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Select the best possible answers for each of the following questions.
This activity contains 10 questions.
Which of the following statements best describes why auditors investigate related party transactions?
Related party transactions are a form of management fraud.
The substance of related party transactions may differ from their form.
Related party transactions are generally illegal acts.
All related party transactions must be eliminated as a step in preparing consolidated financial statements.
The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's assertion about
rights or obligations.
existence or occurrence.
valuation or allocation.
When auditing the existence assertion for an asset, auditors proceed from the
general ledger back to the supporting original transaction documents.
financial statement numbers back to the potentially unrecorded items.
supporting original transaction documents to the general ledger.
potentially unrecorded items forward to the financial statement numbers.
Confirmation of accounts receivable provides evidence primarily about these two assertions.
existence and completeness
completeness and valuation
rights and obligations and existence
valuation and rights and obligations
Audit standards require an auditor to
design the audit program to meet financial statement users' expectations concerning fraud.
provide reasonable assurance that the financial statements are not materially misstated because of fraud.
issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have occurred.
perform procedures designed to detect all instances of fraud that might affect the financial statements.
The auditor is most likely to presume that a high risk of a fraud exists if
the client does business with several related parties.
inadequate employee training results in lengthy EDP exception reports each month.
inadequate segregation of duties places an employee in a position to be able to perpetrate and conceal theft.
the client is a multinational company that does business in numerous foreign countries.
Which of the following, if material, would constitute fraud?
clerical mistakes in the accounting data underlying the financial statements
misinterpretations of facts that existed when the financial statements were prepared
mistakes in the application of accounting principles
misappropriation of an asset or groups of assets
According to the definition in the CICA Handbook Section 5135, "Auditor's Responsibility to Detect and Communicate Misstatements," which of the following circumstances would be classified as an error?
misinterpretation by management of facts that existed when the financial statements were prepared
preparation of records by employees to cover a fraudulent scheme
intentional omission of the recording of a transaction to benefit a third party
misappropriation of assets for the benefit of management
In the context of an audit of financial statements, substantive tests are audit procedures that
may be either tests of details of balances or analytical procedures.
may be eliminated under certain conditions.
will increase proportionately with the auditor's reliance on internal control.
are designed to discover significant subsequent events.
Analytical procedures may be classified as being primarily
tests of controls.
detailed tests of balances.
tests of ratios.
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