Certified Government Auditing Professional (CGAP) Practice Exam

During an audit, if discrepancies are found in financial reporting, what should the auditor prioritize?

1. Documenting discrepancies and addressing them in the report.

2. Ignoring small discrepancies if they do not affect overall results.

3. Immediately reporting to higher authorities without investigation.

4. Allowing management to handle discrepancies internally.

The correct answer is: Documenting discrepancies and addressing them in the report.

Documenting discrepancies and addressing them in the report is crucial for maintaining the integrity and reliability of the audit process. When an auditor identifies discrepancies in financial reporting, it is essential to accurately capture these findings, as they may indicate underlying issues such as misstatements, fraud, or non-compliance with accounting standards. By documenting these discrepancies, the auditor provides a clear basis for discussion and analysis, helping stakeholders understand the extent of the issues and the potential impact on financial statements. Incorporating these discrepancies into the audit report ensures transparency and accountability, allowing the relevant parties to make informed decisions based on factual information. This step is vital for enhancing trust in the financial reporting process and the overall accuracy of the organization's financial position. Addressing discrepancies thoroughly demonstrates the auditor's commitment to objectivity and thoroughness, which are fundamental principles in auditing. Other approaches, such as ignoring small discrepancies, reporting immediately without investigation, or allowing management to handle discrepancies internally, could lead to a lack of accountability, insufficient oversight, or a failure to uncover a more significant financial issue. By prioritizing the documentation and reporting of discrepancies, auditors contribute to a more robust financial governance framework.