AICPA Exam CPA-Auditing Topic 2 Question 74 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 74
Topic #: 2

Which of the following statements is correct regarding the auditor's consideration of the possibility of illegal acts by clients?

AThe auditor has a responsibility to plan and perform the audit to obtain reasonable assurance that no illegal acts have been committed by clients.

BThe auditor's training, experience, and understanding of the client should be used to provide a basis for the determination as to whether illegal acts have occurred.

CIf specific information concerning an illegal act comes to the auditor's attention, the auditor should apply audit procedures specifically directed to ascertaining whether an illegal act has occurred.

DIf an illegal act has occurred, the auditor should express a qualified opinion or an adverse opinion on the financial statements taken as a whole.
Explanation
Choice 'c' is correct. If specific information concerning a possible illegal act comes to the auditor's attention, the auditor should apply additional audit procedures to determine whether an illegal act has in fact occurred.
Choice 'a' is incorrect. The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. This is a different level of assurance than stating that 'no illegal acts' have been committed by clients, since it is possible for an immaterial illegal act (for example a theft of a few dollars from the petty cash fund) to occur and not be identified by the auditor.
Choice 'b' is incorrect. The auditor's training, experience, and understanding of the client may not be sufficient to provide a basis for the determination as to whether illegal acts (especially indirect effect illegal acts) have occurred.
Choice 'd' is incorrect. If an illegal act has occurred, but the act has been properly accounted for and/or disclosed, there would be no need to express a qualified opinion or an adverse opinion.
Risk Assessment

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. When obtaining an understanding of an entity's internal control in a financial statement audit, an auditor is not obligated to search for significant deficiencies in the operation of internal control.

Choice 'a' is incorrect. In order to determine the nature, timing and extent of tests to be performed, an auditor must determine whether the control activities have been implemented.

Choice 'b' is incorrect. An auditor is required to perform procedures to confirm his/her understanding of the internal control systems' design, and to determine whether relevant controls have been implemented.

Choice 'c' is incorrect. An auditor is required to document his or her understanding of the entity's internal control components, even if he or she intends to use a substantive approach.

by Scarlet at Sep 01, 2023, 02:05 AM

Limited Time Offer

25%

18 days ago

I think option C is the correct answer. The auditor should definitely apply additional procedures if they come across specific information about a potential illegal act.

upvoted 0 times

...