The Limitations of an Audit Which Are Documented in an Engagement

question 62

Multiple Choice

The limitations of an audit which are documented in an engagement letter pertain to each of the following except:

• A) material errors or illegal activities having a direct and material financial statement impact may not be detected because of the judgmental nature of many audit areas and the fact that detailed tests are not performed for all types of transactions.
• B) fraudulent activities having a direct and material financial statement impact may not be detected because of the nature of fraud, including the possibility of the perpetrator's concealment efforts and/or management's override of controls.
• C) internal controls may change or deteriorate such that they may not be effective in the prevention or detection of future material misstatements in the financial statements.
• D) under the standards established by the PCAOB, the auditor's responsibilities for communicating internal control weaknesses are limited to notification to the company's shareholders regarding material weaknesses.

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Definitions:

Republican

Pertaining to a supporter or member of the Republican Party in the United States, one of the two major political parties, typically associated with conservative political policies.

Progressive

Referring to political and social movements or policies aiming at reforms and advancements in societal issues, governance, or equity.

National Recovery Agency

Likely refers to the National Recovery Administration (NRA), a prime New Deal agency established by U.S. President Franklin D. Roosevelt in 1933 to stimulate economic recovery during the Great Depression.

Agricultural Adjustment Agency

A New Deal agency in the United States created in 1933 to boost agricultural prices by reducing surpluses, paying farmers to cut crop production and kill off excess livestock.