B. The turnover of senior accounting personnel is exceptionally low.C. Management places little emphasis on meeting earnings projections.D. Operating and financing decisions are dominated by many persons.•Answer (A) iscorrect. The auditor should be alert for conditions that suggest likely materialmisstatement. One condition that should raise doubt is the lack of support for recordedtransactions.•Answer (B) is incorrect because the auditor would consider the risk of material misstatement to begreater if the turnover of senior accounting personnel were high.•Answer (C) is incorrect because the auditor would consider the risk of material misstatement to begreater if management placed undue emphasis on meeting earnings projections.•Answer (D) is incorrect because the auditor would consider the risk of material misstatement to begreater if the decision processes were dominated by a single individual or small group.[172]Which of the following circumstances most likely would cause an auditor to consider whethermaterial misstatements exist in an entity's financial statements?A. Supporting records that should be readily available are frequently not produced when requested.B. Employing highly effective internal audit staff.C. Clerical errors are listed on a monthly computer-generated exception report.D. Differences are discovered during the client's annual physical inventory count.•Answer (A) iscorrect. Fraud risk factors relate to misstatements arising from (1) fraudulentfinancial reporting and (2) misappropriation of assets. Each of these categories may be furtherclassified according to the three conditions that ordinarily exist when fraud occurs: (1)incentives/pressures, (2) opportunities, and (3) attitudes/rationalizations. For example, anopportunity for misappropriation of assets may arise because of inadequate control over assetsreflected by a lack of timely and appropriate documentation of transactions, such as credit memosfor returns of goods (AU 316).•Answer (B) is incorrect because a highly effective internal audit staff is encouraged.•Answer (C) is incorrect because listing errors indicates management's concern aboutmisstatements.•Answer (D) is incorrect because differences are normal. Show
Which of the following circumstances most likely would cause the auditor to suspect that there are material misstatements in the entity’s financial statements? Significant differences between the physical inventory count and the accounting records are not investigated. Which of the following circumstances most likely would cause an auditor to suspect that material misstatements exist in a client’s financial statements?Which of the following circumstances most likely will cause an auditor to suspect that material misstatements exist in a client’s financial statements? Differences between reconciliations of control accounts and subsidiary records are not investigated. What are the 3 audit risks?There are three primary types of audit risks, namely inherent risks, detection risks, and control risks. Which of the following procedures would a CPA likely perform during the planning stage of an audit?Which of the following procedures would a CPA most likely perform during the planning stage of the audit? Evaluate the reasonableness of management’s allowance for doubtful accounts. Determine areas where there is a higher risk of material misstatement. Evaluate the significance of uncorrected misstatements. Which of the following circumstances would most likely cause an auditor to suspect that material?Which of the following circumstances most likely would cause the auditor to suspect that there are material misstatements in the entity’s financial statements? Significant differences between the physical inventory count and the accounting records are not investigated. Which of the following circumstances most likely would cause an auditor to suspect that material misstatement exist in a client’s financial statements?Which of the following circumstances most likely will cause an auditor to suspect that material misstatements exist in a client’s financial statements? Differences between reconciliations of control accounts and subsidiary records are not investigated. Which characteristics would concern an auditor about the risk of material misstatements arising?The nature of the company; The company’s selection and application of accounting principles, including related disclosures; The company’s objectives and strategies and those related business risks that might reasonably be expected to result in risks of material misstatement; and. Under which circumstances is a misstatement material?A material misstatement is information in the financial statements that is sufficiently incorrect that it may impact the economic decisions of someone relying on those statements. What can cause misstatements in the financial statements?Which of the following circumstances most likely would cause the auditor to suspect that there are material misstatements in the entity’s financial statements? Significant differences between the physical inventory count and the accounting records are not investigated. What are risks of material misstatements?The nature of the company; The company’s selection and application of accounting principles, including related disclosures; The company’s objectives and strategies and those related business risks that might reasonably be expected to result in risks of material misstatement; and. What are 3 types of risk controls?Risk control methods include avoidance, loss prevention, loss reduction, separation, duplication, and diversification. What are examples of audit risks?The common cause of detection risk is improper audit planning, poor engagement management, wrong audit methodology, low competency, and lack of understanding of audit clients. What are the 5 audit risks?Risk elements are (1) inherent risk, (2) control risk, (3) acceptable audit risk, and (4) detection risk. What are the 3 main types of audits?There are three main types of audits: external audits, internal audits, and Internal Revenue Service (IRS) audits. External audits are commonly performed by Certified Public Accounting (CPA) firms and result in an auditor’s opinion which is included in the audit report. Which of the following procedures would a CPA most likely perform during the planning stage?Which of the following procedures would a CPA most likely perform during the planning stage of the audit? Evaluate the reasonableness of management’s allowance for doubtful accounts. Determine areas where there is a higher risk of material misstatement. Evaluate the significance of uncorrected misstatements. Which of the following procedures would a CPA most likely perform in the planning phase of a financial statement audit?Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit? Compare recorded financial information with anticipated results from budgets and forecasts. Which of the following is one of the procedures in the planning phase of an audit?Which of the following is one of the procedures in the planning phase? Determine materiality. Determine need for other professionals. Prepare client proposal. What are the steps in planning the audit?Audit Process What causes material misstatement?Which of the following circumstances most likely will cause an auditor to suspect that material misstatements exist in a client’s financial statements? Differences between reconciliations of control accounts and subsidiary records are not investigated. What happens if an auditor finds a material misstatement?Factors that can increase the risk of material misstatement on a financial statement level include: Managerial incompetence. Poor oversight by the board of directors. Inadequate accounting systems and records. What are examples of risk of material misstatement?Which of the following circumstances most likely would cause the auditor to suspect that there are material misstatements in the entity’s financial statements? Significant differences between the physical inventory count and the accounting records are not investigated. Which of the following matters would an auditor most likely consider when establishing the scope of the audit?The nature of the company; The company’s selection and application of accounting principles, including related disclosures; The company’s objectives and strategies and those related business risks that might reasonably be expected to result in risks of material misstatement; and. Which characteristics would concern an auditor about the risk?In risk assessment, auditors consider the following risks:
What is the auditor required to identify and assess the risks of material misstatement?Having obtained and documented an understanding of the entity including its internal control, the auditor is now in a position to identify and assess the risks of material misstatement, which should be done at the financial statement level, and at the assertion level for classes of transactions, account balances and What is the risks of material misstatement?What is the Risk of Material Misstatement? The risk of material misstatement is the risk that the financial statements of an organization have been misstated to a material degree. When considering the factors that affect the risk of material misstatement the auditor should consider?38. The auditor should evaluate whether identified risks of material misstatement due to fraud can be related to specific financial-statement account balances or classes of transactions and related assertions, or whether they relate more pervasively to the financial statements as a whole.
Under which circumstances is a misstatement material?A material misstatement is information in the financial statements that is sufficiently incorrect that it may impact the economic decisions of someone relying on those statements.
What are the causes of material misstatements in the financial statements?Factors that can increase the risk of material misstatement on a financial statement level include:. Managerial incompetence.. Poor oversight by the board of directors.. Inadequate accounting systems and records.. Declining economic conditions.. Operation in rapidly changing industry.. What are the factors that are relevant to the assessment of the risk of material misstatement?Timing of Substantive Procedures. The assessed risk of material misstatement, including:. The nature of the substantive procedures;. The nature of the account or disclosure and relevant assertion; and.. The ability of the auditor to perform the necessary audit procedures to cover the remaining period.. |
Which of the following circumstances most likely will cause an auditor to consider whether material misstatements?
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