Question

Each of the following could describe why there can be audit failure except?

Inadequate internal accounting and control systems

The possibility that the existing disclosure rules have loopholes and some questionable financial practices are not disclosed

In their quest to keep clients, the auditor may be convinced by their clients to allow some questionable reporting practices

When individuals collude, they can often overcome internal controls and perpetuate an undetected fraud, at least for a period of time

An accounting and internal control system that pick up incorrect or fraudulent transactions can signal financial scandals for audit

2.

Which of the following is correct?

		Investment analysis refers to revenues earned and expenses incurred. Profitability is concerned with cash flows
		Investment analysis refers to revenues earned and expenses incurred. Profitability is concerned with cash flows
		Profitability refers to assets and liabilities. Investment analysis is concerned with cash flows
		Profitability refers to revenues earned and expenses incurred. Investment analysis is concerned with cash flows
		Profitability refers to common stocks. Investment analysis is concerned with preferred stocks

Answer 1

1.

Option E is the correct answer - An accounting and internal control system that picks up incorrect or fraudulent transactions can signal financial scandals for audit

All the described scenarios from A to D are directly linked with an event of audit failure.

But, having an accounting and internal control system that picks up incorrect or fraudulent transactions helps the auditors to detect scandals and keeps the audit away from being a failure.

2.

Option D is the correct answer - Profitability refers to revenues earned and expenses incurred. Investment analysis is concerned with cash flows

Profitability analysis refers to analyzing revenues and expenses whereas investment analysis refers to analyzing cash flows

Remaning statements are wrong since they have wrong description of the methods.