b. An independent audit aids in the communication of economic data because the audit (1) confirms the accuracy of management’s financial representations. (2) lends credibility to the financial statements.
(3) guarantees that financial data are fairly presented.
(4) assures the readers of financial statements that any fraudulent activity has been corrected.
c. The major reason an independent auditor gathers audit evidence is to (1) form an opinion on the financial statements.
(2) detect fraud.
(3) evaluate management.
(4) assess control risk.
6-20. The following questions deal with errors and fraud. Choose the best response. a. An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and 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? (1) Misappropriation of an asset or groups of assets.
(2) Clerical mistakes in the accounting data underlying the financial statements. (3) Mistakes in the application of accounting principles.
(4) Misinterpretation of facts that existed when the financial statements were prepared.
b. What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will be detected? Errors | Fraud | Direct-Effect Illegal Acts |
(1) Limited| Negative| Limited|
(2) Reasonable| Reasonable| Reasonable|
(3) Limited| Limited| Reasonable|
(4) Reasonable| Limited| Limited|
c. Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud? (1) Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion. (2) An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud. (3) The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements. (4) The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as a whole.
6-27. The following are specific transaction-related audit objectives applied to the audit of cash disbursement transactions (a through f), management assertions about classes of transactions (1 through 5), and general transaction-related audit objectives (6 through 11). Specific Transaction-Related Audit Objective
a. Recorded cash disbursement transactions are for the amount of goods or services received and are correctly recorded. b. Cash disbursement transactions are properly included in the accounts payable master file and are correctly summarized. c. Recorded cash disbursements are for goods and services actually received. d. Cash disbursement transactions are properly classified.
e. Existing cash disbursement transactions are recorded.
f. Cash disbursement transactions are recorded on the correct dates. Management Assertion about Classes of Transactions | General Transaction-Related Audit Objective | * 1. Occurrence *...