Question

1.

A. What do auditing standards require of the auditor regarding the assessment of material misstatement due to fraud?

B. Define professional Skepticism. Explain the two ways that auditor demonstrate/practice professional skepticism?

C. List and briefly explain the five (5) sources of information gathered to assess fraud risks

2.

A. Define and completely describe the effect that each of the following have on the audit of inventory

              -- FOB

             -- Consignment

B. Why is knowledge/understanding of an audit client’s industry important when audit inventory?

C. What are three specific actions that can be taken by audit clients to artificially inflate the balance in the inventory account? How should the audit plan address these actions? What are the auditors options if these actions are discovered?

Answer 1

(1) AS PER AS 12 AUDITOR SHOULD OBTAIN AN UNDERSTANDING TO ASSESS THE RISK OF ASSESSMENT OF MATERIAL MISSTATEMENT RELATING TO FRAUD:

1. Obtaining an understanding of the company and its environment
2. Obtaining an understanding of internal control over financial reporting
3. Considering information from the client acceptance and retention evaluation, audit planning activities, past audits, and other engagements performed for the company
4. Performing analytical procedures
5. Conducting a discussion among engagement team members regarding the risks of material misstatement    ( B) PROFESSIONAL SKEPTICISM IS A ATTITUDE OF QUESTIONING MIND.AN AUYDITOR SHOULD MAINTAIN A PROFESSIONAL SKEPTICISM.IT IS ONE OF THE MOST ETHICAL REQUIREMENT TO PERFORM AUDIT