Exercise on PSA 240

What is the primary responsibility for the prevention and detection of fraud?

• External regulators

• The internal audit team

• Management and those charged with governance

• The auditor

What is the effective date of PSA 240 (Redrafted)?

• March 15, 2007

• June 30, 2010

• January 1, 2008

• December 15, 2009

Which of the following is NOT a type of fraud relevant to the auditor?

• Misappropriation of assets

• Fraudulent financial reporting

• Intentional misstatements

• Collusion among employees

What does professional skepticism require from the auditor?

• A questioning mind and critical assessment of audit evidence

• Complete trust in management

• Acceptance of all documents as genuine

• Reliance on past experiences only

What should the auditor do if they suspect fraud involving management?

• Ignore the suspicion

• Communicate the suspicion to those charged with governance

• Report to external authorities immediately

• Conduct a full investigation without informing anyone

Which of the following is a fraud risk factor?

• High employee morale

• Effective internal controls

• Strong oversight by governance

• Significant financial pressures on management

What is the auditor's responsibility regarding management representations?

• To verify all representations

• To obtain written representations from management

• To rely solely on verbal communications

• To disregard management's input

What should the auditor evaluate when identifying risks of material misstatement due to fraud?

• Only the financial statements

• The entity's internal controls and environment

• The auditor's previous audits

• The industry standards

Which of the following is a characteristic of fraud?

• Unintentional actions

• Intentional deception

• Transparency in financial reporting

• Lack of opportunity

What is the auditor required to do if they identify a misstatement indicative of fraud?

• Discuss it only with management

• Evaluate the implications for the audit

• Report it to the media

• Ignore it if it's not material