The Auditor Has a Responsibility to Respond to Fraud Risk

question 47

Multiple Choice

The auditor has a responsibility to respond to fraud risk by planning and performing the audit to obtain reasonable assurance that material misstatements, whether due to error or fraud, are detected; therefore, the auditor should:

• A) maintain a level of professional scepticism.
• B) always assume that management is dishonest.
• C) always assume unquestioned honesty.
• D) expect to find fraud on all audits.

Analyze the effect of varying levels of sales on profit using cost-volume-profit (CVP) analysis.

Use scatter diagrams as a tool for analyzing past cost behaviors and estimating future costs.

Understand and apply the high-low method for estimating fixed and variable costs.

Understand the principles and rules of revenue recognition under Generally Accepted Accounting Principles (GAAP).

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Definitions:

Post Hoc

short for 'Post Hoc Ergo Propter Hoc', a logical fallacy where one assumes that since event Y followed event X, event X must have caused event Y.

Fallacy

A reasoning error that leads to a flawed argument.

Ice Cream

Ice Cream is a frozen dessert made from dairy products, such as milk and cream, combined with flavorings and sweeteners, often enjoyed as a treat.

Slot Machine

A gambling machine that creates a game of chance for its customers, often found in casinos.