Which of the following auditor concerns would be least likely to cause the auditor to withdraw from the engagement? O A. The integrity of management is in question. B. Upper level of management appears to have engaged in collusion in an effort to embezzle receipts on account. C. A material error was found in the depreciation calculation for the current period. O D. O The industry in which the client operates is burdened by excessive competition and client management is dominated by an individual who emphasizes the achievement of specific profit margins.

Which of the following auditor concerns would be least likely to cause the auditor to withdraw from the engagement? O A. The integrity of management is in question. B. Upper level of management appears to have engaged in collusion in an effort to embezzle receipts on account. C. A material error was found in the depreciation calculation for the current period. O D. O The industry in which the client operates is burdened by excessive competition and client management is dominated by an individual who emphasizes the achievement of specific profit margins.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 27MCQ

See similar textbooks

Similar questions

A moral or legal obligation to ensure the safety or well-being of others Could be defined as duty of care. An auditor's duty of care to a client would most likely be breached if the auditor failed to: Select one: a.comply with the Cooperation Act 2001 & all relevant auditing standards. b. Resolve their staffing issues. c. conduct the audit for the cheapest price. d.Prevent & detect earnings of management.
2. The auditors who find that the client has committed an illegal act would be most likely to withdraw from the engagement when the: Select one:a. Illegal act has material financial statement implications.b. Auditors cannot reasonably estimate the effect of the illegal act on the financial statements.c. Illegal act has received widespread publicity.d. Management fails to take appropriate corrective action.
Which of the following are indicators of a high-risk or low-risk profile client? Explain? Poor recent or forecast performance Significant control weaknesses Well-financed Conservative, prudent accounting policies Competent, honest management Significant unexplained transactions or transactions with connected companies Why do you think that inherent and control risk is responsible for the audited company(client) and detection risk belongs to auditors?
Companies of all sizes try to reduce business risks, create disaster recovery plans, and also purchase insurance for what they cannot completely control. Therefore, the business risk is the risk that: Select one: a.The auditor will give an inappropriate auditor’s opinion when the financial report is materially misstated b.The entity’s business objectives will not be attained due to the external and internal environment affecting the entity and the industry in which it operates. c. An error will occur given the environmental characteristics of the account balance. d.The auditor will be exposed to loss to their professional practice from litigation or adverse publicity arising in connection with an audit.
Indicate whether the information indicates an increased risk for fraud. If the information indicates an increased risk of fraud, indicate which fraud condition (incentives/pressures, opportunities, or attitudes/rationalization) is indicated. The company has experienced low turnover in management and its internal audit function. Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist. There are recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. The company’s financial performance is threatened by a high degree of competition and market saturation.
“The deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements. The use of incentive systems and opportunities for fraudulent behavior are associated with higher fraud risk assessments by audit partners; however, the most important factors are senior management ethical attitudes and dishonest communication from management with the external auditor.” Required: Compare and contrast financial statement fraud with asset misappropriation. Why is it important to analyze the relationship between a company and its auditors?
The auditor noticed that the financial statements of XYZ Company were missing some footnotes important for users for decision making. This action of management is a violation of: Select one: a. Full disclosure concept O b. Going concern concept c. Materiality concept O d. Cost benefit concept
Certain management characteristics may heighten the auditor’s concern about the risk of material misstatements. The characteristic that is least likely to cause concern is that management a. Operating and financing decisions are made by numerous individuals b. Commits to unduly aggressive forecasts c. Has an excessive interest in increasing the entity’s stock price through use of unduly aggressive accounting practices d. In interested in inappropriate methods of minimizing earnings for tax purposes
The auditor’s primary consideration is whether, and how, internal control prevents, or detects and corrects: illegal actions of the Management None of these options Material misstatement of the entity’s financial statements Incentives that prompt an employee to behave improperly
With respect to fraudulent financial reporting, which one of the following statements is not correct? a.The risk that the auditor will not detect misstatement due to management fraud is greater than those due to employee fraud. b.It is difficult for the auditor to determine if misstatements in accounting estimates are caused by fraud or error. c.When the audit is properly planned and performed in accordance with ISAs, material misstatements are guaranteed to be detected by the auditor. d.Excessive pressure on management to meet expectations of third parties creates incentives for
Assume that management had determined that its organization’saudit committee is not effective. How do the weaknesses in audit committeeaffect management’s evaluation of internal control over financialreporting? Would an ineffective audit committee constitute a materialweakness in internal control over financial reporting? State the rationalefor your response.
Fraudulent reporting by management could include a. Fictitious revenues from a fake customer. b. Improper asset valuation. c. Mismatching revenues and expenses. d. All of the above.