Question

In: Accounting

11. You are the auditor of Crestview Co and have commenced planning for the2019 audit engagement....

11. You are the auditor of Crestview Co and have commenced planning for the2019 audit engagement. as part of your planning activities, you have asked the CEO about important events during the year that might have an impact on the audit. In response, he has asked you to 'take it easy' on the Chief Financial Officer because his son is seriously ill. Apparently, the child must travel regularly to the United States for expensive medical treatments.

What fraud risk factors are present in this situation?

Select one:

  1. Incentive and opportunity
  2. Incentive, opportunity and rationalisation
  3. Incentive and rationalisation
  4. Opportunity and rationalisation

12. An auditor leaves an audit firm and takes the role of the CFO of an audit client two months after completing the audit. This would involve some of the following threats. Select which three options are correct.

Select one or more:

  1. Familiarity
  2. Self-review
  3. Self-interest
  4. Intimidation

14. Which of the following actions would be considered as self-interest threats?

Select which two options are correct?

Select one or more:

  1. An auditor has potential employment with an assurance client.
  2. An auditor acts as an advocate on behalf of an assurance client.
  3. A member of the assurance team is a director of the client.
  4. One client provides a high percentage of total audit fees.

Solutions

Expert Solution

Solution :

11) Opton B : Incentive, opportunity and rationalisation

The CFO's son is seriously ill. The CFO has the incentive & opportunity to commit fraud, as he also has an appropriate rationalization of son's illness for it.

12) Self-interest threat, Self-review and Familiarity

The auditor has been a part of the audit team till now, and now joins the company as a CFO.
The memebrs of the audit team are familiar with the CFO (ex-auditor) hence, this gives rise familarity threat.

The financial statements will be reviewed by the CFO and the audit team giving rise to a self-review threat. The CFO has a direct interest in the audit firm and the company in which he quit as an auditor. The audit closed by the auditor two months before also has the element of self-interest threat as the auditor had a potential employment in the company.

14) Option A & D : potential employment and Higher fees

Self-interest threat exists when the auditor has a financial interest in the company or when the auditor is dependent on the client for a higher fee.


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