Question 1

Client representation letters are required by professional auditing standards, whereas management letters are optional.

Accepted Answer

A) True 
 B)False

Question 2

Auditing standards require the auditor to ________ other information included in annual reports pertaining directly to the financial statements.

Accepted Answer

A) audit 
B) express an opinion on 
C) read 
D) analyze 
A) audit 
B) express an opinion on 
C) read 
D) analyze

Question 3

An auditor has the responsibility to actively search for subsequent events that occur subsequent to the:

Accepted Answer

A) balance sheet date. 
B) date of the auditor's report. 
C) balance sheet date, but prior to the audit report. 
D) date of the management representation letter. 
A) balance sheet date. 
B) date of the auditor's report. 
C) balance sheet date, but prior to the audit report. 
D) date of the management representation letter.

Question 4

Which of the following would the auditor expect to find in the client's management representation letter?

Accepted Answer

A) Management's recommendations for internal control effectiveness improvements 
B) Management's plans for improving product quality 
C) Management's compliance with contractual arrangements that impact the financial statements 
D) Management's goals for improving earnings per share 
A) Management's recommendations for internal control effectiveness improvements 
B) Management's plans for improving product quality 
C) Management's compliance with contractual arrangements that impact the financial statements 
D) Management's goals for improving earnings per share

Question 5

Contingent liability disclosure in the footnotes of the financial statements would normally be made when:

Accepted Answer

A) the outcome of the accounting event is deemed probable, but a reasonable estimation as to the amount cannot be made by the client or auditor. 
B) a reasonable estimation of the loss can be made, but the outcome is not probable. 
C) the outcome of the accounting event is deemed probable, and a reasonable estimation as to the amount can be made. 
D) the outcome of the accounting event as well as a reasonable estimation of the loss cannot be made. 
A) the outcome of the accounting event is deemed probable, but a reasonable estimation as to the amount cannot be made by the client or auditor. 
B) a reasonable estimation of the loss can be made, but the outcome is not probable. 
C) the outcome of the accounting event is deemed probable, and a reasonable estimation as to the amount can be made. 
D) the outcome of the accounting event as well as a reasonable estimation of the loss cannot be made.

Question 6

The auditor has completed her assessment of subsequent events.The proper accounting for subsequent events that have a direct effect on the financial statements is to:

Accepted Answer

A) adjust the financial statements for the year under audit. 
B) disclose in the notes to financial statement the amount of the adjustment. 
C) duly note in the audit workpapers that next year's financial statements need to be adjusted. 
D) make no adjustment of the financial statements for the year under audit. 
A) adjust the financial statements for the year under audit. 
B) disclose in the notes to financial statement the amount of the adjustment. 
C) duly note in the audit workpapers that next year's financial statements need to be adjusted. 
D) make no adjustment of the financial statements for the year under audit.

Question 7

Which type of subsequent event requires consideration by management and evaluation by the auditor?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 8

If a potential loss on a contingent liability is remote, the liability usually is:

Accepted Answer

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

Question 9

Because a management representation letter is a written statement from a nonindependent source, it cannot be regarded as reliable evidence.

Accepted Answer

A) True 
 B)False

Question 10

When dealing with contingencies:

Accepted Answer

A) all material contingencies must be disclosed or footnoted. 
B) the auditor must exercise considerable professional judgment when evaluating whether the client has applied the appropriate treatment. 
C) it is easy for the auditor to uncover contingencies without management's cooperation. 
D) the review for contingent liabilities is only performed at the beginning and the end of the audit. 
A) all material contingencies must be disclosed or footnoted. 
B) the auditor must exercise considerable professional judgment when evaluating whether the client has applied the appropriate treatment. 
C) it is easy for the auditor to uncover contingencies without management's cooperation. 
D) the review for contingent liabilities is only performed at the beginning and the end of the audit.

Question 11

Which of the following would be a subsequent discovery of facts which would not require a response by the auditor?

Accepted Answer

A) Discovery of the inclusion of material nonexistent sales 
B) Discovery of the failure to write off material obsolete inventory 
C) Discovery of the omission of a material footnote 
D) Discovery of management's intent to increase selling prices in the future 
A) Discovery of the inclusion of material nonexistent sales 
B) Discovery of the failure to write off material obsolete inventory 
C) Discovery of the omission of a material footnote 
D) Discovery of management's intent to increase selling prices in the future

Question 12

Define the term contingent liability and discuss the criteria accountants and auditors use to classify these accounting events.

Accepted Answer

Contingent liability: a potential future

Question 13

Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken to distinguish between conditions that existed at the balance sheet date and those that come into being after the balance sheet date.The subsequent information should not be incorporated directly into the statements if the conditions causing the change in valuation:

Accepted Answer

A) took place before the balance sheet date. 
B) did not take place until after the balance sheet date. 
C) occurred both before and after the balance sheet date. 
D) are reimbursable through insurance policies. 
A) took place before the balance sheet date. 
B) did not take place until after the balance sheet date. 
C) occurred both before and after the balance sheet date. 
D) are reimbursable through insurance policies.

Question 14

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a:

Accepted Answer

A) qualified opinion or a disclaimer of opinion. 
B) adverse opinion or a disclaimer of opinion. 
C) qualified or an adverse opinion. 
D) unqualified opinion with an explanatory paragraph. 
A) qualified opinion or a disclaimer of opinion. 
B) adverse opinion or a disclaimer of opinion. 
C) qualified or an adverse opinion. 
D) unqualified opinion with an explanatory paragraph.

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) letter of inquiry. 
C) letters testamentary. 
D) management letter of representation. 
A) management letter. 
B) letter of inquiry. 
C) letters testamentary. 
D) management letter of representation.

Question 16

The audit procedures for the subsequent events review can be divided into two categories: (1)procedures 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 is in the first category?

Accepted Answer

A) Inquire of client regarding contingent liabilities. 
B) Obtain a letter of representation written by client. 
C) Subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate. 
D) Review journals and ledgers of year 2 to determine the existence of any transactions related to year 1. 
A) Inquire of client regarding contingent liabilities. 
B) Obtain a letter of representation written by client. 
C) Subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate. 
D) Review journals and ledgers of year 2 to determine the existence of any transactions related to year 1.

Question 17

Which of the following is not a reason why the auditor requests that the client provide a letter of representation?

Accepted Answer

A) Professional auditing standards require the auditor to obtain a letter of representation. 
B) It impresses upon management its responsibility for the accuracy of the information in the financial statements. 
C) It provides written documentation of the oral responses already received to inquiries of management. 
D) It determines the type of opinion the auditor will issue on the financial statements. 
A) Professional auditing standards require the auditor to obtain a letter of representation. 
B) It impresses upon management its responsibility for the accuracy of the information in the financial statements. 
C) It provides written documentation of the oral responses already received to inquiries of management. 
D) It determines the type of opinion the auditor will issue on the financial statements.

Question 18

The auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit examination is best expressed by which of the following statements?

Accepted Answer

A) The auditor is fully responsible for events occurring in the subsequent period and should extend all detailed procedures through the last day of fieldwork. 
B) The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period. 
C) The auditor's responsibility is to determine that a proper cutoff has been made and that transactions recorded on or before the balance sheet date actually occurred. 
D) The auditor has no responsibility for events occurring in the subsequent period unless these events affect transactions recorded on or before the balance sheet date. 
A) The auditor is fully responsible for events occurring in the subsequent period and should extend all detailed procedures through the last day of fieldwork. 
B) The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period. 
C) The auditor's responsibility is to determine that a proper cutoff has been made and that transactions recorded on or before the balance sheet date actually occurred. 
D) The auditor has no responsibility for events occurring in the subsequent period unless these events affect transactions recorded on or before the balance sheet date.

Question 19

When reviewing the summary of misstatements found in the audit:

Accepted Answer

A) an adjusting journal entry must be made by the auditor for all material misstatements. 
B) auditors must combine individually immaterial misstatements to evaluate whether the combined amount is material. 
C) the auditor is not required to consider the impact on the current financial statements of misstatements in the prior year that were not corrected. 
D) auditors only need to consider the misstatements that impact the income statement. 
A) an adjusting journal entry must be made by the auditor for all material misstatements. 
B) auditors must combine individually immaterial misstatements to evaluate whether the combined amount is material. 
C) the auditor is not required to consider the impact on the current financial statements of misstatements in the prior year that were not corrected. 
D) auditors only need to consider the misstatements that impact the income statement.

Question 20

Which of the following statements regarding the letter of representation is not correct?

Accepted Answer

A) It is prepared on the client's letterhead. 
B) It is addressed to the CPA firm. 
C) It is signed by high-level corporate officials, usually the president and chief financial officer. 
D) It is optional, not required, that the auditor obtain such a letter from management. 
A) It is prepared on the client's letterhead. 
B) It is addressed to the CPA firm. 
C) It is signed by high-level corporate officials, usually the president and chief financial officer. 
D) It is optional, not required, that the auditor obtain such a letter from management.

Exam 24: Completing the Audit

Client representation letters are required by professional auditing standards, whereas management letters are optional.

Auditing standards require the auditor to ________ other information included in annual reports pertaining directly to the financial statements.

An auditor has the responsibility to actively search for subsequent events that occur subsequent to the:

Which of the following would the auditor expect to find in the client's management representation letter?

Contingent liability disclosure in the footnotes of the financial statements would normally be made when:

The auditor has completed her assessment of subsequent events.The proper accounting for subsequent events that have a direct effect on the financial statements is to:

Which type of subsequent event requires consideration by management and evaluation by the auditor?

If a potential loss on a contingent liability is remote, the liability usually is:

Because a management representation letter is a written statement from a nonindependent source, it cannot be regarded as reliable evidence.

When dealing with contingencies:

Which of the following would be a subsequent discovery of facts which would not require a response by the auditor?

Define the term contingent liability and discuss the criteria accountants and auditors use to classify these accounting events.

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a:

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:

Which of the following is not a reason why the auditor requests that the client provide a letter of representation?

The auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit examination is best expressed by which of the following statements?

When reviewing the summary of misstatements found in the audit:

Which of the following statements regarding the letter of representation is not correct?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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