AICPA CPA-Auditing Exam - 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

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Chauncey

3 months ago

I agree with C, but it feels like a gray area sometimes.

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Cecily

3 months ago

B doesn't make sense; how can experience alone determine illegal acts?

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Adelina

4 months ago

Wait, so the auditor can't guarantee no illegal acts? That seems risky!

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Dante

4 months ago

I thought A was correct at first, but I see the difference now.

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Darell

4 months ago

Choice C is definitely the right one!

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Alyce

4 months ago

I recall that if an illegal act is found, it doesn’t automatically mean a qualified opinion is needed, especially if it’s disclosed properly. That makes choice D seem incorrect.

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Nidia

4 months ago

I’m a bit confused about the difference between illegal acts and material misstatements. I thought all illegal acts would be material, but I guess that’s not always the case?

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Layla

5 months ago

I think we practiced a question similar to this where we talked about the auditor needing to apply specific procedures if they hear about a potential illegal act. That sounds like choice C to me.

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Lai

5 months ago

I remember discussing how the auditor's responsibility is to ensure the financial statements are free from material misstatement, but I’m not sure if that means they have to find every illegal act.

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Gerry

5 months ago

Okay, let me break this down. Managers get monthly budgetary control reports, so this is likely related to the day-to-day operations of the business. I'll go with operational.

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Gertude

5 months ago

This seems like a tricky question. I'll need to think carefully about the differences between true and false positives and how they impact the business.

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Brandee

5 months ago

I'm a little confused by the wording of this question. Does the "choose two" mean I have to select exactly two options, or can I choose more? I want to make sure I get this right.

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Dottie

5 months ago

Okay, this is tricky. I'll eliminate the symptoms I know are depression-related and see what's left.

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Stephanie

5 months ago

I remember something about the hold time issue, but I'm not sure if I need to adjust it higher or just do a soft reset.

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Melissia

10 months ago

Wait, so the auditor can't just give a thumbs up and say 'everything's peachy'? They actually have to, you know, audit stuff? Who would've thought!

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Lorean

9 months ago

Auditing is necessary to ensure the financial statements are free of material misstatement.

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Chery

9 months ago

That's right, they can't just assume everything is fine without checking.

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Elza

10 months ago

Auditors have to apply additional procedures if they suspect illegal acts.

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Justa

10 months ago

I agree with C. The auditor has to be diligent and thorough, but they're not superheroes either. They can only do so much with the information available.

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Iluminada

9 months ago

Absolutely, auditors need to be thorough and diligent in their work to uncover any potential illegal acts.

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Ula

9 months ago

Agreed, auditors can't catch everything, but they should still investigate further if they suspect something.

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Werner

9 months ago

It's important for auditors to apply additional procedures when there's a hint of illegal activity.

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Noah

10 months ago

Auditors should definitely follow up on any specific information about illegal acts.

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Jesusita

10 months ago

Option A sounds good, but I don't think any auditor can realistically guarantee that no illegal acts have ever been committed. That's setting the bar a bit too high, don't you think?

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Rebbeca

9 months ago

That's true, the auditor's responsibility is to obtain reasonable assurance, not to guarantee the absence of all illegal acts.

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Rebbeca

10 months ago

I agree, it's nearly impossible to guarantee that no illegal acts have ever been committed by clients.

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Stephen

10 months ago

I'm not sure, but I think choice A is also important. The auditor needs to ensure reasonable assurance that no illegal acts have been committed.

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Marylou

10 months ago

I agree with you, Kayleigh. Choice C makes sense because the auditor should apply additional procedures if they suspect an illegal act.

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Casey

11 months ago

You know, I heard the auditor once caught a client trying to hide a multi-million dollar embezzlement scheme. They'll stop at nothing to uncover the truth!

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Kayleigh

11 months ago

I think the correct statement is C.

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Georgeanna

11 months 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.

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