Exam 17: Completing the Audit

Distinguish between a management representation letter and a management letter, and state the primary purpose of each.

Your client's balance sheet date is 30/6/2012, the audit report date is 15/9/2012 and the financial statements and audit report are issued 30/9/2012. Your client suffers a material loss due to an uninsured loss of inventory as a result of fire that occurred 5/7/2012. This event warrants footnote disclosure in, but not an adjustment to, the 30/6/2012 financial statements.

When the proper disclosure in the financial statements of material contingencies is through footnotes, the footnote should describe the nature of the contingency to the extent it is known and:

Adjustment of the financial statement may be necessary if the contingent liability is:

Which of the following is NOT an example of a contingent liability?

If a contingency will probably occur and can be reasonably estimated, the financial statement amounts would need to be adjusted.

If, during the completion phase of the audit, the auditor determines that he or she has not obtained sufficient evidence to draw a conclusion about the fairness of the client's financial statements, there are two choices: either additional evidence must be obtained or a disclaimer of opinion must be issued.

Which type of subsequent event requires consideration by management and evaluation by the auditor?

ASA 240 requires the auditor to communicate all irregularities, including fraud and illegal acts to the audit committee:

An auditor performs interim work at various times throughout the year. The auditor's subsequent events work should be extended to the date of:

Your client's balance sheet date is 30/6/2012, the audit report date is 31/8/2012 and the financial statements are issued 15/9/2012. A customer with a material outstanding accounts receivable balance declared bankruptcy on 5/7/2012 due to a warehouse fire that occurred 27/6/2012. State whether this situation warrants an adjustment to the financial statements, disclosure in footnotes but no adjustment or no action is required. Justify your answer.

Completing the audit is which phase of the audit?

The management representation letter is prepared on the client's letterhead, addressed to the audit firm and signed by the chief executive officer and chief financial officer.

The process of 'final evidence accumulation' is always done late in the engagement. Which one of the following would be done the earliest in the engagement?

An agreement by a client to purchase an asset, irrespective of future trading conditions, is known as a contingency.

Which one of the following is NOT one of the three main reasons why it is essential that working papers be thoroughly reviewed by another member of the audit firm at the completion of the audit?

When testing for contingent liabilities, the primary objective at the initial stage of the tests is to determine the existence of contingencies.

If the client's balance sheet date is 30/6/2012, the audit report date is 11/9/2012 and the date the financial statements and audit report are issued is 10/10/2012, then the auditor is responsible for reviewing subsequent events occurring between 30/6/2012 and 10/10/2012.

ASA 570 requires the auditor to evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at LEAST:

Which event that occurred after the end of the financial year under audit but prior to issuance of the auditor's report would NOT require disclosure in the financial statements?