Exam 14: Activities Required in Completing a Quality Audit

Contingencies Define what a contingency is, describe the auditor's main concerns about them, and indicate how contingencies should be dealt with by management and the auditor. Besides litigation, claims and assessments, what are some other types of contingencies?

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(Essay)

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Question 1

Correct Answer:

Verified

contingencies are potential gain or losses that management may incur because of what may or may not occur in the future, e.g., a lawsuit against the client. In ASC 450 (formerly SFAS No. 5, "Accounting for Contingencies"), the FASB provides the standard by which they are to be judged and dealt with. If they are judged to be probable and reasonably estimable as of year-end, then management is responsible to accrue any losses (gains are not recognized). Disclosure is required of contingencies that are probable but not estimable or that are reasonably possible. Contingencies that are remote of occurrence don't require disclosure unless it is a common practice, for example, the guarantee of another company's debt.
Besides litigation, claims and assessments, other types of contingencies include purchase and sales commitments, agreements to repurchase receivables that have been sold, and guarantees of the debts of others.

Ratio analysis, common-size analysis, and analysis of the dollar and percentage changes in each income statement item over the previous year are useful for this purpose.

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(True/False)

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Question 2

Correct Answer:

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True

The audit committee is typically independent of the board of directors.

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(True/False)

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Question 3

Correct Answer:

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False

Which of the following is not a required communication with the audit committee?

(Multiple Choice)

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Question 4

The Public Company Accounting Oversight Board (PCAOB) requires mandatory audit firm rotation after six years, with a cooling off period of four years.

(True/False)

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Question 5

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

(True/False)

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Question 6

Which one of the following would be the most effective procedure for discovering material Type II subsequent events?

(Multiple Choice)

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Question 7

Which one of the following would the auditor consider to be an indication of a potential going-concern problem?

(Multiple Choice)

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Question 8

Analytical procedures. What is the purpose of using analytical review procedures in the final review stages of the audit?

(Essay)

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Question 9

Events or transactions occurring after the balance sheet date and before the audit report date, can be useful in identifying and evaluating the reasonableness of estimates.

(True/False)

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Question 10

At the end of an audit, adjustments that are "waived" will remain uncorrected.

(True/False)

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Question 11

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.

(True/False)

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Question 12

Management representation letters. Describe the purpose of the management representation letter.

(Essay)

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Question 13

Type I subsequent events indicate conditions that did not exist at the balance sheet date, but that may require disclosure.

(True/False)

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Question 14

Which one of the following is false regarding the adequacy of disclosures in a financial statement audit?

(Multiple Choice)

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Question 15

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?

(Multiple Choice)

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Question 16

If omitted audit procedures cannot be performed, the auditor should extend previous work done and modify the report, if necessary.

(True/False)

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Question 17

All major accounting disagreements with management, even if eventually resolved, should be discussed with the audit committee.

(True/False)

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Question 18

In an integrated audit, if one or more material weaknesses exist, the auditor will need to issue a qualified opinion on internal control over financial reporting.

(True/False)

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Question 19

After completing the audit report of Blair Corporation, but before delivering the audit report to the client, a tornado demolished the main production facility. In this case, what option is available to the auditor other than dual dating the report?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 184

Contingencies Define what a contingency is, describe the auditor's main concerns about them, and indicate how contingencies should be dealt with by management and the auditor. Besides litigation, claims and assessments, what are some other types of contingencies?

Ratio analysis, common-size analysis, and analysis of the dollar and percentage changes in each income statement item over the previous year are useful for this purpose.

The audit committee is typically independent of the board of directors.

Which of the following is not a required communication with the audit committee?

The Public Company Accounting Oversight Board (PCAOB) requires mandatory audit firm rotation after six years, with a cooling off period of four years.

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

Which one of the following would be the most effective procedure for discovering material Type II subsequent events?

Which one of the following would the auditor consider to be an indication of a potential going-concern problem?

Analytical procedures. What is the purpose of using analytical review procedures in the final review stages of the audit?

Events or transactions occurring after the balance sheet date and before the audit report date, can be useful in identifying and evaluating the reasonableness of estimates.

At the end of an audit, adjustments that are "waived" will remain uncorrected.

Management representation letters. Describe the purpose of the management representation letter.

Type I subsequent events indicate conditions that did not exist at the balance sheet date, but that may require disclosure.

Which one of the following is false regarding the adequacy of disclosures in a financial statement audit?

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?

If omitted audit procedures cannot be performed, the auditor should extend previous work done and modify the report, if necessary.

All major accounting disagreements with management, even if eventually resolved, should be discussed with the audit committee.

In an integrated audit, if one or more material weaknesses exist, the auditor will need to issue a qualified opinion on internal control over financial reporting.

After completing the audit report of Blair Corporation, but before delivering the audit report to the client, a tornado demolished the main production facility. In this case, what option is available to the auditor other than dual dating the report?

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