Multiple Choice Questions
The following questions concern the auditor's responses to the possibility of fraud.
a. When fraud risk factors are identified during an audit the auditor's documentation should include

b. If an independent audit leading to an opinion on financial statements causes the auditor to believe that a material misstatement due to fraud exists, the auditor should first
(1) Consider the implications for other aspects of the audit and discuss the matter with the appropriate levels of management.
(2) Make the investigation necessary to determine whether fraud has actually occurred.
(3) Request that management investigate to determine whether fraud has actually occurred.
(4) Consider whether fraud was the result of a failure by employees to comply with existing controls.
c. As a result of analytical procedures, the auditor determines that the gross profit percentage has increased from 30 percent in the preceding year to 40 percent in the current year. The auditor should
(1) Document management's plans for maintaining this trend.
(2) Evaluate management's performance in causing the improvement in gross profit.
(3) Require footnote disclosure.
(4) Increase the auditor's assessment of the risk of revenue misstatements, includingfraud.

The Auditor's Response to The Risk Factors Identified e Risk Factors Identified Yes Yes Yes No 0 Yes No No 0 No 0 0