Question

Often, auditor procedures result in significant differences being discovered by the auditor. The auditor should investigate further if:

A)
Significant differences are not expected but do exist Significant differences are expected but do not exist
Yes Yes

B)
Significant differences are not expected but do exist Significant differences are expected but do not exist
No No

C)
Significant differences are not expected but do exist Significant differences are expected but do not exist
Yes No

D)
Significant differences are not expected but do exist Significant differences are expected but do not exist
No Yes

Answer 1

Auditors should investigate further whether significant differences arise unexpectedly, or when expected differences are not found, to maintain financial reporting integrity. The criteria for investigating these differences are generally stricter for unexpected results to ensure accuracy and address potential errors.

Step-by-step explanation:

When auditors perform procedures, they are looking for any significant differences that arise between what was expected and what they have observed. If significant differences arise when none are expected, or if they fail to arise when they are expected, further investigation is needed to determine the reason behind these discrepancies. This practice helps in ensuring the reliability of financial information and upholds the integrity of the financial reporting process.

Criteria for the believability of a measurement or observation typically vary depending on whether a result is expected or unexpected. For an unexpected result, the criteria will generally be more stringent as it may indicate a potential error or issue needing to be addressed.

However, it’s important to consider the guidance provided as very approximate guidelines, which essentially differentiate more significant issues from those that are insignificant.