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Exam AUD topic 1 question 549 discussion

Actual exam question from AICPA's AUD
Question #: 549
Topic #: 1
[All AUD Questions]

Which of the following information discovered during an audit most likely would raise a question concerning possible illegal acts?

  • A. Related party transactions, although properly disclosed, were pervasive during the year.
  • B. The entity prepared several large checks payable to cash during the year.
  • C. Material internal control weaknesses previously reported to management were not corrected.
  • D. The entity was a campaign contributor to several local political candidates during the year.
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Suggested Answer: B 🗳️
Choice "B" is correct. Information that may raise a question concerning possible illegal acts include unusually large payments made to:
- Cash
- Bearer
- Purchase cashier's checks
- Transfer funds to numbered accounts
Choice "A" is incorrect. Related party transactions may provide an indication of fraud, particularly if not made in the ordinary course of business, but they are generally not indicative of illegal acts.
Choice "C" is incorrect. Failure to correct material internal control weaknesses may represent a conscious decision by management to accept that degree of risk because of cost or other considerations.
Choice "D" is incorrect. Contributions to local political candidates are legal and generally would not raise a question about possible illegal acts.
by gemazyni at April 5, 2025, 4:48 p.m.

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