question

When auditing contingent liabilities, which of the following procedures would be least effective?

answer

Examining customer confirmation replies

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When obtaining evidence regarding litigation against an entity, the CPA would be least interested in determining

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The period in which the underlying cause of the litigation occurred

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13. The auditor's primary means of obtaining corroboration of management's information concerning litigation is a

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Letter of audit inquiry to the entity's lawyer

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An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against an entity except the:

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Jurisdiction in which the matter will be resolved

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An auditor will ordinarily examine invoices from lawyers primarily in order to

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D. Identify possible unasserted litigation, claims, and assessments

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If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should

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B. Consider the refusal to be a scope limitation

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The refusal of an entity's attorney to provide a representation on the legality of a particular act committed by the entity is generally

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B. Considered to be a scope limitation.

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Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

answer

Settlement of litigation, in excess of the previously recorded liability

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Which of the following situations would require adjustment to or disclosure in the financial statements?

answer

The bankruptcy of a customer who regularly purchased 30 percent of the company's

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An example of a Type I subsequent event is

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B. An event after the balance sheet date that confirms the auditor's belief (documented prior to the end of the entity's fiscal year) that a large portion of the entity's inventory is obsolete.

question

An auditor issued an audit report that was dual dated for a subsequent event that occurred after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was

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A. Limited to the specific event referenced.

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Which of the following procedures should an auditor generally perform regarding subsequent events?

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A. Compare the latest available interim financial statements issued after year-end with the financial statements being audited.

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The purpose of analytical procedures at the completion of the audit includes all of the following except:

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A. Revising the audit plan.

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Which of the following auditing procedures is ordinarily performed last?

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D. Obtaining a management representation letter.

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The date of the management representation letter should coincide with the

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C. Date of the auditor's report

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Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

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A. Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters

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The management letter is used

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to make recommendations to the entity based on observations made during the audit

question

Ajax, Inc., is an affiliate of Borax, Inc. and is audited by another audit firm. Which of the following is most likely to be used by the auditor of Borax to obtain assurance that all guarantees by Borax of Ajax's indebtedness have been detected?

answer

B. Review Borax board minutes and obtain a representation letter.

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Generally, loss contingencies that are judged to be remote

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C. Should not be disclosed in the footnotes.

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Which of the following procedures would an auditor most likely perform to obtain evidence about an entity's subsequent events?

answer

B. Obtain a letter from the entity's attorney describing any pending litigation, unasserted claims, and loss contingencies

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Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

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C. An inquiry of the entity's legal counsel concerning litigation.

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Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims, and assessments

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D. Confirm directly with the entity's lawyer that all claims have been recorded in the financial

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An attorney is responding to an independent auditor as a result of the entity's letter of inquiry. The attorney may appropriately limit the response to

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Matters to which the attorney has given substantive attention in the form of legal consulation or representation

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Which of the following is generally requested in a legal letter?

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A. A request that the attorney comment on unasserted claims where his or her views differ from management's evaluation.

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Which of the following subsequent events will be least likely to result in an adjustment to the financial statements?

answer

D. Material changes in the quoted market prices of listed investment securities since the balance sheet date.

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Subsequent events for which the auditor has a responsibility to actively search are defined as events that occur subsequent to the

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C. Balance sheet date but prior to the date of the auditor's report.

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An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the

answer

D. Delivery of the auditor's report to the entity.

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A major customer of an entity suffers a fire after year-end, but just prior to completion of audit fieldwork.The entity believes that this event could have a significant direct effect on the financial statements. The auditor should

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advise management to disclose the event in the notes to the FS

question

If an auditor dates the auditor's report on financial statements for the year ended December 31, 2013,as of February 10, 2014, except for Note J, as to which the date is March 3, 2014, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of

answer

C. All subsequent events occurring through February 10, 2014 and the specific subsequent event referred to in Note J through March 3, 2014.

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Harvey, CPA is preparing an audit program for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in conformity with generally accepted accounting principles. Which one of the following procedures would be least appropriate for this purpose?

answer

obtain a lawyer's letter as of the completion of fieldwork

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A Type II subsequent event usually requires

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disclosure in the footnotes

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After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up review of the working papers. This second review usually focuses on

answer

A. The audit report, financial statements, and footnotes for consistency.

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In the course of the examination of financial statements for the purpose of expressing an opinion, the auditor normally prepares a schedule of unadjusted differences for which the auditor did not propose adjustments when they were discovered. What is the primary purpose of this schedule?

answer

C. To identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.

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Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties?

answer

cash/total assets

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As part of an audit, a CPA often requests a representation letter from the entity. Which one of the following is not a valid purpose of such a letter?

answer

C.To satisfy himself or herself that a certain account balance is fairly stated when certain customary auditing procedures are not performed

question

Which of the following expressions is least likely to be included in a management representation letter?

answer

C. Management acknowledges responsibility for illegal actions committed by its employees

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"There are no 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." The foregoing passage most likely is from a(an

answer

C. Management representation letter

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Which of the following matters is an auditor required to communicate to those charged with governance?

answer

The process used by management in formulating sensitive accounting estimates.

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"There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in, financial reporting practices that could have a material effect on the financial statements." The foregoing passage is most likely from a

answer

management representation letter

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When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations

answer

complement, but do not replace substantive procedures designed to support the assertion

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A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the

answer

A. Chief executive officer and the chief financial officer.

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Communications between the auditor and those charged with governance should include all of the following except:

answer

A. A summary of specific audit procedures used.

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Which of the following events occurring after the issuance of an entity's financial statements and the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

answer

C. New information is discovered concerning undisclosed lease transactions in the audited

question

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to

answer

B. Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.

question

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should

answer

Take no action because the auditor has no obligation to make any further inquiries

question

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The entity refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must

answer

C. Disclose the situation in the auditor's report

question

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with

answer

D. Corroborative inquiries made of the entity by the auditor

question

The primary reason an auditor requests letters of inquiry be sent to an entity's attorneys is to provide the auditor with

answer

Corroboration of the information furnished by management concerning litigation, claims, and assessments.

question

Which of the following statements extracted from an entity's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?

answer

B. "I believe that the action can be settled for less than the damages claimed."

question

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to

answer

extend auditing procedures

question

A Type I subsequent event usually requires

answer

A. An adjustment to the financial statements

question

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when

answer

C.The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.

question

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

answer

A. Compensating balances and other arrangements involving restrictions on cash balances have been disclosed

question

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

answer

B.The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management.

question

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

answer

B.This communication should include management changes in the application of significant accounting policies.

question

For which of the following matters should an auditor obtain written management representations?

answer

C. Management's compliance with contractual agreements that may affect the financial stat

question

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter?

answer

jan 1, 2012 through may 1, 2014

question

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless

answer

D. Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered

question

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless

answer

A. New information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.

question

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless

answer

New information is discovered concerning undisclosed related party transactions of the previously audited period.

question

Who generally signs the legal letter?

answer

The CEO of the entity being audited.

Chapter 17 – Audit – Flashcards

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