chap 6 auditors responsibilities

Question 1

in obtaining reasonable assurance that the FSs are free of material missatement, the auditor takes into account what kind of applicable frameworks revevant to the client?

Answer 1

legal and regulatory frameworks

Question 2

auditing standards indicate reasonable assurance is a ____ level of assurance that the FSs are free of material misstatements

Answer 2

high

Question 3

the auditors responsibilities regarding noncompliance with laws and regs (illegal acts) depends on what?

Answer 3

whether the laws or regs are expected to have a direct effect on the amounts and disclosures in the FSs

Question 4

when the auditor reports on the effectivieness of internal control over financial reporting, the auditor is reponsible for what?

Answer 4

identifying material weaknesses in internal control over financial reporting

Question 5

if auditor is precluded by management or those governing from obrtaining sufficient appropriate evidence to evaluate whether noncompliance that may be material to the FS has occured or is likely to have occurred, the auditor should express?

Answer 5

a qualified option or discliam an opinion on FSs on the basis of scope limitation

Question 6

which type of mistatement can be either material or unmaterial between fraud and error

Answer 6

both

Question 7

the auditors ability to detect material misstatmentments arising from failure to comply with laws or regulations is impacted by what 3 factors?

Answer 7

1. many laws and regs primarily relate to operating aspects of the business and typically do not affect the FSs and are not captured by the clients info system related to financial reporting 2. noncompliance may involve actions to conceal it 3. Whether an act constitutes noncompliance is a matter for legal determination

Question 8

whate are 3 reasons an auditor is reposnible for reasonable but not absolute assurance?

Answer 8

1. most audit evidence comes from testing a sample of the population. the areas to be tested; the type, extent, and timing of the test; and the evaluation of the test results requires significant auditor judgment 2. accounting presentation have complex estimates, which involve uncertainty and can be affected by future events 3. fraudulently prepared FSs are often extremely difficilt for the auditor to detect especially if there is collusion among management

Question 9

one of the difficulties for the auditor is detmining how laws and regs do what?

Answer 9

impact FS amounts and disclosures

Question 10

What are the 2 overall objectives of the auditor in conducting an audit of FSs?

Answer 10

1. obtain reasonable assurance about whether the FSs as a whole are free from material missatement, whether due to fraud or error, so that the auditor can express an opinion on whether the FSs are presented fairly , in all material respects, with applicable fiancial reporting framework 2. report on the FSs and communicate as required by auditing standards, in accordance with the auditors findings

Question 11

how should the Reporting of Identified or Suspected Noncompliance be handled?

Answer 11

1. Unless the matter is inconsequential, the auditor should communicate with those charged with governance of matters of noncompliance. if the matter is intentional and material, should be communicated to those charged with governance like board of directors as soon as practicable 2. identify whether responsibilitily exists to report noncompliance to parties outside the entity

Question 12

what is assurance?

Answer 12

a measure of the level of certainty that the auditor has obtained at the completion of an audit

Question 13

For fraud, there is a distinction between what 2 subtypes? who usually commits these?

Answer 13

1. misappropriation of assets- employees 2. fraudulent financial reporting- management

Question 14

When a law or reg has a direct effect on the FSs, the auditor should what?

Answer 14

obtain sufficient appropriate evidence regarding material amounts and disclosures that are directly affected by laws and regulations.

Question 15

if the noncompliance has a material effect and has not been adequately reflected in the FSs, the auditor should express?

Answer 15

a qualified or adverse opinion on the FSs

Question 16

what is the auditors best defense when material mistatements are not uncovered?

Answer 16

that they conducted the audit in accordance with auditing standards

Question 17

what are the Audit Procedures When Noncompliance Is Identified or Suspected?

Answer 17

1. The auditor should obtain an understanding of the situation and obtain additional info to evaluate the possible effects on the FSs 2. discuss the matter with management at a level above those involved and possibly those charged with governance 3. if management or those governing cnat provide info that supporsts that the entity is in compliance and the auditor believes the effect of the noncompliance may be material to the FSs, the auditor should consider the need to obtain legal advice and should evaluate the effects of noncompliance on other aspects of the audit like risk assessment and reliability of other representations from management

Question 18

how does Misappropriation of assets is harm creditors, stockholders, and others ?

Answer 18

because the assets have been taken from their rightful owners, the company

Question 19

T/F Auditors spend a great portion of their time planning and performing audits to detect unintentional errors made by management and employees

Answer 19

T

Question 20

a measure of the level of certainty that the auditor has obtained at the completion of an audit?

Answer 20

assurance

Question 21

even though it is difficult to quantify a measure of materiality, auditors are responsible for ?

Answer 21

obtaining reasonable assurance that this materiality threshold has been satisfied

Question 22

what are the two types of misstaements?

Answer 22

errors and fraud

Question 23

missatements are usually considered material if what?

Answer 23

the combined uncorrected errors and fraud in the FSs would likely have changed or influenced the decisions of a reasonable person using the statements

Question 24

T/F Auditing standards make a distinction between the auditor’s responsibilities for detecting errors versus fraud.

Answer 24

F

Question 25

T/F Auditors should obtain sufficient appropriate evidence regarding material amounts and disclosures that are directly affected by laws and regulations.

Answer 25

T

Question 26

when laws and regulation do not have a direct effect on the FSs but may have one like avoiding material penalties for not following the law, auditors should

Answer 26

1. inquire of management and those charged with governance about whether the entitity is in compliance with such laws and regulations 2. inspect correspondence, in any, witht he relevant licensing or regulatory authorities

Question 27

how does Fraudulent Financial Reporting harm financial statement users?

Answer 27

Fraudulent financial statements present users with incorrect financial information that is used for decision making

Question 28

why are auditors not responsible for making certain all the assertions in the FSs are correct?

Answer 28

the cost of the audit function would increase to where audits would not be economicially practical