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Which of the following statements concerning litigation, claims, and assessments, which were extracted from a letter from a
clients lawyer, is most likely to cause the auditor to request clarification?
a. I believe that the possible liability to the company is nominal in amount.
b. I believe that the action can be settled for less than the damages claimed.
c. I believe that the plaintiffs case against the company is without merit.
d. I believe that the company will be able to defend this action successfully
2.
3.
An auditors standard report on a review of the financial statements of a nonpublic entity should state that
a. The auditor does not express an opinion or any form of limited assurance on the financial statements
b. Nothing has come to the auditor's attention based on the review that causes the auditor to believe the financial
statements are not presented fairly, in all material respects in accordance with generally accepted accounting principles
in the Philippines
c. The auditor obtained reasonable assurance about whether the financial statements are free of material misstatement
d. The auditor examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements
4.
5.
6.
When a change in the type of engagement from higher to lower level of assurance is reasonably justified, the report based on
the revised engagement
a. Should contain a separate paragraph that refers to the original engagement.
b. Should always refer to any procedures that may have been performed in the original engagement.
c. Should qualify the opinion due to scope limitation.
d. Omits reference to the original engagement.
7.
When planning and performing audit procedures and evaluating and reporting the results thereof, the auditor should
a. Search for errors that would have a material effect and for fraud that would have either material or immaterial effect on
the financial statements.
b. Consider the risk of misstatements in the financial statements resulting from fraud or error.
c. Search for fraud that would have a material effect and for errors that would have either material or immaterial effect on
the financial statements.
d. Consider the risk of material misstatements in the financial statements resulting from fraud or error.
8.
Which statement is incorrect regarding the auditors responsibility to consider fraud and error in an audit of financial
statements?
a. The auditor is not and cannot be held responsible for the prevention of fraud and error.
b. In planning the audit, the auditor should discuss with other members of the audit team the susceptibility of the entity to
material misstatements in the financial statements resulting from fraud or error.
c.
d.
9.
The auditor should design test of controls to reduce to an acceptably low level the risk that misstatements resulting
from fraud and error that are material to the financial statements taken as a whole will not be detected.
When the auditor encounters circumstances that may indicate that there is a material misstatement in the financial
statements resulting from fraud or error, the auditor should perform procedures to determine whether the financial
statements are materially misstated.
When planning the audit, which of the following is least likely a purpose of the auditors inquiries of management?
a. To obtain an understanding of managements assessment of the risk that the financial statements may be materially
misstated as a result of fraud.
b. To obtain knowledge of managements understanding regarding the accounting and internal control systems in place to
prevent and detect error.
c. To determine whether management has discovered any material errors.
d. To determine extent of authentication of documentation.