Question

ADVANCED AUDIT

Part A. Multiple Choice

1. Professional skepticism is: Select one: Select one:

a. Necessary for a quality control system

b. Adherence to the professional code of ethics

c. An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

d. The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.

2. With respect to financial statement fraud, which one of the following statements is not correct? Select one:

A. Enquiries of management are more useful for detecting management fraud than employee fraud.

B. Excessive pressure on management to meet expectations of third parties creates incentives for management fraud. C. The auditor needs to consider the likelihood of collusion in determining the appropriate level to report suspicions of fraud.

D. The auditor must consider the risk of material fraud at both the financial statement level and the assertion level.

3. The auditor is required to prepare audit documentation sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the _________________ in reaching conclusions on significant matters arising during the audit. Select one:

A. Significant professional judgements made.

B. The interviews conducted with employees and management

C. Confirmation letters

D. The total evidence gathered

4. When auditing a private company, the auditor should obtain an understanding of internal control sufficient to: Select one:

A. Assess control risk.

B. Provide reasonable protection against client fraud and defalcations by client employees.

C. Provide a method for safeguarding assets, checking the accuracy and reliability of accounting data, promoting operational efficiency, and encouraging adherence to prescribed managerial policies.

D. Provide a basis for suggestions to the client for improving the accounting system.

Answer 1

As per the expert guidelines we have to answer only the first question.

1) The correct answer is option c. An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

It is the concept which is specifically applied to the internal auditors.
Professional skepticism is known as state of questioning mind which is always alert to the situations that may indicate possible misstatement due to the error or the fraud.
It is the critical assessment of the audit evidence.