An Auditor Discovers a Likely Fraud During an Audit but Concludes

question 15

Multiple Choice

An auditor discovers a likely fraud during an audit but concludes that the overall effect of the fraud is not sufficiently material to affect the audit opinion.The auditor should probably

• A) Disclose the fraud to the appropriate level of the client's management.
• B) Disclose the fraud to appropriate authorities external to the client.
• C) Discuss with the client the additional audit procedures that will be needed to identify the exact amount of the fraud.
• D) Modify the audit program to include tests specifically designed to identify the fraud and its impact on the financial statements.

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Definitions:

Materials Price Variance

The difference between the actual cost of materials used in production and the expected cost based on standard prices.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and constitute a significant portion of the production cost.

Fixed Manufacturing Overhead

Costs related to manufacturing that do not change with the level of production, such as rent, salaries, and utilities.

Direct Labor

Labor that is directly involved in the creation or production of goods, distinguishable from indirect labor such as administrative work.