Exam 17: Completing the Audit Engagement

Which of the following events occurring after the issuance of an entity's financial statements and the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

An attorney is responding to an independent auditor as a result of the entity's letter of inquiry. The attorney may appropriately limit the response to:

The purpose of analytical procedures at the completion of the audit includes all of the following except:

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to:

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The entity refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must:

"There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in, financial reporting practices that could have a material effect on the financial statements." The foregoing passage is most likely from a:

The refusal of an entity's attorney to provide a representation on the legality of a particular act committed by the entity is generally:

Harvey, CPA, is preparing an audit program for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in conformity with generally accepted accounting principles. Which one of the following procedures would be least appropriate for this purpose?

What information is typically requested in a legal letter to an entity's attorney?

The fieldwork for the December 31, 2018 audit of Pumpkin Corporation ended on March 13, 2019. The financial statements and auditor's report were issued and mailed to stockholders on March 23, 2019. In each of the situations below, select from the list at the end of the problem the appropriate action to be taken by the auditor. Assume all situations are material. Situations: 1. On April 5, 2019, you discovered that on February 16, 2019, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses. 2. On February 17, 2019, you discovered that on February 16, 2019, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses. 3. On February 17, 2019, you discovered that on November 30, 2018, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses. 4. On April 5, 2019, you discovered that on March 30, 2019, a fire destroyed one of Pumpkin's 10 plants. 5. On April 7, 2019, you discovered that a debtor of Pumpkin went bankrupt on January 6, 2019. 6. On January 16, 2019, a lawsuit was filed against Pumpkin for a patent infringement action that allegedly took place in early 2006. In the opinion of Pumpkin's attorneys, there is a reasonable (but not probable)danger of a significant loss to Pumpkin. 7. On February 19, 2019, Pumpkin settled a lawsuit out of court that had originated in 2005 and is currently listed as a contingent liability. Possible Actions: a. Adjust the December 31, 2018 financial statements. b. Disclose the information in a footnote in the December 31, 2018 financial statements. c. Request the entity revise and reissue the December 31, 2018 financial statements. The revision should involve an adjustment to the December 31, 2018 financial statements. d. Request the entity revise and reissue the December 31, 2018 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2018 financial statements. e. No action is required.

Every contingent liability must be recorded.

Pretty People Incorporated is the defendant in a pending discrimination lawsuit. What information about the lawsuit would you, as an auditor, need to know to decide whether to disclose the litigation in the financial statements?

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims, and assessments in audit procedures for subsequent events and contingent liabilities?

The primary reason an auditor requests letters of inquiry be sent to an entity's attorneys is to provide the auditor with:

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

A Type II subsequent event usually requires:

When auditing contingent liabilities, which of the following procedures would be least effective?

An example of a contingent liability is an income tax dispute.

After the financials have been issued with an accompanying audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless:

A major customer of an entity suffers a fire after year-end, but just prior to completion of audit fieldwork. The entity believes that this event could have a significant direct effect on the financial statements. The auditor should: