CPA Auditing and Attestation (AUD) : Fraud vs Error

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

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Example Questions

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?

Possible Answers:

Customers

Management

Entry level personnel 

Directors

Correct answer:

Management

Explanation:

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 #2 : Fraud Vs Error

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?

Possible Answers:

The cost of the correction

The significance of the misstatement

The effects of misclassification

The dollar amount of the error

Correct answer:

The dollar amount of the error

Explanation:

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 #3 : Fraud Vs Error

Misstatements discovered by an auditor were immaterial in the aggregate in prior years. Such misstatements should be:

Possible Answers:

Disclosed by the current year client’s financial statements

Removed from the prior year summary because they were immaterial

Retested during the current year test of controls

Considered in the current year evaluation of audit findings

Correct answer:

Considered in the current year evaluation of audit findings

Explanation:

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?

Possible Answers:

Questioning

Criticizing

Presumptive

Judgemental

Correct answer:

Questioning

Explanation:

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?

Possible Answers:

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

Correct answer:

Having a questioning mind and attitude

Explanation:

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?

Possible Answers:

Rationalization

Opportunity

Pressure

All of the answer choices are correct

Correct answer:

All of the answer choices are correct

Explanation:

These three factors in the fraud environment are the key components of the reasons someone would commit fraud.

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