ACCT 4160 Exam #2

The major reason an independent auditor gathers audit evidence is to:

• Form an opinion on the financial statements

• Detect fraud

• Evaluate management

• Assess control risk

Which of the following best describes the reason why an independent auditor reports on financial statements?

• A misappropriation of assets may exist & its more likely to be detected by independent auditors

• Different interests may exist between the company preparing the statements & the persons using the statements

• A misstatement of account balances may exist & is generally corrected as the result of the independent auditor's work

• Poorly designed internal controls may be in existence

Because of the risk of material misstatement, an audit should be planned & performed with an attitude of:

• Professional skepticism

• Independent integrity

• Objective judgment

• Impartial conservatism

An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors & fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?

• Misappropriation of an asset or groups of assets

• Clerical mistakes in the accounting data underlying the financial statements

• Mistakes in the application of accounting principles

• Misinterpretation of facts that existed when the financial statements were prepared

What assurance does the auditor provide that errors & fraud that are material to the financial statements will be detected?

• Errors: Limited

  Fraud: Negative

• Errors: Reasonable

  Fraud: Reasonable

• Errors: Limited

  Fraud: Limited

• Errors: Reasonable

  Fraud: Limited

Which of the following statements describes why a properly designed & executed audit may not detect a material misstatement in the financial statements resulting from fraud?

• The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole

• Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion

• An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud

• The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements

An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of

• Existance

• Completeness

• Accuracy, valuation & allocation

• Rights & obligations

An auditor will most likely review an entity's periodic accounting for the numerical sequence of shipping documents to ensure all documents are included to support management's assertion about classes of transactions of:

• Occurrence

• Classification

• Accuracy

• Completeness

In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of:

• Existence

• Completeness

• Accuracy, valuation & allocation

• Classification

The auditor's responsibility regarding material misstatements caused by fraud is:

• Less than the auditor's responsibility regarding material misstatements caused by error

• Greater than the auditor's responsibility regarding material misstatements caused by error

• In the same as the auditor's responsibility regarding material misstatements caused by error

• Either less than or greater than the auditor's responsibility regarding material misstatements caused by error, depending on the circumstances