Auditing Chapter 24 – Flashcards

agreements that the entity will hold to a fixed set of conditions, such as the purchase or sale of merchandise at a stated price, at a future date, regardless or what happens to profits or to the economy as a whole

a reminder to the auditor of aspects of the audit that may have been overlooked

a potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place

the use of one audit report date for normal subsequent events and a later date for one or more subsequent events and a later date for one or more subsequent events that come to the auditor's attention after the field work has been completed

a questionnaire that reminds the auditor of disclosure problems commonly encountered in audits and that facilitates final review of the entire audit by an independent partner

a review of the financial statements and the entire set of audit files by a completely independent reviewer to whom the audit team must justify the evidence accumulated and the conclusions reached

a letter from the client requesting that legal counsel inform the auditor of pending litigation or any other information involving legal counsel that is relevant to financial statement disclosure

a written communication from the client to the auditor formalizing statements that the client has made about matters pertinent to the audit

an optional letter written by the auditor to a client's management containing the auditor's recommendations for improving any aspect of the client's business

information that is not a part of the financial statements but is published with them; auditors must read this information for inconsistencies with the financial statements

the auditing procedures performed by auditors to identify and evaluate subsequent events; also known as a post-balance-sheet review

a review of the completed audit files by another member of the audit firm to ensure quality and counteract bias

auditor discovery that the financial statements are materially misstated after they have been issued

transactions and other pertinent events that occurred after the balance sheet date that affect the fair presentation or disclosure of the statements being audited

a summary of immaterial misstatements not adjusted at the time they were found, used to help the auditor assess whether the combined amount is material; also known as a summary of possible misstatements

a potential legal claim against a client where the condition for a claim exists but no claim has been filed

auditors evaluate evidence they obtained during the first three phases of the audit to determine whether they should perform additional procedures for presentation and disclosure-related objectives

is determining whether management has disclosed all required information (completeness objective for presentation and disclosure)

1) there is a potential future payment to an outside party or the impairment of an asset that resulted from an existing condition 2) there is uncertainty about the amount of the future payment or impairment 3) the outcome will be resolved by some future event or events

should describe the nature of the contingency to the extent it is known and the opinion of legal counsel or management as to the expected outcome

1) pending litigation for patent infringement, product liability, or other actions 2) income tax disputes 3) product warranties 4) notes receivable discounted 5) guarantees of obligations of others 6) unused balances of outstanding letters of credit

1) evaluate the accounting treatment of known contingent liabilities to determine whether management has properly classified the contingency (classification and presentation and disclosure objective) 2) identify to the extent practical any contingencies not already identified by management (completeness presentation and disclosure objective)

is the agreement to commit the firm to a set of fixed conditions in the future, regardless of what happens to profits or the economy as a whole

is to determine whether any contingencies exist (occurrence presentation and disclosure objective)

1) inquire of management (orally and in writing) about the possibility of unrecorded contingencies 2) review current and previous years' internal revenue agent reports for income tax settlements 3) review the minutes of directors' and stockholders' meetings for indications of lawsuits or other contingencies 4) analyze legal expense for the period under audit and review invoices and statements from legal counsel for indications of contingent liabilities, especially lawsuits and pending tax assessments 5) obtain a letter from each major attorney performing legal services for the client as to the status of pending litigation or other contingent liabilities 6) review audit documentation for any information that may indicate a potential contingency 7) examine letters of credit in force as of the balance sheet date and obtain a confirmation of the used and unused balances

1) a list including (1) pending threatened litigation and (2) asserted or unasserted claims or assessments with which the attorney has had significant involvement 2) a request that the attorney furnish information or comment about the progress of each item listed 3) a request of the law firm to identify any unlisted pending or threatened legal actions or a statement that the client's list is complete 4) a statement informing the attorney of the attorney's responsibility to inform management of legal matters requiring disclosure in the financial statements and to respond directly to the auditor

is normally limited to the period beginning with the balance sheet date and ending with the date of the auditor's report

1) those that have a direct effect on the financial statements and require adjustment of the current year's financial statement amounts 2) those that have no direct effect on the financial statement amounts but for which disclosure is required

1) declaration of bankruptcy by a customer with an outstanding accounts receivable balance because of the customer's deteriorating financial condition 2) settlement of litigation at an amount different from the amount recorded on the books 3) disposal of equipment not being used in operations at a price below the current book value 4) sale of investments at a price below recorded cost

1) a decline in the market value of securities held for a temporary investment or resale 2) the issuance of bonds or equity securities 3) a decline in the market value of inventory as a consequence of government action barring further sale of a product 4) uninsured loss of inventories as a result of fire 5) a merger or an acquisition

1) procedures normally integrated as a part of the verification of year-end account balances-includes cutoff and valuation tests done as part of the tests of details of balances 2) procedures performed specifically for the purpose of discovering events or transactions that must be recognized as subsequent events (1) review records prepared subsequent to the balance sheet date (2) review internal statements prepared subsequent to the balance sheet date (3) examine minutes issued subsequent to the balance sheet date (4) correspond with attorneys (5) inquire of management (6) obtain a letter of representation

1) expand all subsequent events tests to the new date 2) restrict the subsequent events review to matters related to the new subsequent event

1) perform final analytical procedures 2) evaluate the going-concern assumption 3) obtain a management representation letter 4) consider information accompanying the basic financial statements 5) read other information in the annual report

1) to impress upon management its responsibility for the assertions in the financial statements 2) to remind management of potential misstatements or omissions in the financial statements 3) to document the responses from management to inquires about various aspects of the audit

1) financial statements 2) completeness of information 3) recognition, measurement, and disclosure 4) subsequent events

requires the auditor to obtain written representations from management about its responsibility for internal control over financial reporting and management's conclusion about the effectiveness of internal control over financial reporting as of the end of the fiscal period

1) to evaluate the performance of inexperienced personnel 2) to make sure that the audit meets the CPA firm's standard of performance 3) to counteract the bias that often enters into the auditor's judgment

1) to communicate auditor responsibilities in the audit of financial statements 2) to provide an overview of the cope and timing of the audit 3) to provide those charged with governance with significant findings arising during the audit 4) to obtain from those charged with governance information relevant to the audit