor should assign less experienced auditors to the engagement.

Accepted Answer

When the risk of fraud is high, the auditor should assign more experienced auditors to the engagement who have a greater understanding of the intricacies and complexities of fraud detection and prevention. Assigning less experienced auditors may increase the likelihood of missing significant indicators of fraud or misstatements in the financial statements.

Question 13

The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud.

Accepted Answer

The auditor's responsibility is to design the audit to provide reasonable assurance (not absolute assurance) of detecting material misstatements, including fraud. Absolute assurance is not attainable in the audit process.

Question 14

Audit procedures to detect fraud are generally an expansion of normal audit procedures.

Accepted Answer

The answer of Audit procedures to detect fraud are generally...

Question 15

Fraud detection procedures should only be performed for clients that have had fraud problems in the past.

Accepted Answer

Fraud detection procedures should be performed for all clients regardless of their past history with fraud. It is important to proactively monitor for any potential fraudulent activity to protect both the client and the company.

Question 16

Auditing standards have historically reflected an expectation that auditors will detect and report every instance of material fraud.

Accepted Answer

While auditors are required to obtain reasonable assurance that financial statements are free from material misstatements, including those resulting from fraud, auditing standards recognize that it may not be possible for auditors to detect every instance of material fraud. Therefore, the focus is on obtaining sufficient evidence to assess the risk of material misstatement due to fraud and designing procedures that are likely to detect material misstatements. Auditors are also required to communicate any observed or suspected fraud to management or those charged with governance.

Question 17

The auditor is not responsible for the presentation of financial statements;therefore,the auditor has no responsibility for fraud in the financial statements.

Accepted Answer

While the auditor is not responsible for the preparation of financial statements, they do have a responsibility to detect and report material misstatements due to fraud. This responsibility is outlined in the auditing standards and ethical requirements.

Question 18

According to the PCAOB,the detection of material fraud is a reasonable expectation of users of audited financial statements.

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) requires auditors to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether caused by error or fraud. Therefore, detection of material fraud is a reasonable expectation of users of audited financial statements.

Question 19

Various ways by which fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing.

Accepted Answer

It is true that auditors should hypothesize different ways in which fraud could be committed before conducting audit testing. This helps them to design and implement appropriate audit procedures to detect and prevent fraud.

Question 20

If an auditor discovers evidence of fraud,the planned audit procedures should be adjusted accordingly.

Accepted Answer

If an auditor discovers evidence of fraud, it is necessary to adjust planned audit procedures accordingly to examine the areas where fraud might have occurred and to gather additional information or evidence. This may involve expanding the scope of the audit, increasing the frequency of testing, or conducting different audit procedures altogether. Ignoring the evidence of fraud and proceeding with the planned audit procedures could lead to an incomplete or inaccurate report.

Quiz 2: The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance