Question 1

The auditor's responsibility with regards to contingent liabilities is to

Accepted Answer

A)  identify the appropriate accounting treatment. 
B)  decide on the appropriate accounting treatment. 
C)  prepare note disclosure. 
D)  evaluate the accounting treatment of known contingent liabilities. 
A)  identify the appropriate accounting treatment. 
B)  decide on the appropriate accounting treatment. 
C)  prepare note disclosure. 
D)  evaluate the accounting treatment of known contingent liabilities.

Question 2

If a potential loss on a contingent liability is likely and the amount of the loss can be reasonably estimated, 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 3

Refusal by a client to prepare and sign the representation letter would require a(n)

Accepted Answer

A)  qualified opinion as to scope limitation or a disclaimer of opinion. 
B)  adverse opinion or a denial of opinion. 
C)  qualified opinion as to accounting treatment departure or an adverse opinion. 
D)  unqualified opinion with an explanatory paragraph. 
A)  qualified opinion as to scope limitation or a disclaimer of opinion. 
B)  adverse opinion or a denial of opinion. 
C)  qualified opinion as to accounting treatment departure or an adverse opinion. 
D)  unqualified opinion with an explanatory paragraph.

Question 4

CAS 570 - Going Concern, requires that the auditor evaluate management's assessment of the ability of the entity to continue as a going concern based on

Accepted Answer

A)  inquiry with management. 
B)  the opinion of the legal counsel of the company. 
C)  the liquidity and solvency ratios of the firm. 
D)  the evidence collected throughout the audit. 
A)  inquiry with management. 
B)  the opinion of the legal counsel of the company. 
C)  the liquidity and solvency ratios of the firm. 
D)  the evidence collected throughout the audit.

Question 5

An agreement that commits the firm to a set of fixed conditions in the future regardless of what happens to profits or the economy as a whole is a definition of a

Accepted Answer

A)  contingent liability. 
B)  potentially hazardous agreement. 
C)  commitment. 
D)  conditional contract. 
A)  contingent liability. 
B)  potentially hazardous agreement. 
C)  commitment. 
D)  conditional contract.

Question 6

What action will a lawyer likely take if they have information about a lawsuit that was not mentioned by the client?

Accepted Answer

A)  They will tell the auditor the number of suits and request the auditor to contact the client. 
B)  They will request the client to notify the auditor about the lawsuit. 
C)  They will not mention the lawsuits since they are confidential. 
D)  They will refuse to answer the legal letter, since it is incorrect. 
A)  They will tell the auditor the number of suits and request the auditor to contact the client. 
B)  They will request the client to notify the auditor about the lawsuit. 
C)  They will not mention the lawsuits since they are confidential. 
D)  They will refuse to answer the legal letter, since it is incorrect.

Question 7

As part of the review for subsequent events, the auditor will review financial statements prepared after the balance sheet date. The statements should be discussed with management to determine whether they

Accepted Answer

A)  were approved by the controller prior to your review. 
B)  are mathematically correct, including calculation of depreciation. 
C)  are prepared on the same basis as the current-period statements. 
D)  were completed on a comparative basis, showing the last three years. 
A)  were approved by the controller prior to your review. 
B)  are mathematically correct, including calculation of depreciation. 
C)  are prepared on the same basis as the current-period statements. 
D)  were completed on a comparative basis, showing the last three years.

Question 8

Besides the search for contingent liabilities and the review for subsequent events, the auditor has four important final evidence accumulation responsibilities, all of which are required by current professional auditing standards. Discuss each of these four responsibilities.

Accepted Answer

•final analytical procedures performed a

Question 9

The initial review of the working papers prepared by any given auditor is normally done by the

Accepted Answer

A)  partner assigned to the audit. 
B)  supervisor or manager. 
C)  senior. 
D)  immediate supervisor. 
A)  partner assigned to the audit. 
B)  supervisor or manager. 
C)  senior. 
D)  immediate supervisor.

Question 10

Klein Corporation has reported a loss for the 6th year in a row. Klein also has a large bank loan due in the coming year, bringing its current ratio to .60. Further, due to recent economic slowdown, Klein had to increase its bad debt expense by 4% and also saw its largest client, Forest Prairie file for bankruptcy. Forest Prairie's purchases made up 18% of Klein's total sales in the past year. Forest Prairie also had an unpaid balance to Klein at year end.
To reduce expenses Klein has reduced employee training from 5 days to 1 day. During the year, an employee was seriously injured in the production process when his arm was caught in a press. The employee has filed a lawsuit against Klein for $1 000 000 and claims that he was not properly trained to use the equipment. The legal proceeding for this case should begin in the next fiscal year. Since Klein has never been involved in such a lawsuit before, the legal counsel indicated that they were not able to estimate the amount and likelihood that Klein would have to pay.
Required:
Evaluate the going concern situation at Klein and indicate what the auditor would be required to do under CAS 570.

Accepted Answer

It is evident that Klein has a going con

Question 11

The auditor has a responsibility to review transactions and activities occurring after the year-end to determine whether anything occurred that might affect the valuation or disclosure of the statements being audited. The auditing procedures required to verify these transactions are commonly referred to as the review for

Accepted Answer

A)  contingent liabilities. 
B)  subsequent year's transactions. 
C)  late unusual occurrences. 
D)  subsequent events. 
A)  contingent liabilities. 
B)  subsequent year's transactions. 
C)  late unusual occurrences. 
D)  subsequent events.

Question 12

Management furnishes the auditor with information concerning litigation, claims, and assessments. Which of the following is the auditor's primary means of initiating action to corroborate such information?

Accepted Answer

A)  Request that the client's lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which they were consulted during the period under examination. 
B)  Request that the client's management send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments. 
C)  Request that the client's lawyers provide a legal opinion concerning the policies and procedures adopted by management to identify, evaluate, and account for litigation, claims, and assessments. 
D)  Request that the client's management engage outside lawyers to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation, claims, and assessments. 
A)  Request that the client's lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which they were consulted during the period under examination. 
B)  Request that the client's management send a letter of inquiry to those lawyers with whom management consulted concerning litigation, claims, and assessments. 
C)  Request that the client's lawyers provide a legal opinion concerning the policies and procedures adopted by management to identify, evaluate, and account for litigation, claims, and assessments. 
D)  Request that the client's management engage outside lawyers to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation, claims, and assessments.

Question 13

A client representation letter is a written statement from a non-independent source and therefore

Accepted Answer

A)  cannot be regarded as reliable evidence on its own. 
B)  can be regarded as reliable evidence only if the auditor finds strong internal controls. 
C)  can be regarded as reliable evidence if the high-level corporate officials who sign it are trustworthy. 
D)  needs to be confirmed by an outside, independent source such as a financial institution or law firm. 
A)  cannot be regarded as reliable evidence on its own. 
B)  can be regarded as reliable evidence only if the auditor finds strong internal controls. 
C)  can be regarded as reliable evidence if the high-level corporate officials who sign it are trustworthy. 
D)  needs to be confirmed by an outside, independent source such as a financial institution or law firm.

Question 14

Which of the following auditing procedures is ordinarily performed last?

Accepted Answer

A)  reading of the minutes of the directors' meetings 
B)  confirming accounts payable 
C)  obtaining a client representation letter 
D)  testing of the purchasing function 
A)  reading of the minutes of the directors' meetings 
B)  confirming accounts payable 
C)  obtaining a client representation letter 
D)  testing of the purchasing function

Question 15

If the amount of a probable loss on a contingent liability cannot be estimated but the event is likely, 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 16

There are two categories of lawsuits: outstanding (or asserted) claims, and

Accepted Answer

A)  possible or unasserted claims. 
B)  disputed claims among several parties. 
C)  settled claims. 
D)  claims that could result in material misstatements. 
A)  possible or unasserted claims. 
B)  disputed claims among several parties. 
C)  settled claims. 
D)  claims that could result in material misstatements.

Question 17

Which of the following scenarios regarding a lawsuit filed against a client by a third party would qualify as a "contingent liability"?

Accepted Answer

A)  A lawsuit has been filed but not yet resolved. 
B)  A lawsuit was filed and concluded with the client winning. 
C)  A lawsuit was filed and concluded with a third party winning an award of $100 000, but the client hasn't paid yet. 
D)  A lawsuit was filed and concluded with a third party winning an award of $100 000, which the client paid after the balance sheet date but before the statements were issued. 
A)  A lawsuit has been filed but not yet resolved. 
B)  A lawsuit was filed and concluded with the client winning. 
C)  A lawsuit was filed and concluded with a third party winning an award of $100 000, but the client hasn't paid yet. 
D)  A lawsuit was filed and concluded with a third party winning an award of $100 000, which the client paid after the balance sheet date but before the statements were issued.

Question 18

Which level of risk does the auditor normally assign to the presentation and disclosure-related assertion of completeness for contingent liabilities and subsequent events?

Accepted Answer

A)  low risk for inherent risks that required information may not be disclosed in the notes 
B)  medium for control risk with respect to identifying relevant events 
C)  medium with respect to providing adequate detail for the notes 
D)  high risk that all required information may not be disclosed in the notes 
A)  low risk for inherent risks that required information may not be disclosed in the notes 
B)  medium for control risk with respect to identifying relevant events 
C)  medium with respect to providing adequate detail for the notes 
D)  high risk that all required information may not be disclosed in the notes

Question 19

Which of the following procedures might be useful in discovering a contingent liability for a lawsuit that management is intentionally neglecting to disclose?

Accepted Answer

A)  inquiries (orally and in writing) of management 
B)  analyzing legal expense and reviewing invoices and statements from outside legal counsel 
C)  reviewing current and previous years' Canada Revenue Agency correspondence 
D)  obtaining a letter of representation from management that it is not aware of any undisclosed contingent liabilities 
A)  inquiries (orally and in writing) of management 
B)  analyzing legal expense and reviewing invoices and statements from outside legal counsel 
C)  reviewing current and previous years' Canada Revenue Agency correspondence 
D)  obtaining a letter of representation from management that it is not aware of any undisclosed contingent liabilities

Question 20

When auditing contingent liabilities, the primary objective at the initial stage of the tests is to determine

Accepted Answer

A)  the materiality of any liability. 
B)  what constitutes adequate disclosure of the liability. 
C)  the likelihood of the liability. 
D)  the existence of the liability. 
A)  the materiality of any liability. 
B)  what constitutes adequate disclosure of the liability. 
C)  the likelihood of the liability. 
D)  the existence of the liability.

The auditor's responsibility with regards to contingent liabilities is to

If a potential loss on a contingent liability is likely and the amount of the loss can be reasonably estimated, the liability should be

Refusal by a client to prepare and sign the representation letter would require a(n)

CAS 570 - Going Concern, requires that the auditor evaluate management's assessment of the ability of the entity to continue as a going concern based on

An agreement that commits the firm to a set of fixed conditions in the future regardless of what happens to profits or the economy as a whole is a definition of a

What action will a lawyer likely take if they have information about a lawsuit that was not mentioned by the client?

As part of the review for subsequent events, the auditor will review financial statements prepared after the balance sheet date. The statements should be discussed with management to determine whether they

Besides the search for contingent liabilities and the review for subsequent events, the auditor has four important final evidence accumulation responsibilities, all of which are required by current professional auditing standards. Discuss each of these four responsibilities.

The initial review of the working papers prepared by any given auditor is normally done by the

Management furnishes the auditor with information concerning litigation, claims, and assessments. Which of the following is the auditor's primary means of initiating action to corroborate such information?

A client representation letter is a written statement from a non-independent source and therefore

Which of the following auditing procedures is ordinarily performed last?

If the amount of a probable loss on a contingent liability cannot be estimated but the event is likely, the liability should be

There are two categories of lawsuits: outstanding (or asserted) claims, and

Which of the following scenarios regarding a lawsuit filed against a client by a third party would qualify as a "contingent liability"?

Which level of risk does the auditor normally assign to the presentation and disclosure-related assertion of completeness for contingent liabilities and subsequent events?

Which of the following procedures might be useful in discovering a contingent liability for a lawsuit that management is intentionally neglecting to disclose?

When auditing contingent liabilities, the primary objective at the initial stage of the tests is to determine

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

Exam 18: Completing the Audit

The auditor's responsibility with regards to contingent liabilities is to

If a potential loss on a contingent liability is likely and the amount of the loss can be reasonably estimated, the liability should be

Refusal by a client to prepare and sign the representation letter would require a(n)

CAS 570 - Going Concern, requires that the auditor evaluate management's assessment of the ability of the entity to continue as a going concern based on

An agreement that commits the firm to a set of fixed conditions in the future regardless of what happens to profits or the economy as a whole is a definition of a

What action will a lawyer likely take if they have information about a lawsuit that was not mentioned by the client?

As part of the review for subsequent events, the auditor will review financial statements prepared after the balance sheet date. The statements should be discussed with management to determine whether they

Besides the search for contingent liabilities and the review for subsequent events, the auditor has four important final evidence accumulation responsibilities, all of which are required by current professional auditing standards. Discuss each of these four responsibilities.

The initial review of the working papers prepared by any given auditor is normally done by the

Management furnishes the auditor with information concerning litigation, claims, and assessments. Which of the following is the auditor's primary means of initiating action to corroborate such information?

A client representation letter is a written statement from a non-independent source and therefore

Which of the following auditing procedures is ordinarily performed last?

If the amount of a probable loss on a contingent liability cannot be estimated but the event is likely, the liability should be

There are two categories of lawsuits: outstanding (or asserted) claims, and

Which of the following scenarios regarding a lawsuit filed against a client by a third party would qualify as a "contingent liability"?

Which level of risk does the auditor normally assign to the presentation and disclosure-related assertion of completeness for contingent liabilities and subsequent events?

Which of the following procedures might be useful in discovering a contingent liability for a lawsuit that management is intentionally neglecting to disclose?

When auditing contingent liabilities, the primary objective at the initial stage of the tests is to determine

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