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AICPA CPA-Auditing Exam - Topic 2 Question 74 Discussion

Which of the following statements is correct regarding the auditor's consideration of the possibility of illegal acts by clients?
D) If 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
A) The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance that no illegal acts have been committed by clients.
B) The 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.
C) If 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.

AICPA CPA-Auditing Exam - Topic 2 Question 74 Discussion

Actual exam question for AICPA's CPA-Auditing exam
Question #: 74
Topic #: 2
[All CPA-Auditing Questions]

Which of the following statements is correct regarding the auditor's consideration of the possibility of illegal acts by clients?

Show Suggested Answer Hide 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
8 months ago
I agree with C, but it feels like a gray area sometimes.
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Cecily
8 months ago
B doesn't make sense; how can experience alone determine illegal acts?
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Adelina
8 months ago
Wait, so the auditor can't guarantee no illegal acts? That seems risky!
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Dante
8 months ago
I thought A was correct at first, but I see the difference now.
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Darell
9 months ago
Choice C is definitely the right one!
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Alyce
9 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
9 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
9 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
9 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
9 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
9 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
9 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
10 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
10 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
1 year 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
1 year ago
Auditing is necessary to ensure the financial statements are free of material misstatement.
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Chery
1 year ago
That's right, they can't just assume everything is fine without checking.
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Elza
1 year ago
Auditors have to apply additional procedures if they suspect illegal acts.
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Justa
1 year 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
1 year ago
Absolutely, auditors need to be thorough and diligent in their work to uncover any potential illegal acts.
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Ula
1 year ago
Agreed, auditors can't catch everything, but they should still investigate further if they suspect something.
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Werner
1 year ago
It's important for auditors to apply additional procedures when there's a hint of illegal activity.
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Noah
1 year ago
Auditors should definitely follow up on any specific information about illegal acts.
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Jesusita
1 year 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
1 year 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
1 year ago
I agree, it's nearly impossible to guarantee that no illegal acts have ever been committed by clients.
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Stephen
1 year 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
1 year 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
1 year 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
1 year ago
I think the correct statement is C.
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Georgeanna
1 year 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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Azzie
1 year ago
Auditors play a crucial role in identifying potential illegal activities by clients.
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Nidia
1 year ago
Yes, additional procedures are necessary to determine if an illegal act has occurred.
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James
1 year ago
It's important for auditors to investigate further if they suspect illegal acts.
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Deja
1 year ago
I agree, option C is the correct answer.
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