Question 1

Distinguish between contingent liabilities and commitments.

Accepted Answer

Contingent liabilities are potential fut

Question 2

An auditor performs interim work at various times throughout the year. The auditor's subsequent events work should be extended to the date of

Accepted Answer

A)  the auditor's report. 
B)  a post-dated footnote. 
C)  the next scheduled interim visit. 
D)  the final billing for audit services rendered. 
A)  the auditor's report. 
B)  a post-dated footnote. 
C)  the next scheduled interim visit. 
D)  the final billing for audit services rendered.

Question 3

Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least

Accepted Answer

A)  one quarter beyond the balance sheet date. 
B)  one quarter beyond the date of the auditor's report. 
C)  one year beyond the balance sheet date. 
D)  one year beyond the date of the auditor's report. 
A)  one quarter beyond the balance sheet date. 
B)  one quarter beyond the date of the auditor's report. 
C)  one year beyond the balance sheet date. 
D)  one year beyond the date of the auditor's report.

Question 4

If the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued, what date(s) may the auditor use on the report?

Accepted Answer

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

Question 5

As part of phase IV of the audit, auditors evaluate evidence they obtained during the first three phases of the audit to determine whether they should perform additional procedures for presentation and disclosure-related objectives.

Accepted Answer

A) True 
 B)False

Question 6

The accounting standards require management to evaluate an entity's ability to continue as a going concern within one year after the date the financial statements are issued. Describe the two steps management is required to perform in performing this evaluation.

Accepted Answer

Management must first evaluation whether

Question 7

An attorney is aware of a violation of a patent agreement that could result in a significant loss to the client if it were known. This is an example of a(n)

Accepted Answer

A)  commitment. 
B)  unasserted claim. 
C)  pending litigation. 
D)  subsequent event. 
A)  commitment. 
B)  unasserted claim. 
C)  pending litigation. 
D)  subsequent event.

Question 8

The accounting standards state that management is responsible to evaluate the entity's ability to continue as a going concern within one year after the date the financial statements are issued.

Accepted Answer

A) True 
 B)False

Question 9

Management furnishes the independent 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 client lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which they were consulted during the period under examination. 
B)  Request that client management send a standard inquiry to the client's attorney letter to those lawyers with whom management consulted concerning litigation, claims, and assessments. 
C)  Request that client 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 client management engage outside attorneys to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation, claims, and assessments. 
A)  Request that client lawyers undertake a reconsideration of matters of litigation, claims, and assessments with which they were consulted during the period under examination. 
B)  Request that client management send a standard inquiry to the client's attorney letter to those lawyers with whom management consulted concerning litigation, claims, and assessments. 
C)  Request that client 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 client management engage outside attorneys to suggest wording for the text of a footnote explaining the nature and probable outcome of existing litigation, claims, and assessments.

Question 10

State three items that should be included in a standard inquiry to the client's attorney letter.

Accepted Answer

• A list including (1) pending threatene

Question 11

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

Accepted Answer

• Inquire of management (orally and in w

Question 12

Which of the following is not considered a commitment?

Accepted Answer

A)  agreements to purchase raw materials 
B)  pension plans 
C)  agreements to lease facilities at set prices 
D)  Each of the above is a commitment. 
A)  agreements to purchase raw materials 
B)  pension plans 
C)  agreements to lease facilities at set prices 
D)  Each of the above is a commitment.

Question 13

Current professional auditing standards mandate the use of analytical procedures during the testing phase of the audit.

Accepted Answer

A) True 
 B)False

Question 14

Auditors of public companies must obtain certain representations from management regarding internal control over financial reporting.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following subsequent events is most likely to result in an adjustment to a company's financial statements?

Accepted Answer

A)  merger or acquisition activities 
B)  bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance 
C)  issuance of common stock 
D)  an uninsured loss of inventories due to a fire 
A)  merger or acquisition activities 
B)  bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance 
C)  issuance of common stock 
D)  an uninsured loss of inventories due to a fire

Question 16

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

1. Events that occur after the balance s

Question 17

An auditor must obtain written client representations that might be signed by all but which of the following?

Accepted Answer

A)  treasurer 
B)  chief financial officer 
C)  vice president of operations 
D)  chief executive officer 
A)  treasurer 
B)  chief financial officer 
C)  vice president of operations 
D)  chief executive officer

Question 18

The Securities and Exchange Commission has established regulations about the presentation of non-GAAP financial measures included in financial statements which include such measures should be relevant and reliable measures that do not mislead investors.

Accepted Answer

A) True 
 B)False

Question 19

A commitment is best described as

Accepted Answer

A)  an agreement to commit the firm to a set of fixed conditions in the future. 
B)  an agreement to commit the firm to a set of fixed conditions in the future that depends on company profitability. 
C)  an agreement to commit the firm to a set of fixed conditions in the future that depends on current market conditions. 
D)  a potential future obligation to an outside party for an as yet to be determined amount. 
A)  an agreement to commit the firm to a set of fixed conditions in the future. 
B)  an agreement to commit the firm to a set of fixed conditions in the future that depends on company profitability. 
C)  an agreement to commit the firm to a set of fixed conditions in the future that depends on current market conditions. 
D)  a potential future obligation to an outside party for an as yet to be determined amount.

Question 20

Auditors, as part of completing the audit, will request the client to send a standard inquiry to the client's attorney letter to those attorneys the company has been consulting with during the year under audit regarding legal matters of concern to the company. The primary reason the auditor requests this information is to

Accepted Answer

A)  determine the range of probable loss for asserted claims. 
B)  obtain a professional opinion about the expected outcome of existing lawsuits and the likely amount of the liability, including court costs. 
C)  obtain an outside opinion of the probability of losses in determining accruals for contingencies. 
D)  obtain an outside opinion of the probability of losses in determining the proper footnote disclosure. 
A)  determine the range of probable loss for asserted claims. 
B)  obtain a professional opinion about the expected outcome of existing lawsuits and the likely amount of the liability, including court costs. 
C)  obtain an outside opinion of the probability of losses in determining accruals for contingencies. 
D)  obtain an outside opinion of the probability of losses in determining the proper footnote disclosure.

Exam 24: Completing the Audit

Distinguish between contingent liabilities and commitments.

An auditor performs interim work at various times throughout the year. The auditor's subsequent events work should be extended to the date of

Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least

If the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued, what date(s) may the auditor use on the report?

As part of phase IV of the audit, auditors evaluate evidence they obtained during the first three phases of the audit to determine whether they should perform additional procedures for presentation and disclosure-related objectives.

The accounting standards require management to evaluate an entity's ability to continue as a going concern within one year after the date the financial statements are issued. Describe the two steps management is required to perform in performing this evaluation.

An attorney is aware of a violation of a patent agreement that could result in a significant loss to the client if it were known. This is an example of a(n)

The accounting standards state that management is responsible to evaluate the entity's ability to continue as a going concern within one year after the date the financial statements are issued.

Management furnishes the independent 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?

State three items that should be included in a standard inquiry to the client's attorney letter.

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

Which of the following is not considered a commitment?

Current professional auditing standards mandate the use of analytical procedures during the testing phase of the audit.

Auditors of public companies must obtain certain representations from management regarding internal control over financial reporting.

Which of the following subsequent events is most likely to result in an adjustment to a company's financial statements?

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.

An auditor must obtain written client representations that might be signed by all but which of the following?

The Securities and Exchange Commission has established regulations about the presentation of non-GAAP financial measures included in financial statements which include such measures should be relevant and reliable measures that do not mislead investors.

A commitment is best described as

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