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      Question

      Under SA 240, the auditor’s responsibility relates to

      identifying and assessing risks of material misstatement due to fraud. If a whistleblower informs the auditor of possible revenue overstatement, what is the auditor’s next step?
      A Ignore unless evidence in audit file exists Correct Answer Incorrect Answer
      B Assess the allegation, design further audit procedures, and evaluate the effect on the audit opinion Correct Answer Incorrect Answer
      C Report immediately to shareholders without testing Correct Answer Incorrect Answer
      D Reduce audit fee Correct Answer Incorrect Answer
      E Issue disclaimer opinion directly Correct Answer Incorrect Answer

      Solution

      • SA 240 requires professional skepticism and investigation of fraud allegations through targeted procedures before concluding.

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