Multiple Choice Questions
The following questions deal with errors and fraud. Choose the best response.
a. An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?
(1) Misappropriation of an asset or groups of assets.
(2) Clerical mistakes in the accounting data underlying the financial statements.
(3) Mistakes in the application of accounting principles.
(4) Misinterpretation of facts that existed when the financial statements were prepared.
b. What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will be detected?

c. Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement in the financial statements resulting from fraud?
(1) Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.
(2) An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning fraud.
(3) The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional misstatements.
(4) The auditor did not consider factors influencing audit risk for account balances that have effects pervasive to the financial statements taken as awhole.

Errors Fraud Direct-Effect legal Acts (1) Limited (2) Reasonable (3) Limited (4) Reasonable Negative Reasonable Limited Limited Limited Reasonable Reasonable Limited