Question 1

When requiring a letter of audit inquiry from the client's attorney,which of the following information will be requested?

Accepted Answer

A) A statement regarding conflicts of interest that the attorney may have with the client. 
B) The attorney's expert opinion of proper GAAP treatment related to client contingencies. 
C) An evaluation of the likelihood of unfavorable outcome of,and estimated losses from contingencies. 
D) Possible auditor defenses for third-party litigation related to ordinary negligence claims. 
A) A statement regarding conflicts of interest that the attorney may have with the client. 
B) The attorney's expert opinion of proper GAAP treatment related to client contingencies. 
C) An evaluation of the likelihood of unfavorable outcome of,and estimated losses from contingencies. 
D) Possible auditor defenses for third-party litigation related to ordinary negligence claims.

Question 2

Regarding loss contingencies,legal counsel should be instructed by the client to respond directly to the auditors.

Accepted Answer

A) True 
 B)False

Question 3

On what information does the auditor base a going concern evaluation?

Accepted Answer

A) On separate procedures. 
B) On the management discussion and analysis (MD&
A) . 
C) On information obtained from normal audit procedures performed to test management's assertions. 
D) On the statement of cash flows for the current period. 
A) On separate procedures. 
B) On the management discussion and analysis (MD&
A) . 
C) On information obtained from normal audit procedures performed to test management's assertions. 
D) On the statement of cash flows for the current period.

Question 4

The going-concern evaluation must be based on separate procedures that test the client's ability to continue as a going concern.

Accepted Answer

A) True 
 B)False

Question 5

A disclosure checklist is a convenient documentation format for evidence that the auditor adequately evaluated the client's disclosures.

Accepted Answer

A) True 
 B)False

Question 6

The date of the audit opinion of Upton Industries,Inc.reads: March 7,2014 except for Note D,as to which the date is March 12,2014.What is this an example of?

Accepted Answer

A) Improper reporting. 
B) A GAAP violation. 
C) Dual dating. 
D) A contingent event. 
A) Improper reporting. 
B) A GAAP violation. 
C) Dual dating. 
D) A contingent event.

Question 7

Which of the following is not an inherent limitation in an auditor's ability to detect material misstatements relating to a client's compliance with laws and regulations?

Accepted Answer

A) Laws and regulations often relate to operational issues within the entity that do not necessarily relate to the financial statements,so the information systems relating to financial reporting may not capture noncompliance. 
B) The legal implications of noncompliance are ultimately a matter for legal authorities to resolve,and are not a matter about which the auditor can resolve. 
C) Management may act to conceal noncompliance,or may override controls,or may intentionally misrepresent facts to the auditor. 
D) Auditors are not required to consider the applicable legal and regulatory frameworks that apply to the entity. 
A) Laws and regulations often relate to operational issues within the entity that do not necessarily relate to the financial statements,so the information systems relating to financial reporting may not capture noncompliance. 
B) The legal implications of noncompliance are ultimately a matter for legal authorities to resolve,and are not a matter about which the auditor can resolve. 
C) Management may act to conceal noncompliance,or may override controls,or may intentionally misrepresent facts to the auditor. 
D) Auditors are not required to consider the applicable legal and regulatory frameworks that apply to the entity.

Question 8

Misstatements that are detected,but individually are not material,should be ignored when determining the appropriate audit report.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is one of the most important drivers of audit quality in cases where an auditor may feel some pressure to acquiesce to management's demands to not require that misstatements be corrected in order to preserve a harmonious working relationship?

Accepted Answer

A) Firm culture. 
B) Ethics training. 
C) Annual income of the CPA firm. 
D) PCAOB guidance. 
A) Firm culture. 
B) Ethics training. 
C) Annual income of the CPA firm. 
D) PCAOB guidance.

Question 10

Typically,omissions may be discovered when audit documentation is reviewed as part of an external or internal review program.

Accepted Answer

A) True 
 B)False

Question 11

The auditor should apply a basic three-step process for using analytical procedures during the final review.

Accepted Answer

A) True 
 B)False

Question 12

Where would the auditor make mention of issues noted during audit procedures that are not of audit significance?

Accepted Answer

A) Engagement letter. 
B) Management letter. 
C) Representation letter. 
D) Attorney letter. 
A) Engagement letter. 
B) Management letter. 
C) Representation letter. 
D) Attorney letter.

Question 13

If the auditor decides that steps should be taken to prevent further reliance on the financial statements and audit report due to subsequent events after issuance of the audit report,the auditor should not try to obtain client cooperation,but should immediately notify any regulatory agency having jurisdiction over the client,such as the SEC,that the audit report should no longer be associated with the client's financial statements.

Accepted Answer

A) True 
 B)False

Question 14

Subsequent events What are the two types of subsequent events identified in the accounting literature and what is required when each occurs? Provide an example of each type of subsequent event.

Accepted Answer

The two types of subsequent events are T

Question 15

Estimates are based on both subjective and objective factors.

Accepted Answer

A) True 
 B)False

Question 16

Noncompliancewith laws and regulations includes only acts of omission by the entity that are considered to be unintentional and contrary to the prevailing laws or regulations.

Accepted Answer

A) True 
 B)False

Question 17

Auditing standards recognize that there are inherent limitations in an auditor's ability to detect material misstatements relating to the entity's compliance with laws and regulations.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) Material change in the amount of settlement of a lawsuit which had been estimated at year end. 
B) Bankruptcy of a customer who owes your client a material amount on open account at year end for which there is an inadequate allowance estimate. 
C) Sale of a large block of inventory at a price materially below carrying value. 
D) Signing of a letter-of-intent by the client to acquire 55% of another entity for stock. 
A) Material change in the amount of settlement of a lawsuit which had been estimated at year end. 
B) Bankruptcy of a customer who owes your client a material amount on open account at year end for which there is an inadequate allowance estimate. 
C) Sale of a large block of inventory at a price materially below carrying value. 
D) Signing of a letter-of-intent by the client to acquire 55% of another entity for stock.

Question 19

Which of the following is not a reason why the auditor needs to take special care to review significant estimates in the financial statements?

Accepted Answer

A) Organizations may try to use the estimates to "smooth" earnings. 
B) Organizations may create hidden reserves in unusually good years that can be used in years when real profits do not meet expectations. 
C) Companies may underestimate liabilities or impairment of asset values to achieve reported earning goals in years when real profits to not meet expectations. 
D) Companies may try to overestimate liabilities in computing leverage ratios. 
A) Organizations may try to use the estimates to "smooth" earnings. 
B) Organizations may create hidden reserves in unusually good years that can be used in years when real profits do not meet expectations. 
C) Companies may underestimate liabilities or impairment of asset values to achieve reported earning goals in years when real profits to not meet expectations. 
D) Companies may try to overestimate liabilities in computing leverage ratios.

Question 20

Which of the following activities is not a step in the process for using analytical procedures?

Accepted Answer

A) Define when the difference between the auditor's expectation and the client's balance would be considered significant. 
B) Compute the difference between the auditor's expectation and the client's balance. 
C) Perform appropriate followup on all material and immaterial differences. 
D) Develop an expectation. 
A) Define when the difference between the auditor's expectation and the client's balance would be considered significant. 
B) Compute the difference between the auditor's expectation and the client's balance. 
C) Perform appropriate followup on all material and immaterial differences. 
D) Develop an expectation.

When requiring a letter of audit inquiry from the client's attorney,which of the following information will be requested?

Regarding loss contingencies,legal counsel should be instructed by the client to respond directly to the auditors.

On what information does the auditor base a going concern evaluation?

The going-concern evaluation must be based on separate procedures that test the client's ability to continue as a going concern.

A disclosure checklist is a convenient documentation format for evidence that the auditor adequately evaluated the client's disclosures.

The date of the audit opinion of Upton Industries,Inc.reads: March 7,2014 except for Note D,as to which the date is March 12,2014.What is this an example of?

Which of the following is not an inherent limitation in an auditor's ability to detect material misstatements relating to a client's compliance with laws and regulations?

Misstatements that are detected,but individually are not material,should be ignored when determining the appropriate audit report.

Which of the following is one of the most important drivers of audit quality in cases where an auditor may feel some pressure to acquiesce to management's demands to not require that misstatements be corrected in order to preserve a harmonious working relationship?

Typically,omissions may be discovered when audit documentation is reviewed as part of an external or internal review program.

The auditor should apply a basic three-step process for using analytical procedures during the final review.

Where would the auditor make mention of issues noted during audit procedures that are not of audit significance?

Subsequent events What are the two types of subsequent events identified in the accounting literature and what is required when each occurs? Provide an example of each type of subsequent event.

Estimates are based on both subjective and objective factors.

Noncompliancewith laws and regulations includes only acts of omission by the entity that are considered to be unintentional and contrary to the prevailing laws or regulations.

Auditing standards recognize that there are inherent limitations in an auditor's ability to detect material misstatements relating to the entity's compliance with laws and regulations.

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

Which of the following is not a reason why the auditor needs to take special care to review significant estimates in the financial statements?

Which of the following activities is not a step in the process for using analytical procedures?

Auditing: Integral to the Economy

The Risk of Fraud and Mechanisms to Address Fraud: Regulation,corporate Governance,and Audit Quality

Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters

Exam 14: Activities Required in Completing a Quality Audit

When requiring a letter of audit inquiry from the client's attorney,which of the following information will be requested?

Regarding loss contingencies,legal counsel should be instructed by the client to respond directly to the auditors.

On what information does the auditor base a going concern evaluation?

The going-concern evaluation must be based on separate procedures that test the client's ability to continue as a going concern.

A disclosure checklist is a convenient documentation format for evidence that the auditor adequately evaluated the client's disclosures.

The date of the audit opinion of Upton Industries,Inc.reads: March 7,2014 except for Note D,as to which the date is March 12,2014.What is this an example of?

Which of the following is not an inherent limitation in an auditor's ability to detect material misstatements relating to a client's compliance with laws and regulations?

Misstatements that are detected,but individually are not material,should be ignored when determining the appropriate audit report.

Which of the following is one of the most important drivers of audit quality in cases where an auditor may feel some pressure to acquiesce to management's demands to not require that misstatements be corrected in order to preserve a harmonious working relationship?

Typically,omissions may be discovered when audit documentation is reviewed as part of an external or internal review program.

The auditor should apply a basic three-step process for using analytical procedures during the final review.

Where would the auditor make mention of issues noted during audit procedures that are not of audit significance?

Subsequent events What are the two types of subsequent events identified in the accounting literature and what is required when each occurs? Provide an example of each type of subsequent event.

Estimates are based on both subjective and objective factors.

Noncompliancewith laws and regulations includes only acts of omission by the entity that are considered to be unintentional and contrary to the prevailing laws or regulations.

Auditing standards recognize that there are inherent limitations in an auditor's ability to detect material misstatements relating to the entity's compliance with laws and regulations.

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

Which of the following is not a reason why the auditor needs to take special care to review significant estimates in the financial statements?

Which of the following activities is not a step in the process for using analytical procedures?

Auditing: Integral to the Economy

The Risk of Fraud and Mechanisms to Address Fraud: Regulation,corporate Governance,and Audit Quality

Internal Control Over Financial Reporting: Managements Responsibilities and Importance to the External Auditors

Professional Liability and the Need for Quality Auditor Judgments and Ethical Decisions

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing the Revenue Cycle

Auditing Cash and Marketable Securities

Auditing Inventory, goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, use, impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters