EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
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Chapter 9, Problem 36DQP
To determine
Identify the audit risk model that relates directly to each of the given risk factors.
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Below are ten independent risk factors:1. The client lacks sufficient working capital to continue operations.2. The client fails to detect employee theft of inventory from the warehouse becausethere are no restrictions on warehouse access and the client does not reconcileinventory on hand to recorded amounts on a timely basis.3. The company is publicly traded.4. The auditor has identified numerous material misstatements during prior yearaudit engagements.5. The assigned staff on the audit engagement lack the necessary skills to identifyactual errors in an account balance when examining audit evidence accumulated.6. The client is one of the industry’s largest based on its size and market share.7. The client engages in several material transactions with entities owned by familymembers of several of the client’s senior executives.8. The allowance for doubtful accounts is based on significant assumptions made bymanagement.9. The audit program omits several necessary audit procedures.10.…
With 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 for
Which of the following statements is not true with respect to written representations?a. The failure of management to furnish them is a significant scope limitation, resulting in either an adverse opinion or a disclaimer of opinion.b. They should address management’s responsibility for designing internal control to prevent and detect fraud.c. Auditors use them to corroborate information received during the audit from the client and its employees.d. They are dated the same date as the auditor’s reports.
Chapter 9 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
Ch. 9 - Prob. 1RQCh. 9 - Prob. 2RQCh. 9 - Provide two examples of factors that might...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 8RQCh. 9 - Prob. 9RQCh. 9 - Prob. 10RQ
Ch. 9 - Prob. 11RQCh. 9 - Prob. 12RQCh. 9 - Prob. 13RQCh. 9 - Prob. 14RQCh. 9 - Prob. 15RQCh. 9 - Prob. 16RQCh. 9 - Prob. 17RQCh. 9 - Prob. 18RQCh. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Prob. 21RQCh. 9 - Prob. 22RQCh. 9 - Prob. 23RQCh. 9 - Prob. 24RQCh. 9 - Prob. 25.1MCQCh. 9 - Prob. 25.2MCQCh. 9 - Prob. 25.3MCQCh. 9 - Prob. 26.1MCQCh. 9 - Prob. 26.2MCQCh. 9 - Prob. 26.3MCQCh. 9 - Prob. 27.1MCQCh. 9 - Prob. 27.2MCQCh. 9 - Prob. 27.3MCQCh. 9 - Prob. 28.1MCQCh. 9 - Prob. 28.2MCQCh. 9 - Prob. 28.3MCQCh. 9 - Prob. 29DQPCh. 9 - This problem requires you to access PCAOB Auditing...Ch. 9 - Prob. 31DQPCh. 9 - Prob. 32DQPCh. 9 - Prob. 33DQPCh. 9 - Prob. 34DQPCh. 9 - Prob. 35DQPCh. 9 - Prob. 36DQPCh. 9 - Prob. 37DQPCh. 9 - Prob. 38C
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- Rationalization for fraud can fall under two categories: “no harm” and “no responsibility.” Assume an employee is directed by management to reduce recorded expenses at year-end by insignificant amounts individually, but which are material in total. How might the employee justify her actions if questioned by the auditor with respect to no harm and no responsibility? What stage of moral development in Kohlberg’s model is best illustrated by the employee’s actions? Why?arrow_forwardReed, CPA, accepted an engagement to audit the financial statements of Smith Company. Reed’s discussions with Smith’s new management and the predecessor auditor indicated the possibility that Smith’s financial statements may be misstated due to the possible occurrence of errors, fraud, and illegal acts. a. Identify and describe Reed’s responsibilities to detect Smith’s errors and fraud. Do not identify specific audit procedures b. Describe Reed’s responsibilities to detect Smith’s material noncompliance with laws. Do not identify specific audit procedures. c, Identify and describe Reed’s responsibilities to report Smith’s noncompliance with laws. Auditors must consider the possibility of fraud by employees or management on every audit engagement. They must also consider the possibility that the client has not complied with laws. (a) Distinguish between employee and management fraud. (b) Describe the auditors' responsibility for the detection of fraud in an audit. (c) Describe the…arrow_forwardA competent auditor has done a conscientious job of conducting an audit, but because of a*clever fraud by management, a material fraud is included in the financial statements. The fraud, which is an. overstatement of inventory, took place over several years, and it covered up the fact that the company’s financial position was rapidly declining. The fraud was accidentally discovered in the latest audit by an unusually capable audit senior, and the SEC was immediately informed. Subsequent investigation indicated that the company was actually near bankruptcy, and the value of the stock dropped from P260 per share to PIO in less than 1 month. Among the losing stockholders were pension funds, university endowment funds, retired couples, and widows. The individuals responsible for perpetrating the fraud were also bankrupt. After making an extensive investigation of the audit performance in previous years, the SEC was satisfied that the auditor had done a high-quality audit and had followed…arrow_forward
- 1. The use of computer systems in financial reporting increases the risk of material misstatements. true or false 2. Automated controls in a computerized system are always more reliable than manual controls. true or false 3. Which of the following is NOT a requirement for an auditor to maintain independence? a. The auditor must not be related to any employees of the company being audited b. The auditor must not have any financial interest in the company being audited c. The auditor must not have any business relationships with the company being audited d. The auditor must have a significant financial stake in the company being audited 4. Which of the following is NOT a type of computer system control? a.Input controls b.Processing controls c.Output controls d.Feedback controlsarrow_forwardIn connection with the examination of financial statements by applying PSA 240 & 300, an independent auditor could be responsible for failure to detect a material fraud if Select one: a. statistical sampling techniques were not used on the audit engagement. b. accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. c. the auditor planned the work in a hasty and inefficient manner. d. the fraud was perpetrated by one client employee, who circumvented the existing internal controls.arrow_forwardAn audit manager has led the audit of Topaz Ltd for the last three years. Evidence of a fraud involving the falsification of timesheets and supplier invoices to a significant value have been found. Senior management within Topaz are implicated. Discuss the extent to which the external auditor should be criticised for not discovering this fraud.arrow_forward
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