- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 26. Financial Reporting Quality
- Subject 3. Context for Assessing Financial Reporting Quality
CFA Practice Question
An audit is typically intended to ______
A. detect fraud.
B. ensure that financial reports are fairly presented.
C. be 100% independent.
Explanation: A: Auditors apply sampling techniques to limit the number of transactions and balances selected for audit testing in order to perform the audit efficiently and cost-effectively. There is therefore an inherent risk that the audit procedures may fail to detect a material misstatement in the financial statements, due to the inability of auditors to perform detailed testing of the entire population of transactions and balances.
C: The perceived independence of an auditor is, for instance, impaired when a client accounts for a significant portion of the revenue of the audit firm.
User Contributed Comments 3
| User | Comment |
|---|---|
| Tommy | An audit definitely has limitations, especially when the client is so important to the audit firm. |
| Lambo83 | if there is an inherent risk that audit procedures may fail to detect misstatements then an audit DOES NOT ensure that the financial reports are presented fairly. So many of these ambiguous trick-type of questions |
| ascruggs92 | While these may seem vague at first, I took this approach to answering: A) is wrong because most audits are not done with the intention of detecting fraud (although some are), but to ensure accurate representation of material. B) Seems correct C) is wrong because audit's are not TYPICALLY intended to be 100% independent, they are ALWAYS intended to be 100% independent. The really is no trick here, the question asks what the intention of an audit is, not whether the outcome always happens or not. |