Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 38AOQ
To determine
Identify a risk factor for misappropriation of assets out of the given options.
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Distinguish between the terms errors and fraud.
Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.
Define fraud, and explain the two types of misstatements that are relevant to auditor’s consideration of fraud.
“The deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements. The use of incentive systems and opportunities for fraudulent behavior are associated with higher fraud risk assessments by audit partners; however, the most important factors are senior management ethical attitudes and dishonest communication from management with the external auditor.”
Required:
Compare and contrast financial statement fraud with asset misappropriation. Why is it important to analyze the relationship between a company and its auditors?
Which of the following statements describes why a properly designed and executedaudit may not detect a material misstatement in the financial statements resultingfrom fraud?(1) Audit procedures that are effective for detecting unintentional misstatements maybe ineffective for an intentional misstatement that is concealed through collusion.(2) An audit is designed to provide reasonable assurance of detecting materialerrors, but there is no similar responsibility concerning fraud.(3) The factors considered in assessing control risk indicated an increased risk ofintentional misstatements, but only a low risk of unintentional misstatements.(4) The auditor did not consider factors influencing audit risk for account balancesthat have effects pervasive to the financial statements taken as a whole
Chapter 6 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Discuss what is meant by the phrase shopping for...Ch. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - Prob. 12RQCh. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - What is meant by making a proper year-end cutoff?...Ch. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Auditing standards require the auditors to have a...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24QRACh. 6 - Prob. 25QRACh. 6 - Prob. 26QRACh. 6 - Prob. 27QRACh. 6 - Prob. 28QRACh. 6 - Prob. 29QRACh. 6 - Prob. 30QRACh. 6 - Prob. 31QRACh. 6 - Prob. 32QRACh. 6 - Prob. 33QRACh. 6 - Prob. 34QRACh. 6 - Prob. 35QRACh. 6 - Prob. 36QRACh. 6 - Prob. 37QRACh. 6 - Prob. 38AOQCh. 6 - Prob. 38BOQCh. 6 - Prob. 38COQCh. 6 - Prob. 38DOQCh. 6 - Prob. 38EOQCh. 6 - Prob. 38FOQCh. 6 - Prob. 38GOQCh. 6 - Prob. 38HOQCh. 6 - Prob. 38IOQCh. 6 - Prob. 38JOQCh. 6 - Prob. 38KOQCh. 6 - Prob. 38LOQCh. 6 - Prob. 39OQCh. 6 - Prob. 40OQCh. 6 - Prob. 41OQCh. 6 - Prob. 42AOQCh. 6 - Prob. 42BOQCh. 6 - Prob. 42COQCh. 6 - Tracing from source documents to journals most...Ch. 6 - Vouching from journals (or ledgers) to source...Ch. 6 - For each definition (or portion of a definition)...Ch. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Tammy Potter, a new partner with the regional CPA...
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- Which of the following would a fraudster perceive as a pressure? A. lack of management oversight B. everyone does it C. living beyond ones means D. lack of an internal audit functionarrow_forwardWith respect to fraudulent financial reporting, which one of the following statements is not correct? a.The risk that the auditor will not detect misstatement due to management fraud is greater than those due to employee fraud. b.It is difficult for the auditor to determine if misstatements in accounting estimates are caused by fraud or error. c.When the audit is properly planned and performed in accordance with ISAs, material misstatements are guaranteed to be detected by the auditor. d.Excessive pressure on management to meet expectations of third parties creates incentives forarrow_forwardAccounting Which of the following statements is true regarding the identification and assessment of the risks of material misstatements by the auditor? a. As part of brainstorming activities, the auditor should identify possible frauds that could occur. Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the assertion level. Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level. d. All of these statements are true.arrow_forward
- What is the auditor’s strategy for detecting and preventing fraud with emphasis on risk analysis?arrow_forwardWhich of the following are reasons that auditors conduct analytical procedures at the risk assessment phase of the audit? Select all that apply. O assist with the identification of risk assess if the financial statements reflect the auditor's knowledge of their client O identify accounts at risk of material misstatement O highlight unusual fluctuations in accounts O helps with the calculation of materialityarrow_forwardPrepare a broad audit plan:1. What material types of transactions and transaction cycles are involved?2. What are the high-risk areas?3. What are the low-risk areas?4. If management faced tremendous pressure regarding the entity’s financial performance, what opportunities might exist for them to engage in fraudulent financial reporting?5. To what extent do you believe it will be appropriate to reduce assessed control risk?6. How will audit effort be allocated among geographical areas?7. What form of auditors’ report do you expect will be issued; what does it mean?8. Indicate as an appendix to the report how the project team was organized and how it functioned on the project and submit appendix with Team Project.arrow_forward
- Auditors should plan and perform their audits to provide reasonable assurance of detecting material misstatements in financial statements, including those resulting from fraud a.Distinguish between fraudulent financial reporting and misappropriation of assets. b. Describe the three fundamental conditions necessary for the commission of fraud. Provide an illustration of these three conditions for a case of fraudulent financial reporting. c. Describe the three ways in which the auditors may respond to fraud risks in an audit.arrow_forwardWhat is the primary objective of the fraud brainstorming session?a. Determine audit risk and materiality.b. Identify whether analytical procedures should be applied to the revenue accounts.c. Assess the potential for material misstatement due to fraud.d. Determine whether the planned procedures in the audit plan will satisfy the general audit objectives.arrow_forwardtch the type of risk with the related definition.A. Detection riskB. Control riskC. Inherent riskD. Audit risk___ 1. The probability that an auditor will give an inappropriate opinion on financial statements.___ 2. The probability that audit procedures will fail to produce evidence of material misstatements.___ 3. The probability that the client's internal control policies and procedures will fail to detect material misstatements if they have entered the accounting system.___ 4. The probability that material misstatements have occurred in transactions entering the accounting system.arrow_forward
- Read the case. Then answer the questions based on it. BACKGROUND: Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve the same objective. However, these instances are considered few and far between and current trends in auditing indicate that there is an expectation that accounts receivable will be confirmed. Auditors may stratify the population, use haphazard or judgmental sampling, and send positive or negative requests. Jenner & Jenner CPAs are the auditors for the Leno Company. In reviewing the accounts receivable aging, the auditors learn that there is a high number of accounts with balances, there are some very large and very small balances, and many customers' balances consist of multiple invoices. 2. How should the auditors mitigate the risk associated with both very large and…arrow_forwardWhat is the usefulness of using the Fraud Triangle to evaluate the risk of major misstatements in financial reporting?arrow_forwardAn auditor has completed the risk assessment process for the firm and is evaluating the results. If an auditor has determined that there is a material misstatement which is potentially due to fraud, what are the steps or actions that the auditor should take at this point?arrow_forward
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