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Exam 3: Audit Planning I

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Question 31

Multiple Choice

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Preliminary risk identification can be affected by

A) fraud risk.
B) corporate governance.
C) both a and b
D) none of the above

E) B) and D)
F) All of the above

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Question 32

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Misappropriation of assets fraud involves intentionally misstating items or omitting important facts from the financial statements.

A) True
B) False

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Question 33

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Indicate whether you agree or disagree with the following statements and explain your reasoning. a) Related party transactions require proper identification and consideration when considering risk. However, there is no requirement to disclose related party transactions unless they have an impact on material misstatements. b) When assessing fraud risk, auditors should adopt an attitude of professional scepticism to ensure that any indicator of a potential fraud is properly investigated. c) The responsibility for preventing and detecting fraud rests with those charged with governance at the client as well as the auditors. d) The auditor should not ask management and those charged with governance if they are aware of a known fraud or suspect there has been fraud. e) Elvie Lee explained to her friend how application controls work: "Application controls are designed to prevent and detect a material misstatement in the financial statements."

Mathias Mousseau was at a client's offices and was preparing his work for the following day. He was considering the risk that a material misstatement due to significant error or fraud could occur in the client's financial statements. Which of the three main stages of the audit was he performing?

What should auditors do if there are risk factors that indicate that the going concern assumption is at risk?

When gaining an understanding of their client, at which level do auditors not usually consider the relevant issues?

Which of the following is not an example of a risk when a client installs a new IT system?

When Sheila Copes, CPA audited a new client she asked questions about what the client does, how the client functions, the ownership structure of the client and its sources of financing. She was getting an understanding of the client at the

What is fraud and what are some of the red flags that can alert auditors to the possibility that a fraud may have occurred?

When gaining an understanding of a client, the auditor will consider the risks associated with information technology. Risks associated with information technology include

Which of the following is an example of information used by auditors in gaining an understanding of a client at the entity level?

Explain the three main phases of an audit of financial statements.

Mitigating factors that reduce going concern risk include the ability to raise additional funds through the sale of shares.

Which of the following is an example of a misappropriation of assets fraud?

Risks associated with information technology include

In order to report strong results, an audit client may

Which statements about the going concern assumption are correct?

An auditor is not concerned with transactions and events being recorded in the correct accounting period.

Eva Islam, CPA is auditing a company where it is experiencing strikes regularly, has been under investigation with non-compliance with legislation and is falling behind competitors. What kind of risk is being assessed?

Corporate governance means