Question

In: Accounting

32. Which of the following actions would be considered as self-interest threats? Select which two options...

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

35. Which of the following is the major purpose of performing analytical procedures?

Select one:

  1. To study relationships among elements of information
  2. To perform additional audit procedures
  3. To plan the audit engagement
  4. To obtain audit evidence

40. The auditor of Crestview Co has made enquiries about a related party transaction identified in the notes to the financial statements. The auditor has discovered that the CEO of Crestview Co is the owner of a manufacturing company that is a major supplier to Crestview Co.

What is your assessment of the risk of fraud associated with this transaction?

Select one:

  1. medium, because rationalisation is absent
  2. medium, because opportunity is absent
  3. High, because incentive, opportunity and rationalization are all present.
  4. medium, because incentive is absent

Solutions

Expert Solution

32.

Self interest threats: These threats may occur when auditors are acting in their own interest. It includes auditors emotional, financial or other personal interest.

Some of the examples of self interest threats are: Charging high audit fees, taking loan & guarantees from its directors, potential employment with a client, undue dependence on audit fees,

Here in the given MCQ, the option C & D are self interest threats. (whereas other two options are self review threats that occurs when an auditor has to review work that previously performed.)

35.

Performance of Analytical procedures means study of plausible relationships amoung both financial and non financial data. It ranges from simple comparisons to the use of complex models involving many relationships & elements of data.

So the answer is Option A which is the study of various elements of information.

40.

Fraud refers to a deception which is intentional caused by an employee or organisation for personal gain. Fraud traingle is used to explain the motivation behind a fraud.

Fraud traingle consists of three components 1) oppurtunity - includes circumstances that allow fraud to occur. 2) Incentive - refer to emplyees mindset towards comminting fraud. 3)Rationalization - Individuals justification for committing fraud

For fraud to occur all three components must be present. So the answer is option C


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