Exam 14: Activities Required in Completing a Quality Audit

The auditor compares the total likely misstatements to each significant segment of the financial statements, such as total current assets, total noncurrent assets, total current liabilities, total noncurrent liabilities, owners' equity, and pretax income, to determine if they are, in aggregate, material to the financial statements.

Research has shown that auditors' qualifications of audit reports are better predictors of going-concern problems than are Z-score models.

Audit firm culture plays a role in audit firm portfolio management in that some audit firms are willing to provide audits to riskier clients, while other audit firms are not willing to do so.

When the auditor becomes aware of an event that occurs after the audit report date, but before the issuance of the audit report to the client and the event is disclosed in the footnotes, the auditor would date the report as if this fact had been known at year-end.

Auditors are responsible for designing and maintaining policies and procedures to identify, evaluate, and account for contingencies.

Which of the following procedures is the least useful analytical procedure to indicate that further audit work needs to be performed before rendering the audit opinion?

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.

Which of the following is not a typical communication between the auditor and the audit committee?

Procedures such as a cutoff test and a search for unrecorded liabilities are related to subsequent events.

Management of AllTech, Inc. refuses to sign the management representation letter given to them in the course of the audit on the grounds that it invades the company's privacy. What does this refusal constitute?

Analytical procedures may indicate that new controls need to be designed before completing the audit.

The total likely misstatements found during the audit are equal to the sum of known and projected misstatements.

Which of the following is the best example of a Type I subsequent event?

Which of the following items does the auditor ask the client to send to its legal counsel requesting information about asserted claims?

Which of the following types of information is not a type of evidence that the auditor should obtain concerning contingencies?

Final Analytical Procedures and Disclosures. When auditing Global Alliance Industries, Inc., the auditor performed extensive analytical procedures and found the following: (a) The commission expenses as a percentage of sales has stayed constant for several years, but has increased significantly in the current year. However, commission rates have not changed.?(b) The rate of inventory turnover has steadily decreased for the past four years.?(c) The inventory as a percentage of current assets has steadily increased for the past four years.?(d) The number of days' sales in accounts receivable has steadily increased for three years.?(e) The allowance for uncollectible accounts as a percentage of accounts receivable has steadily decreased for three years.?(f) The absolute amounts of depreciation expense and depreciation expense as a percentage of gross fixed assets are significantly smaller than in the preceding year. REQUIRED: (1) Evaluate the significance of not disclosing or adjusting these items, if material, in the fair presentation of financial statements. (2) When assessing disclosures, what criteria do auditors use?

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

In the letter of audit inquiry concerning a description and evaluation of litigation, claims and assessment provided by management to the auditor, which of the following is the client's lawyer not requested to provide?

What should an auditor do when becoming aware of violations of the FCPA?