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Auditing Theory
Notes 9. Which of the following statements is correct concerning the required documentation in
working papers of fraud risk assessment undertaken by the auditor?
(a) All risk factors as mentioned in AAS4, should be considered and documented along
with response to them.
(b) Document the identification of fraud risk factors along with response to them.
(c) Document material fraud, risk factors and response to them.
(d) No documentation in required.
10. Which of the following is the most appropriate potential reaction of the auditor to his
assessment that the risk of material misstatement due to fraud is high in relation to
existence of inventory?
(a) Visit location on surprise basis to observe test counts
(b) Request inventory count at a date close to year end
(c) Vouch goods sent on approval very carefully
(d) Perform analytical procedures.
11. Which of the following is not likely to be a fraud risk factor relating to management's
characteristics?
(a) Tax evasion
(b) Failure to correct known weakness in internal control system
(c) Adoption of conservative accounting principles
(d) High management turnover
12. Professional skepticism requires that the auditor assume that management is
(a) reasonably honest
(b) neither honest nor dishonest
(c) not necessarily honest
(d) dishonest unless proved otherwise
13. An auditor who accepts an audit but does not possess the industry expertise of the business
entity should
(a) engage experts
(b) obtain knowledge of matters that relate to the nature of entity's business
(c) inform management about it
(d) take help of other auditors
14. An auditor obtains knowledge about a new client's business and its industry to
(a) Make constructive suggestions concerning improvements to the client's internal
control system.
(b) Evaluate the appropriateness of audit evidence obtained
(c) Under stand the events and transactions that may have an effect on client's financial
statements.
(d) All of the above
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