3 Questions
What is the auditor's responsibility in regards to financial statements?
Ensuring they are free from material misstatement
What is the risk of not detecting a material misstatement resulting from fraud higher than?
The risk of not detecting a misstatement resulting from error
What is the auditor's responsibility in regards to maintaining professional skepticism?
Considering the potential for management override of controls
Study Notes
- The auditor is responsible for obtaining reasonable assurance that the financial statements are free from material misstatement.
- There is a risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with GAAS.
- The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting one resulting from error.
- The auditor's ability to detect a fraud depends on factors such as the skillfulness of the perpetrator, the frequency and extent of manipulation, the degree to which collusion is involved, the relative size of individual amounts manipulated, and the seniority of those individuals involved.
- Although the auditor may be able to identify potential opportunities for fraud to be perpetrated, it is difficult for the auditor to determine whether misstatements in judgment areas, such as accounting estimates, are caused by fraud or error.
- The auditor is also responsible for maintaining professional skepticism throughout the audit, considering the potential for management override of controls, and recognizing the fact that audit procedures that are effective for detecting error may not be effective in detecting fraud.
Test your knowledge of auditing and fraud detection with this quiz. Explore the responsibilities of auditors, the challenges in detecting material misstatements, and the factors affecting the detection of fraud. Consider the risk factors, professional skepticism, and the differences between fraud and error detection.
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