Exam 14: Activities Required in Completing a Quality Audit

When obtaining reasonable assurance that the financial statements are free from material misstatements, auditors should consider the applicable legal and regulatory frameworks that apply to the entity.

If a lawyer refuses to furnish the requested information about the client's contingencies to the auditor, the auditor should issue an unqualified audit opinion.

The auditor is responsible for evaluating the likelihood of a client not being a going concern for the next 12 months. What basis will the auditor use to assess this issue?

Client Acceptance. Newburg Company is in an industry in the early development stage, where there are minimal barriers to entry to the client's business model. Newburg Company's audit committee decided to put their 2014 audit out for bids. One of the Big Four CPA firms had performed their audits from 2011-2013, and although happy with the previous auditor, the audit committee believed they should rotate to another firm. On the last audit, the Big Four's audit fees were $500,000. Barnaby, CPAs, came in as the low bidder, making a proposal to Newburg Company regarding audit fees for 2014. Their proposed audit fee was $250,000. Required: (1) Based on this scenario, describe the ethical decisions that an auditor must make during portfolio management decisions such as the client acceptance and client continuance decision. What is the relationship between ethics and high audit quality. (2) What issues should the client's audit committee consider before going with the lowest bid?

Analytical procedures conducted during the final review phase of the audit should corroborate conclusions formed during the audit, which enables the auditor to draw conclusions upon which to base the audit opinion.

The engagement quality review is a risk-based review.

If an audit firm accepts or continues to provide audits to a client firm with ineffective internal controls over financial reporting, the management representation letter will note that an adverse opinion will likely be issued.

Type II subsequent events. Provide two examples of a Type II subsequent event and explain how these events would be treated in the financial statements.

Rules are standardized internationally in terms of mandatory partner rotation and mandatory audit firm rotation.

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

If the auditor determines that informative disclosures are not reasonably adequate, the auditor must identify that fact in the auditor's report.

If the audit team encounters difficulties in performing an audit, who should the audit team communicate these matters to?

A deviation from historical patterns is one of the factors that an auditor focuses on when evaluating the reasonableness of an estimate.

Management will often resist a going-concern modification because investors, lenders, and customers may lose faith in the business.

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

Which of the following is not a potential indicator of going concern problems for a client?

What is the letter called that is drafted by the auditor and reports observations to management which may help management perform more effectively?

When a subsequent event provides evidence about conditions that did not exist at the balance sheet date, what is the best course of action for the auditor to follow?

In evaluating the reasonableness of an estimate, the auditor would not normally concentrate on which of the following factors and assumptions?

After the auditor completes the current audit, an issue of importance for subsequent year audits is mandatory partner rotation.