a. An independent auditor has the responsibility to design the audit to provide

Question

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 and fraud that are material to the
financial statements will be detected?
errors Fraud
(1) Limited Negative
(2) Reasonable Reasonable
(3) Limited Limited
(4) Reasonable 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.

Explanation / Answer

Ans: (1) Misappropriation of an asset or groups of assets

Reason: it could be done with an deliberation of doing fraud. Rest all the three others are either due to lack of knowledge or human error not basically due to intention of fraud.

Ans: 2: (4) Reasonable Limited

Reason: Auditors are responsible for providing reasonable assurance based on their knowledge and finding of the audit. They are not expected to provided 100 % assurance that the business is free from mismanagement and fraud that's the responsibility of the management.

Ans 3: ) Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.

Reason: Auditor mayn't be able to obtain all the required information , as management due to collusion mayn't provide them with all details or hide facts from them. Thus Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.

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