Question

Which of the following is false regarding the impact of IT on the audit process?

		Auditors should evaluate the effectiveness of application controls before evaluating general controls.
		Because auditors are responsible for obtaining an understanding of internal control, they must be knowledgeable about general and application controls, whether the client’s use of IT is simple or complex.
		The systematic nature of automated application controls may allow auditors to reduce sample sizes used to test those controls in both an audit of financial statements and an audit of internal control over financial reporting.
		Client changes to application software affect the auditor’s reliance on automated controls.

Which of the following is false regarding fraud?

		Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users.
		fraud describes any intentional deceit meant to deprive another person or party of their property or rights.
		Misappropriation of assets is normally perpetrated at higher levels of the organi­zation hierarchy.
		Misappropriation of assets is fraud that involves theft of an entity’s assets.

Which of the following is false regarding the conditions for fraud?

		A common incentive for companies to manipulate financial statements is improvement in the company’s financial prospects.
		In assessing risk factors, greater emphasis is placed on individual incentives and opportunities for theft.
		Three conditions for fraud arising from fraudulent financial reporting and misappro­priations of assets are referred to as the fraud triangle.
		A turnover in accounting personnel or other deficiencies in accounting and information processes can create an opportunity for misstatement.

Which of the following is false regarding assessment of fraud risk?

		the auditor has a responsibility to respond to fraud risk by planning and performing the audit to obtain reasonable assurance that material misstatements, whether due to errors or fraud, are detected.
		Auditing standards require the auditor to only make specific inquiries about fraud in high risk audit.
		Auditing standards require the audit team to conduct discussions to share insights from more experienced audit team members and to “brainstorm” ideas.
		Auditing standards require the auditor to evaluate whether fraud risk factors indicate incentives or pressures to perpetrate fraud, opportunities to carry out fraud, or attitudes or rationalizations used to justify a fraudulent action.

Answer 1

Ques:Which of the following is false regarding the impact of IT on the audit process?

Ans. Client changes to application software affect the auditor’s reliance on automated controls.

Explanation; Professional guidance states that auditors should gain a sufficient understanding of internal control to determine the nature, timing, and extent of tests to be performed on a financial statement audit (e.g., AICPA 1983, AICPA 2001).Also , The Section 404 requirement for an annual audit of internal control over financial reporting has led many organizations to spend substantial amounts on IT and document controls over IT to ensure compliance .…………………………………………………………………………………………………………………………………………………………………………..Ques: Which of the following is false regarding fraud?

Ans. Misappropriation of assets is normally perpetrated at higher levels of the organi­zation hierarchy.

Explanation; Under “Statements on Auditing Standards” no.99, Misappropriation of assets referred theft of entity’s assets. Misappropriation of assets can be happened in various ways, including embezzling receipts, stealing assets, or causing an entity to pay for goods or services that have not been received. It doesn’t state that Misappropriation of assets is normally perpetrated at higher levels of the organi­zation hierarchy, instead it is normally used to refer to theft involving management, employees and others internal to the organization.

…………………………………………………………………………………………………………………………………………………………………………..Ques: Which of the following is false regarding the conditions for fraud?

Ans. A turnover in accounting personnel or other deficiencies in accounting and information processes can create an opportunity for misstatement.

Explanation; Under “Statements on Auditing Standards” no.99, Three conditions generally are present when fraud occurs which called ‘Fraud triangle’. The conditions are “incentive or are under pressure, opportunity and attitudes or rationalisation”.

…………………………………………………………………………………………………………………………………………………………………………..Ques: Which of the following is false regarding assessment of fraud risk?

Ans. Auditing standards require the auditor to only make specific inquiries about fraud in high risk audit.

Explanation: Under Section 110, Responsibilities and Functions of the Independent Auditor, paragraph .02, states, " the auditor has a responsibility to respond to fraud risk by planning and performing the audit to obtain reasonable assurance that material misstatements, whether due to errors or fraud, are detected.”

Under section 230, Due Professional Care in the Performance of Work, the auditor's exercise of ‘professional skepticism’ when assessing the risk. Professional skepticism is allows the audit team to conduct discussions to share insights from more experienced audit team members and to “brainstorm” ideas.

Under “Statements on Auditing Standards” no.99, Auditing standards require the auditor to evaluate whether fraud risk factors indicate incentives or pressures to perpetrate fraud, opportunities to carry out fraud, or attitudes or rationalizations used to justify a fraudulent action.