Which type of misstatements are considered relevant fro audit purpose?

The correct answer is C. Both A and B. Both types of misstatements are relevant for audit purposes because auditors are responsible for detecting material misstatements regardless of whether they stem from error, fraud, or theft - ISA 240 (and its PCAOB/AICPA equivalents) explicitly require auditors to consider…

Question

Options

AMisstatements arising from fraudulent financial reporting
BMisstatements arising from misappropriation of assets
CBoth A and B
DNeither A nor B

How the community answered

(26 responses)

A
8% (2)
B
4% (1)
C
85% (22)
D
4% (1)

Explanation

Both types of misstatements are relevant for audit purposes because auditors are responsible for detecting material misstatements regardless of whether they stem from error, fraud, or theft - ISA 240 (and its PCAOB/AICPA equivalents) explicitly require auditors to consider risks from both fraudulent financial reporting (e.g., manipulating revenue recognition) and misappropriation of assets (e.g., embezzlement, skimming cash). Options A and B are therefore both correct individually, making them wrong only as standalone answers since neither alone captures the full scope of auditor responsibility. Option D is wrong because auditors cannot simply ignore either category - both represent fraud risks that must be assessed during planning and fieldwork.

Memory tip: Think "FAM" - Fraud = Financial reporting + Asset Misappropriation. Auditors must cover both sides of the fraud coin.

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