Auditing

8-1. For audit purposes, which of the following occurrences is considered to be a direct illegal act? a. The miscalculation of payroll taxes payable b. The miscalculation of warranty expense payable c. Violation of a regulation pertaining to age discrimination in hiring practices d. Violation of a zoning ordinance applicable to a warehouse under construction

8-2. Which of the following considerations represents the auditors primary financial statement concern upon discovery of an indirect illegal act? a. Whether the client needs to inform its stakeholders. b. Whether the client needs to implement detection controls. c. Whether the client needs to dismiss the responsible parties. d. Whether the client needs to disclose and/or accrue a loss contingency.

8-3. A key audit objective in sending a letter of inquiry to clients legal counsel is . . . a. to obtain the attorneys draft of the FASB ASC 450 footnote. b. to minimize the auditors liability in case the client is sued for financial wrongdoing. c. to confirm that the client has chosen an appropriate financial reporting framework (FRF). d. to gather evidence about loss contingencies arising from litigation, claims, and assessments.