AA Chapter 25 Questions
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In reference to question 3
I seem to keep getting confused with the difference between the auditors responsibility to obtain reasonable assurance that the financial statements are free from material misstatements (whether due to fraud or error) and the responsibility to detect fraud, however material.
How can you obtain reasonable assurance if you don’t detect material fraud???
“however material” covers the entire spectrum of materiality including immaterial – i.e. “however material [or not]”.
Please use the ASK the TUTOR forum with technical queries rather than this comments space.
In quustion 2 ,why not the answer is report to police?
I think you mean Q4. If you select “review quiz” you will see answer justifications (for incorrect as well as correct answers). As it says – it is for the company to report the matter to the police.
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what is asked in question 2?
You are asked to select whether each of the four descriptions is an example of a fraud or an error.
I need detailed explanations of the difference between those charged with governance and management, this is because it confuses me so many times. Thank you,
Corporate hierarchy broadly is : Shareholders(owners) > Directors(top level management) > Operational managers > Employees
Those charged with governance – Directors of the company; basically the ones directly reporting to shareholders and holding the responsibility of running the company & preparing the FS.
Management – Personnel reporting to the directors and responsible for the day to day operations of business. Basically the lower level managers or divisional heads. Employees under specific departments would directly report to this level of management.
Here is a definition: Those charged with governance – The person(s) or organizations(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process.
So for a listed/public entity complying with a code of governance (.e.g UK Code), it will be the audit committee.
For an unlisted company with no requirement for separate oversight management is charged with governance – so in the smallest of companies with only two directors (say) – they are responsible for the governance of the company.