Question 1

Generally, loss contingencies that are judged to be remote:

Accepted Answer

A) should be disclosed in the footnotes. 
B) should be recorded in the financial statements. 
C) should not be disclosed in the footnotes. 
D) should be recorded in the financial statements and the footnotes. 
A) should be disclosed in the footnotes. 
B) should be recorded in the financial statements. 
C) should not be disclosed in the footnotes. 
D) should be recorded in the financial statements and the footnotes.

Question 2

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Accepted Answer

A) This communication is required to occur before the auditor's report on the financial statements is issued. 
B) This communication should provide timely observations arising from the audit that are significant to the financial reporting process. 
C) Any significant matter communicated to those charged with governance also should be communicated to management. 
D) Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance. 
A) This communication is required to occur before the auditor's report on the financial statements is issued. 
B) This communication should provide timely observations arising from the audit that are significant to the financial reporting process. 
C) Any significant matter communicated to those charged with governance also should be communicated to management. 
D) Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance.

Question 3

Which of the following situations would require adjustment to or disclosure in the financial statements?

Accepted Answer

A) A merger discussion. 
B) The application for a patent on a new production process. 
C) Discussions with a customer that could lead to a 40 percent increase in the entity's sales if agreement is successful. 
D) The bankruptcy of a customer who regularly purchased 30 percent of the company's output. 
A) A merger discussion. 
B) The application for a patent on a new production process. 
C) Discussions with a customer that could lead to a 40 percent increase in the entity's sales if agreement is successful. 
D) The bankruptcy of a customer who regularly purchased 30 percent of the company's output.

Question 4

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

A) Significant related party transactions are pervasive. 
B) Usual trade credit from suppliers is denied. 
C) Arrearages in preferred stock dividends are paid. 
D) Restrictions on the disposal of principal assets are present. 
A) Significant related party transactions are pervasive. 
B) Usual trade credit from suppliers is denied. 
C) Arrearages in preferred stock dividends are paid. 
D) Restrictions on the disposal of principal assets are present.

Question 5

Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties?

Accepted Answer

A) Net worth/total liabilities. 
B) Cash/total assets. 
C) Total liabilities/total assets. 
D) Net income before taxes/net sales. 
A) Net worth/total liabilities. 
B) Cash/total assets. 
C) Total liabilities/total assets. 
D) Net income before taxes/net sales.

Question 6

An example of a Type I subsequent event is:

Accepted Answer

A) a tornado that destroys an entity's factory after the balance sheet date. 
B) an event after the balance sheet date that confirms the auditor's belief (documented prior to the end of the entity's fiscal year)that a large portion of the entity's inventory is obsolete. 
C) notification of an IRS audit after the balance sheet date. 
D) the entity's Board of Directors unexpectedly resigns after the balance sheet date. 
A) a tornado that destroys an entity's factory after the balance sheet date. 
B) an event after the balance sheet date that confirms the auditor's belief (documented prior to the end of the entity's fiscal year)that a large portion of the entity's inventory is obsolete. 
C) notification of an IRS audit after the balance sheet date. 
D) the entity's Board of Directors unexpectedly resigns after the balance sheet date.

Question 7

Communications between the auditor and those charged with governance should include all of the following except:

Accepted Answer

A) a summary of specific audit procedures used. 
B) a summary of uncorrected misstatements. 
C) consultations with other accountants. 
D) major issues discussed with management before the auditor was retained. 
A) a summary of specific audit procedures used. 
B) a summary of uncorrected misstatements. 
C) consultations with other accountants. 
D) major issues discussed with management before the auditor was retained.

Question 8

Which of the following statements extracted from an entity's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?

Accepted Answer

A) "I believe that the possible liability to the company is nominal in amount." 
B) "I believe that the action can be settled for less than the damages claimed." 
C) "I believe that the plaintiff's case against the company is without merit." 
D) "I believe that the company will be able to defend this action successfully." 
A) "I believe that the possible liability to the company is nominal in amount." 
B) "I believe that the action can be settled for less than the damages claimed." 
C) "I believe that the plaintiff's case against the company is without merit." 
D) "I believe that the company will be able to defend this action successfully."

Question 9

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

Accepted Answer

A) ability to expand operations into new product lines in the future. 
B) feasibility of plans to purchase leased equipment at less than market value. 
C) marketability of assets that management plans to sell. 
D) committed arrangements to convert preferred stock to long-term debt. 
A) ability to expand operations into new product lines in the future. 
B) feasibility of plans to purchase leased equipment at less than market value. 
C) marketability of assets that management plans to sell. 
D) committed arrangements to convert preferred stock to long-term debt.

Question 10

Discuss the internal control communication requirements of the PCAOB. What must auditors of public companies report to those charged with governance?

Accepted Answer

The auditor must communicate in writing

Question 11

After issuance of the financial statements and the accompanying auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless:

Accepted Answer

A) a lawsuit in which risk of loss was considered remote is resolved in the company's favor. 
B) a development occurs that may affect the entity's ability to continue as a going concern. 
C) a material fraud is initiated by an employee after the report is issued. 
D) evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered. 
A) a lawsuit in which risk of loss was considered remote is resolved in the company's favor. 
B) a development occurs that may affect the entity's ability to continue as a going concern. 
C) a material fraud is initiated by an employee after the report is issued. 
D) evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.

Question 12

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should:

Accepted Answer

A) determine whether the information is reliable and, if it is determined to be reliable, request that revised financial statements be issued. 
B) notify the entity that the auditor's report may no longer be associated with the financial statements. 
C) describe the effects of this subsequently discovered information in communications with persons known to be relying on the financial statements. 
D) take no action because the auditor has no obligation to make any further inquiries. 
A) determine whether the information is reliable and, if it is determined to be reliable, request that revised financial statements be issued. 
B) notify the entity that the auditor's report may no longer be associated with the financial statements. 
C) describe the effects of this subsequently discovered information in communications with persons known to be relying on the financial statements. 
D) take no action because the auditor has no obligation to make any further inquiries.

Question 13

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Accepted Answer

A) Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. 
B) Management acknowledges responsibility for illegal actions committed by employees. 
C) Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion. 
D) Management acknowledges that there are no material misstatements in the internal controls. 
A) Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. 
B) Management acknowledges responsibility for illegal actions committed by employees. 
C) Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion. 
D) Management acknowledges that there are no material misstatements in the internal controls.

Question 14

Which of the following matters is an auditor required to communicate to those charged with governance?

Accepted Answer

A) The basis for assessing control risk at low. 
B) The disagreements with management, if any. 
C) The auditor's preliminary judgments about materiality levels. 
D) The justification for performing substantive procedures at interim dates. 
A) The basis for assessing control risk at low. 
B) The disagreements with management, if any. 
C) The auditor's preliminary judgments about materiality levels. 
D) The justification for performing substantive procedures at interim dates.

Question 15

After fieldwork audit procedures are completed for a public company and private company whose financial statements are expected to be widely distributed, a partner of the CPA firm who has not been involved in the audit performs an engagement quality review of the working papers. This review focuses on:

Accepted Answer

A) an evaluation of the significant judgments made by the engagement teams and the conclusions reached in formulating the audit report. 
B) irregularities involving the entity's management and its employees. 
C) the materiality of the adjusting entries proposed by the audit staff. 
D) the communication of internal control weaknesses to those charged with governance. 
A) an evaluation of the significant judgments made by the engagement teams and the conclusions reached in formulating the audit report. 
B) irregularities involving the entity's management and its employees. 
C) the materiality of the adjusting entries proposed by the audit staff. 
D) the communication of internal control weaknesses to those charged with governance.

Question 16

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

Accepted Answer

A) Any matters communicated to those charged with governance are also required to be communicated to the entity's management. 
B) The auditor is required to discuss considerations relating to assessment of going concern. 
C) The auditor does not have any requirement to communicate with anyone outside of management. 
D) Weaknesses in internal control previously reported to those charged with governance are required to be communicated to those charged with governance after each subsequent audit until the weaknesses are corrected. 
A) Any matters communicated to those charged with governance are also required to be communicated to the entity's management. 
B) The auditor is required to discuss considerations relating to assessment of going concern. 
C) The auditor does not have any requirement to communicate with anyone outside of management. 
D) Weaknesses in internal control previously reported to those charged with governance are required to be communicated to those charged with governance after each subsequent audit until the weaknesses are corrected.

Question 17

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against an entity except the:

Accepted Answer

A) period in which the underlying cause for legal action occurred. 
B) probability of an unfavorable outcome. 
C) jurisdiction in which the matter will be resolved. 
D) existence of a situation indicating an uncertainty as to the possible loss. 
A) period in which the underlying cause for legal action occurred. 
B) probability of an unfavorable outcome. 
C) jurisdiction in which the matter will be resolved. 
D) existence of a situation indicating an uncertainty as to the possible loss.

Question 18

State the two primary purposes of the management representation letter.

Accepted Answer

• To document, in writing, oral represen

Question 19

While auditing other business processes, an auditor may identify information about contingent liabilities. What specific audit procedures relating to other business processes could uncover these liabilities?

Accepted Answer

• Reading the minutes of the board of di

Question 20

Which of the following subsequent events will be least likely to result in an adjustment to the financial statements?

Accepted Answer

A) Culmination of events affecting the realization of accounts receivable owned as of the balance sheet date. 
B) Culmination of events affecting the realization of inventories owned as of the balance sheet date. 
C) Material changes in the settlement of liabilities that were estimated as of the balance sheet date. 
D) Material changes in the quoted market prices of listed investment securities since the balance sheet date. 
A) Culmination of events affecting the realization of accounts receivable owned as of the balance sheet date. 
B) Culmination of events affecting the realization of inventories owned as of the balance sheet date. 
C) Material changes in the settlement of liabilities that were estimated as of the balance sheet date. 
D) Material changes in the quoted market prices of listed investment securities since the balance sheet date.

Generally, loss contingencies that are judged to be remote:

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Which of the following situations would require adjustment to or disclosure in the financial statements?

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties?

An example of a Type I subsequent event is:

Communications between the auditor and those charged with governance should include all of the following except:

Which of the following statements extracted from an entity's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

Discuss the internal control communication requirements of the PCAOB. What must auditors of public companies report to those charged with governance?

After issuance of the financial statements and the accompanying auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless:

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should:

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Which of the following matters is an auditor required to communicate to those charged with governance?

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against an entity except the:

State the two primary purposes of the management representation letter.

While auditing other business processes, an auditor may identify information about contingent liabilities. What specific audit procedures relating to other business processes could uncover these liabilities?

Which of the following subsequent events will be least likely to result in an adjustment to the financial statements?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 17: Completing the Audit Engagement

Generally, loss contingencies that are judged to be remote:

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Which of the following situations would require adjustment to or disclosure in the financial statements?

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties?

An example of a Type I subsequent event is:

Communications between the auditor and those charged with governance should include all of the following except:

Which of the following statements extracted from an entity's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

Discuss the internal control communication requirements of the PCAOB. What must auditors of public companies report to those charged with governance?

After issuance of the financial statements and the accompanying auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless:

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should:

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Which of the following matters is an auditor required to communicate to those charged with governance?

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against an entity except the:

State the two primary purposes of the management representation letter.

While auditing other business processes, an auditor may identify information about contingent liabilities. What specific audit procedures relating to other business processes could uncover these liabilities?

Which of the following subsequent events will be least likely to result in an adjustment to the financial statements?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters