[AMERICANDREAM]

The most likely explanation why the auditor’s examination cannot reasonably be expected to bring all acts of noncompliance with laws and regulations by the client to the auditor’s attention is that:

(a) Acts of noncompliance with laws and regulations by clients often relate to operating aspects rather than accounting aspects –> CORRECT
(b) Acts of noncompliance with laws and regulations may be perpetrated by the only person in the client’s organization with access to both assets and the accounting records.
(c) Acts of noncompliance with laws and regulations are perpetrated by management override of internal accounting controls.
(d) The client’s system of internal accounting control may be so strong that the auditor performs only minimal substantive testing.

I don’t get why the correct choice is (a). In fact, idk what this answer choice really means. I chose (c) because I realized that it’s talking about the inherent limitation of internal controls so I thought that could be why auditor cannot be expected to discover all acts of noncompliance.

Thanks.

[Missy]

Think bigger picture than financial statements. Laws and regulations can apply to pollution, safety, ADA compliance. Most illegal acts have nothing to do with financial statements so internal controls are only a fraction of compliance.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[CPA so close, so far away]

I agree with the response above. Remember, many auditing questions have several correct answers. They require use to choose the best one. That is demonstrated by the examiners using the phrase “most likely.” Choice A relates to major acts of noncompliance that are out of the scope of a financial statement audit, but could still have a big impact on the clients business. Think of the V.W. emissions scandal recently. They might not have deliberately perpetrated any financial statement fraud, but the acts of noncompliance with the emissions tests is an extremely prominent noncompliance with laws.

[Matt]

Also A makes some sense while B, C and D don't.

But I'm done with audit so, I'll get back to my reg studies.

FAR 74

[Author]

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