CPA Auditing and Attestation (AUD) : Audit Risk Evidence
Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)
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Example Questions
Example Question #5 : Fraud Incentives
Of the following characteristics, which would most likely raise an auditor's concern about the risk of material misstatement arising from fraud?
Large amounts of liquid assets that are easily convertible into cash
Management's lack of interest in increasing the entity's stock trend
The inability of the company to generate cash flows from operations while reporting substantial earnings growth
Inability to borrow necessary capital without granting debt covenants
The inability of the company to generate cash flows from operations while reporting substantial earnings growth
The CPA auditor's concern about fraud risk would be raised if the company was unable to generate cash flows while reporting earnings growth as these two factors are inconsistent.
Example Question #6 : Fraud Incentives
In the pursuit of maintaining professionally skeptical, an auditor should conduct all of the following procedures except:
Demand compliance from management
Obtain information to help identify fraud risks
Maintain discussion of fraud risk with engagement team
Evaluate evidence from the audit about fraud
Demand compliance from management
Professional skepticism encourages cordial and polite behavior while analyzing evidence and keeping an open mind for potential risks of fraud. Demanding compliance from management is not professionally skeptical.
Example Question #1 : Fraud Vs Error
Which of the following groups within an entity is typically in the best position to perpetrate a material fraud?
Customers
Management
Entry level personnel
Directors
Management
Management is typically in the best position to perpetrate a material fraud because management can override controls to manipulate accounting records and prepare fraudulent financial statements.
Example Question #11 : Audit Risk Evidence
According to PCAOB standards which one of the following statements does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement or error?
The effects of misclassification
The cost of the correction
The dollar amount of the error
The significance of the misstatement
The dollar amount of the error
The dollar amount of the error does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement or error.
Example Question #12 : Audit Risk Evidence
Misstatements discovered by an auditor were immaterial in the aggregate in prior years. Such misstatements should be:
Retested during the current year test of controls
Considered in the current year evaluation of audit findings
Disclosed by the current year client’s financial statements
Removed from the prior year summary because they were immaterial
Considered in the current year evaluation of audit findings
Misstatements discovered by an auditor were immaterial in the aggregate in prior years. Such misstatements should be considered in the current year evaluation of audit findings.
Example Question #4 : Fraud Vs Error
Prior to or during the information gathering procedures for an audit, team members should discuss the potential for material misstatement dur to fraud. Of the following, which best characterizes the mind set that the audit team should maintain during this discussion?
Questioning
Criticizing
Presumptive
Judgemental
Questioning
During an audit, the CPA should maintain an attitude of professional skepticism which includes a questioning mind and a critical assessment of audit evidence.
Example Question #5 : Fraud Vs Error
Of the following, which best characterizes the auditor's exercise of professional skepticism?
Taking past relationships and experiences with management into account
Having a questioning mind and attitude
Obtaining adequate evidence in support of the fairness of financial statements
Conducting all fraud-related inquiries in a respectful manner
Having a questioning mind and attitude
Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence.
Example Question #6 : Fraud Vs Error
An employee at a company being audited may be more likely to commit fraud if he or she feels which of the following?
Rationalization
Opportunity
Pressure
All of the answer choices are correct
All of the answer choices are correct
These three factors in the fraud environment are the key components of the reasons someone would commit fraud.
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