Question 1

State the two primary types of subsequent events that require consideration by management and evaluation by the auditor and give two examples of each type.

Accepted Answer

•Events that have a direct effect on the financial statements and required adjustment. Examples include declaration of bankruptcy by a customer with an outstanding accounts receivable balance due to deteriorating financial condition; settlement of a litigation at an amount different from the amount recorded on the books.
•Events that have no direct effect on the financial statements but for which disclosure is advisable. Examples include a decline in the market value of securities held for temporary investment or resale during the subsequent period; issuance of bonds or equity securities during the subsequent period.

Question 2

The audit procedures for the subsequent events review can be divided into two categories: 1) procedures normally integrated as a part of the verification of year-end account balances, and 2) those performed specifically for the purpose of discovering subsequent events. Which of the following procedures would be in the second category?

Accepted Answer

A)  Examine subsequent-period sales and purchases transactions to determine whether the cutoff is accurate. 
B)  Correspond with lawyers. 
C)  Test the collectability of accounts receivable by reviewing subsequent period cash receipts. 
D)  Compare the subsequent period purchase price of inventory with the recorded cost as a test of lower-of-cost-or-market valuation. 
A)  Examine subsequent-period sales and purchases transactions to determine whether the cutoff is accurate. 
B)  Correspond with lawyers. 
C)  Test the collectability of accounts receivable by reviewing subsequent period cash receipts. 
D)  Compare the subsequent period purchase price of inventory with the recorded cost as a test of lower-of-cost-or-market valuation. B

Question 3

The following events all occurred after the balance sheet date (6/30/15) but prior to the auditor's report (9/10/15). Which one would require an adjustment to the account balances as of 6/30/15?

Accepted Answer

A)  client will market a new series of equity securities ($2 million of preferred stock) on 8/1/15 
B)  unused equipment on the books at 6/30/15 for $100 000 was disposed of 7/31/15 for $60 000 
C)  securities costing $30 000 held for temporary investment on 6/30/15 declined in value by one-third when the market took a plunge on 8/15/15 
D)  inventory valued at $100 000 on 6/30/15 was destroyed in a fire on 8/1/15 
A)  client will market a new series of equity securities ($2 million of preferred stock) on 8/1/15 
B)  unused equipment on the books at 6/30/15 for $100 000 was disposed of 7/31/15 for $60 000 
C)  securities costing $30 000 held for temporary investment on 6/30/15 declined in value by one-third when the market took a plunge on 8/15/15 
D)  inventory valued at $100 000 on 6/30/15 was destroyed in a fire on 8/1/15 B

Question 4

What audit approach is used to search for unknown commitments?

Accepted Answer

A)  include as part of the search for subsequent events 
B)  conduct with substantive tests associated with the cutoff assertion 
C)  perform as part of the audit of each cycle or audit area 
D)  include with the legal letter sent to lawyers 
A)  include as part of the search for subsequent events 
B)  conduct with substantive tests associated with the cutoff assertion 
C)  perform as part of the audit of each cycle or audit area 
D)  include with the legal letter sent to lawyers

Question 5

CAS 250 requires the auditor to communicate illegal acts to the audit committee

Accepted Answer

A)  if the illegal acts are slightly material. 
B)  if the illegal acts are material. 
C)  if the illegal acts are other than trivial. 
D)  regardless of materiality. 
A)  if the illegal acts are slightly material. 
B)  if the illegal acts are material. 
C)  if the illegal acts are other than trivial. 
D)  regardless of materiality.

Question 6

When several staff are working together on an audit engagement, what type of quality control review is conducted on a daily basis?

Accepted Answer

A)  the partner reviews the electronic files 
B)  team review by interview 
C)  second partner review 
D)  manager review of sections 
A)  the partner reviews the electronic files 
B)  team review by interview 
C)  second partner review 
D)  manager review of sections

Question 7

Kendra is inquiring about subsequent events with regards to lawsuits and contingent claims. To obtain a meaningful answer, Kendra should hold the enquiry with

Accepted Answer

A)  the Vice President of Legal of the company. 
B)  the accountant in charge of the legal liability reconciliation. 
C)  the mail clerk. 
D)  the assistant controller. 
A)  the Vice President of Legal of the company. 
B)  the accountant in charge of the legal liability reconciliation. 
C)  the mail clerk. 
D)  the assistant controller.

Question 8

CAS 450 requires the auditor to communicate all misstatements to the audit committee

Accepted Answer

A)  if the misstatements are slightly material. 
B)  if the misstatements are material. 
C)  if the misstatements are other than trivial. 
D)  regardless of materiality. 
A)  if the misstatements are slightly material. 
B)  if the misstatements are material. 
C)  if the misstatements are other than trivial. 
D)  regardless of materiality.

Question 9

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

Accepted Answer

A)  sale of long-term debt or capital stock 
B)  loss of a plant as a result of a flood 
C)  major purchase of a business that is expected to double the sales volume 
D)  settlement of litigation in excess of the recorded liability 
A)  sale of long-term debt or capital stock 
B)  loss of a plant as a result of a flood 
C)  major purchase of a business that is expected to double the sales volume 
D)  settlement of litigation in excess of the recorded liability

Question 10

The auditor's responsibility for "reviewing the subsequent events" of a client is normally limited to the period of time beginning with the

Accepted Answer

A)  balance sheet date and ending with the date of the auditor's report. 
B)  start of the fiscal year under audit and ending with the balance sheet date. 
C)  start of the fiscal year under audit and ending with the date of the auditor's report 
D)  balance sheet date and ending with the date the registration statement becomes effective. 
A)  balance sheet date and ending with the date of the auditor's report. 
B)  start of the fiscal year under audit and ending with the balance sheet date. 
C)  start of the fiscal year under audit and ending with the date of the auditor's report 
D)  balance sheet date and ending with the date the registration statement becomes effective.

Question 11

If a potential loss on a contingent liability is unlikely and the event will not likely have a significant adverse financial effect, the liability should be

Accepted Answer

A)  accrued and indicated in the body of the financial statements. 
B)  disclosed in footnotes but not accrued. 
C)  neither accrued nor disclosed in footnotes. 
D)  disclosed in the auditor's report but not disclosed on the financial statements. 
A)  accrued and indicated in the body of the financial statements. 
B)  disclosed in footnotes but not accrued. 
C)  neither accrued nor disclosed in footnotes. 
D)  disclosed in the auditor's report but not disclosed on the financial statements.

Question 12

Inquiries of management are used to help identify subsequent events. To help obtain meaningful answers

Accepted Answer

A)  the standard firm checklist should be followed. 
B)  these inquiries must be conducted with the proper client personnel. 
C)  the inquiries should be conducted by senior audit personnel. 
D)  they should be asked after the effective date of the audit report. 
A)  the standard firm checklist should be followed. 
B)  these inquiries must be conducted with the proper client personnel. 
C)  the inquiries should be conducted by senior audit personnel. 
D)  they should be asked after the effective date of the audit report.

Question 13

Which of the following substantive tests would the auditor conduct as a search for contingent liabilities?

Accepted Answer

A)  select an attribute sample of legal expenses for matching to invoices 
B)  select a dollar unit sample of legal expenses for matching to invoices 
C)  inspect legal expense invoices and perform a census test of legal expenses 
D)  review a sample of legal invoices, looking for appropriate authorization for payment 
A)  select an attribute sample of legal expenses for matching to invoices 
B)  select a dollar unit sample of legal expenses for matching to invoices 
C)  inspect legal expense invoices and perform a census test of legal expenses 
D)  review a sample of legal invoices, looking for appropriate authorization for payment

Question 14

If the amount of a probable loss on a contingent liability is not determinable, the liability should be

Accepted Answer

A)  accrued and indicated in the body of the financial statements. 
B)  disclosed in footnotes but not accrued. 
C)  neither accrued nor disclosed in footnotes. 
D)  disclosed in the auditor's report but not disclosed on the financial statements. 
A)  accrued and indicated in the body of the financial statements. 
B)  disclosed in footnotes but not accrued. 
C)  neither accrued nor disclosed in footnotes. 
D)  disclosed in the auditor's report but not disclosed on the financial statements.

Question 15

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the

Accepted Answer

A)  management letter. 
B)  representation letter. 
C)  engagement letter. 
D)  letters testamentary. 
A)  management letter. 
B)  representation letter. 
C)  engagement letter. 
D)  letters testamentary.

Question 16

Discuss three audit procedures commonly used to search for contingent liabilities.

Accepted Answer

Student answers may vary.
•Inquire of ma

Question 17

List four specific matters that should be included in a client representation letter.

Accepted Answer

•management's acknowledgment of its resp

Question 18

A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditor's fieldwork. The auditor should

Accepted Answer

A)  advise management to adjust the balance sheet to reflect the acquisition. 
B)  issue pro forma financial statements giving effect to the acquisition as if it had occurred at year-end. 
C)  advise management to disclose the acquisition in the notes to the financial statements. 
D)  disclose the acquisition in the opinion paragraph of the auditor's report. 
A)  advise management to adjust the balance sheet to reflect the acquisition. 
B)  issue pro forma financial statements giving effect to the acquisition as if it had occurred at year-end. 
C)  advise management to disclose the acquisition in the notes to the financial statements. 
D)  disclose the acquisition in the opinion paragraph of the auditor's report.

Question 19

In addition to the financial statements, MD&A (management discussion and analysis) are appended to the financial statements to inform users of management's expectations for the foreseeable future, as well as to provide management's assessment of the financial results. MD&A is prepared primarily because it is

Accepted Answer

A)  an additional piece of evidence used by auditors to assess the financial statements. 
B)  generally required by securities regulators in Canada. 
C)  an unbiased view of the prospective future results of the company. 
D)  required so that the company can borrow more funds or sell more shares to the public. 
A)  an additional piece of evidence used by auditors to assess the financial statements. 
B)  generally required by securities regulators in Canada. 
C)  an unbiased view of the prospective future results of the company. 
D)  required so that the company can borrow more funds or sell more shares to the public.

Question 20

Subsequent events affecting the valuation of assets ordinarily will require adjustments of the financial statements under examination because such events typically represent the

Accepted Answer

A)  culmination of conditions that existed at the balance sheet date. 
B)  final estimates of losses relating to casualties occurring in the subsequent events period. 
C)  discovery of new conditions occurring in the subsequent events period. 
D)  preliminary estimate of losses relating to new events that occurred subsequent to the balance sheet date. 
A)  culmination of conditions that existed at the balance sheet date. 
B)  final estimates of losses relating to casualties occurring in the subsequent events period. 
C)  discovery of new conditions occurring in the subsequent events period. 
D)  preliminary estimate of losses relating to new events that occurred subsequent to the balance sheet date.

State the two primary types of subsequent events that require consideration by management and evaluation by the auditor and give two examples of each type.

The following events all occurred after the balance sheet date (6/30/15) but prior to the auditor's report (9/10/15). Which one would require an adjustment to the account balances as of 6/30/15?

What audit approach is used to search for unknown commitments?

CAS 250 requires the auditor to communicate illegal acts to the audit committee

When several staff are working together on an audit engagement, what type of quality control review is conducted on a daily basis?

Kendra is inquiring about subsequent events with regards to lawsuits and contingent claims. To obtain a meaningful answer, Kendra should hold the enquiry with

CAS 450 requires the auditor to communicate all misstatements to the audit committee

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

The auditor's responsibility for "reviewing the subsequent events" of a client is normally limited to the period of time beginning with the

If a potential loss on a contingent liability is unlikely and the event will not likely have a significant adverse financial effect, the liability should be

Inquiries of management are used to help identify subsequent events. To help obtain meaningful answers

Which of the following substantive tests would the auditor conduct as a search for contingent liabilities?

If the amount of a probable loss on a contingent liability is not determinable, the liability should be

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the

Discuss three audit procedures commonly used to search for contingent liabilities.

List four specific matters that should be included in a client representation letter.

A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditor's fieldwork. The auditor should

Subsequent events affecting the valuation of assets ordinarily will require adjustments of the financial statements under examination because such events typically represent the

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

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Exam 18: Completing the Audit

State the two primary types of subsequent events that require consideration by management and evaluation by the auditor and give two examples of each type.

The following events all occurred after the balance sheet date (6/30/15) but prior to the auditor's report (9/10/15). Which one would require an adjustment to the account balances as of 6/30/15?

What audit approach is used to search for unknown commitments?

CAS 250 requires the auditor to communicate illegal acts to the audit committee

When several staff are working together on an audit engagement, what type of quality control review is conducted on a daily basis?

Kendra is inquiring about subsequent events with regards to lawsuits and contingent claims. To obtain a meaningful answer, Kendra should hold the enquiry with

CAS 450 requires the auditor to communicate all misstatements to the audit committee

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

The auditor's responsibility for "reviewing the subsequent events" of a client is normally limited to the period of time beginning with the

If a potential loss on a contingent liability is unlikely and the event will not likely have a significant adverse financial effect, the liability should be

Inquiries of management are used to help identify subsequent events. To help obtain meaningful answers

Which of the following substantive tests would the auditor conduct as a search for contingent liabilities?

If the amount of a probable loss on a contingent liability is not determinable, the liability should be

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the

Discuss three audit procedures commonly used to search for contingent liabilities.

List four specific matters that should be included in a client representation letter.

A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditor's fieldwork. The auditor should

Subsequent events affecting the valuation of assets ordinarily will require adjustments of the financial statements under examination because such events typically represent the

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters