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Answer : B

Choice 'b' is correct. A stratified sample generally is more efficient than an unstratified sample since the population is classified in a manner that emphasizes the higher dollar value items. The result is an estimate having a desired level of precision with a smaller sample size.

Choice 'a' is incorrect. Both stratified and unstratified MPU may be used for populations where many monetary errors are expected to occur.

Choice 'c' is incorrect. Stratified sampling reduces the variability among items in a stratum.

Choice 'd' is incorrect. Standard deviations measure variability, and stratification would tend to reduce the strata standard deviations as compared to the overall standard deviation of the population.

Answer : B

Choice 'b' is correct. Management is required to disclose all material matters to the independent auditor, including information concerning material frauD. This disclosure is so important that it is included in writing, in the management representation letter. Failure of management to disclose material fraud to the auditor would cause the auditor to question management's integrity and perhaps even to withdraw from the engagement.

Choice 'a' is incorrect. While management's aggressive attitude certainly constitutes a fraud risk, this alone would not necessarily cause the auditor to question management's integrity. It is possible for management to be both aggressive and ethical.

Choice 'c' is incorrect. While the domination of management by a stockholder certainly constitutes a fraud risk, this alone would not necessarily cause the auditor to question management's integrity. It is possible for management to be an ethical shareholder.

Choice 'd' is incorrect. Failure to correct a known weakness in internal control may be a conscious decision based on the cost and benefit involved with making the correction. Such decisions do not imply that management lacks integrity.

Answer : A

Choice 'a' is correct. The purpose of the management representation letter is to confirm management's oral evidence supplied during the engagement. Specific written representations obtained by the auditor might include acknowledgment that all compensating balances or other restrictions on cash have been disclosed.

Choice 'b' is incorrect. Management acknowledges responsibility for the fair presentation of the financial statements, not for illegal actions committed by employees.

Choice 'c' is incorrect. The auditor must decide whether there is sufficient audit evidence available to permit the issuance of an unqualified opinion, and does not request management confirmation of this decision.

Choice 'd' is incorrect. Management is responsible for the design and maintenance of internal control of the company, but it is the auditor who must determine whether material weaknesses in internal control exist.

Answer : C

Choice 'c' is correct. The written representation obtained by the auditor from management will ordinarily include information regarding any violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.

Choice 'a' is incorrect. A client engagement letter is used to document the understanding between the client and the auditor. The letter is generally sent from the auditor to the client, although the client may be requested to sign it. The statement, 'There are no violations or possible violations of laws or regulations...' should come from management. It would not be appropriate to include this in an engagement letter, which is often sent before the year has even ended.

Choice 'b' is incorrect. An auditor would prepare a report on compliance with laws and regulations. The statement, 'There are no violations or possible violations of laws or regulations...' should come from management.

Choice 'd' is incorrect. An auditor would prepare an attestation report on internal control. The statement, 'There are no violations or possible violations of laws or regulations...' should come from management.

Answer : C

Choice 'c' is correct. Because the auditor is concerned with events occurring through the date of the audit report that may require adjustment to or disclosure in the financial statements, the management representation letter should be dated as of the date of the auditor's report.

Choice 'a' is incorrect. The management representation letter is dated as of the date of the auditor's report, which is generally after the balance sheet date.

Choice 'b' is incorrect. The management representation letter is dated as of the date of the auditor's report, which is unrelated to the date of the latest interim financial information.

Choice 'd' is incorrect. The management representation letter is dated as of the date of the auditor's report, which is unrelated to the dates of related party transactions.