logo image

Chapter 17 – Audit

When auditing contingent liabilities, which of the following procedures would be least effective?
Examining customer confirmation replies
When obtaining evidence regarding litigation against an entity, the CPA would be least interested in
determining
The period in which the underlying cause of the litigation occurred
13. The auditor’s primary means of obtaining corroboration of management’s information concerning
litigation is a
Letter of audit inquiry to the entity’s lawyer
An auditor should obtain evidential matter relevant to all the following factors concerning third-party
litigation against an entity except the:
Jurisdiction in which the matter will be resolved
An auditor will ordinarily examine invoices from lawyers primarily in order to
D. Identify possible unasserted litigation, claims, and assessments
If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the
auditor should
B. Consider the refusal to be a scope limitation
The refusal of an entity’s attorney to provide a representation on the legality of a particular act committed
by the entity is generally
B. Considered to be a scope limitation.
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?
Settlement of litigation, in excess of the previously recorded liability
Which of the following situations would require adjustment to or disclosure in the financial statements?
The bankruptcy of a customer who regularly purchased 30 percent of the company’s
An example of a Type I subsequent event is
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the entity’s fiscal year) that a large portion of the entity’s inventory is obsolete.
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
A. Limited to the specific event referenced.
Which of the following procedures should an auditor generally perform regarding subsequent events?
A. Compare the latest available interim financial statements issued after year-end with the financial
statements being audited.
The purpose of analytical procedures at the completion of the audit includes all of the following
except:
A. Revising the audit plan.
Which of the following auditing procedures is ordinarily performed last?
D. Obtaining a management representation letter.
The date of the management representation letter should coincide with the
C. Date of the auditor’s report
Which of the following items should an auditor communicate to those charged with governance in a
publicly traded company?
A. Significant audit adjustments recorded by the company and management’s consultation with other accountants about significant accounting matters
The management letter is used
to make recommendations to the entity based on observations made during the audit
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?
B. Review Borax board minutes and obtain a representation letter.
Generally, loss contingencies that are judged to be remote
C. Should not be disclosed in the footnotes.
Which of the following procedures would an auditor most likely perform to obtain evidence about an
entity’s subsequent events?
B. Obtain a letter from the entity’s attorney describing any pending litigation, unasserted claims, and loss
contingencies
Which of the following procedures would an auditor ordinarily perform during the review of subsequent
events?
C. An inquiry of the entity’s legal counsel concerning litigation.
Which of the following is not an audit procedure that the independent auditor would perform with respect
to litigation, claims, and assessments
D. Confirm directly with the entity’s lawyer that all claims have been recorded in the financial
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
Matters to which the attorney has given substantive attention in the form of legal consulation or representation
Which of the following is generally requested in a legal letter?
A. A request that the attorney comment on unasserted claims where his or her views differ from
management’s evaluation.
Which of the following subsequent events will be least likely to result in an adjustment to the financial
statements?
D. Material changes in the quoted market prices of listed investment securities since the balance sheet
date.
Subsequent events for which the auditor has a responsibility to actively search are defined as events that
occur subsequent to the
C. Balance sheet date but prior to the date of the auditor’s report.
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
D. Delivery of the auditor’s report to the entity.
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
advise management to disclose the event in the notes to the FS
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
C. All subsequent events occurring through February 10, 2014 and the specific subsequent event referred
to in Note J through March 3, 2014.
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?
obtain a lawyer’s letter as of the completion of fieldwork
A Type II subsequent event usually requires
disclosure in the footnotes
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
A. The audit report, financial statements, and footnotes for consistency.
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?
C.
To identify the potential financial statement effects of errors or disputed items that were considered
immaterial when discovered.
Which of the following ratios is least likely to assist the auditor in determining whether the entity is
experiencing financial difficulties?
cash/total assets
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?
C.To satisfy himself or herself that a certain account balance is fairly stated when certain customary
auditing procedures are not performed
Which of the following expressions is least likely to be included in a management representation letter?
C. Management acknowledges responsibility for illegal actions committed by its employees
“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
C. Management representation letter
Which of the following matters is an auditor required to communicate to those charged with governance?
The process used by management in formulating sensitive accounting estimates.
“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
management representation letter
When considering the use of management’s written representations as audit evidence about the
completeness assertion, an auditor should understand that such representations
complement, but do not replace substantive procedures designed to support the assertion
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
A. Chief executive officer and the chief financial officer.
Communications between the auditor and those charged with governance should include all of the following except:
A. A summary of specific audit procedures used.
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?
C. New information is discovered concerning undisclosed lease transactions in the audited
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
B. Notify each member of the entity’s board of directors about management’s refusal to adjust the
financial statements.
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
Take no action because the auditor has no obligation to make any further inquiries
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
C. Disclose the situation in the auditor’s report
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
D. Corroborative inquiries made of the entity by the auditor
The primary reason an auditor requests letters of inquiry be sent to an entity’s attorneys is to provide the
auditor with
Corroboration of the information furnished by management concerning litigation, claims, and
assessments.
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?
B. “I believe that the action can be settled for less than the damages claimed.”
An auditor’s decision concerning whether or not to “dual date” the audit report is based upon the auditor’s
willingness to
extend auditing procedures
A Type I subsequent event usually requires
A. An adjustment to the financial statements
A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement
accounts when
C.The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably
estimated.
Which of the following statements ordinarily is included among the written management representations
obtained by the auditor?
A. Compensating balances and other arrangements involving restrictions on cash balances have been
disclosed
Which of the following statements is correct about an auditor’s required communication with
management and those charged with governance?
B.The auditor is required to inform those charged with governance about significant errors discovered by
the auditor and subsequently corrected by management.
Which of the following statements is correct concerning an auditor’s required communication with those
charged with governance?
B.This communication should include management changes in the application of significant accounting
policies.
For which of the following matters should an auditor obtain written management representations?
C. Management’s compliance with contractual agreements that may affect the financial stat
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?
jan 1, 2012 through may 1, 2014
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
D. Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is
discovered
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
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.
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
New information is discovered concerning undisclosed related party transactions of the previously
audited period.
Who generally signs the legal letter?
The CEO of the entity being audited.

Need essay sample on "Chapter 17 – Audit"? We will write a custom essay sample specifically for you for only $ 13.90/page

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
×
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
|
Complete Buyer Protection
|
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy