The auditor should assess the risk that errors and fraud may cause the financial report to be materially misstated and, based on that assessment:
A)design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial report.
B)plan the audit to search for errors or fraud that could be material to the financial report.
C)perform the audit on the basis that errors or fraud are likely to cause a material misstatement of the financial report.
D)apply substantive tests to detect material misstatements except those perpetrated by means of forgery or collusion.

Question

Quizplus · Accepted Answer

The auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial report after assessing the risk of material misstatement. This approach helps the auditor to detect material misstatements caused by errors and fraud by applying appropriate audit procedures. Therefore, option A is the best choice. Option B is incorrect as it implies that the auditor plans to detect all errors and fraud, which may not be necessary. Option C is incorrect as it suggests that the auditor assumes that material misstatements exist in the financial report, which is not the case. Option D is incorrect as it excludes fraud perpetrated by forgery or collusion from the substantive tests, which is not appropriate.

The Auditor Should Assess the Risk That Errors and Fraud