Exam 11: Completing the Audit

Small and Tall,CPAs,completed the December 31,2012 audit of Big Company on February 10,2013.After the audit report release date,an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31,2012 financial statements.The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed.Based on this new information,Small and Tall,CPAs should

Why is it the client's decision to record adjustments to the financial statements?

What course of action should auditors take if,after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties,they believe that substantial doubt about going-concern status does not exist?

Indicate the type of communication(s)that correspond to each of the following statements.Use the letters A (attorney letter),M (management letter),and WR (written representations).Each statement may be related to more than one type of communication. _____ 1.Discusses management's responsibility for the fairness of the financial statements. _____ 2.Is obtained on the date of the auditors' report. _____ 3.Provides auditors with significant evidence regarding litigation,claims,and assessments. _____ 4.Discusses the absence of fraud activity by the client and its personnel. _____ 5.Is not required by generally accepted auditing standards. _____ 6.Is intended to be returned to auditors as a form of evidence. _____ 7.Is typically prepared following the audit report release date. _____ 8.Is signed by an executive of the client.

You are auditing Green Corporation for the calendar year 2012.Among other items related to the audit,Green is being sued for personal injury resulting from the malfunction of one of its products.Sue Ewe initiated the lawsuit in September 2012.Management and the company's outside legal counsel estimated the loss from the suit to be approximately $250,000.This amount is accrued and properly disclosed in the footnotes of the financial statements.You have no reason to believe that the estimate is inaccurate.You completed your audit and dated your report March 2,2013.The financial statements were issued on March 14,2013.On March 20,2013,you read in a national business periodical that the jury in the trial awarded Sue Ewe $1.5 million. Required: Discuss the nature of these events and what responsibility,if any,you have regarding the news of March 20,2013.

Which of the following substantive procedures would auditors not ordinarily use in evaluating the potential existence of subsequent events?

Which of the following statements is not true with respect to the auditors' evaluation of going-concern uncertainties?

Which of the following normally occurs earliest in the audit examination?

At the review stage of an audit,the application of analytical procedures is

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?

Which of the following reporting options is available if the client refuses to provide written representations to auditors?

The primary source of information auditors use to obtain information about litigation,claims,and assessments is the

What is the primary purpose of obtaining written representations?

In an audit of contingent liabilities,which of the following procedures would be least effective?

Long and Short,CPAs,were auditing Island Corporation for the year ended December 31,2012.On January 11,2013,a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in its warehouse on January 8,2013.As a result,a material accounts receivable from the customer was determined to be uncollectible.Long and Short,CPAs,would expect the client to

If the attorney's views differ from information provided in the attorney letter,the attorney is not expected to provide additional explanation to auditors.

If auditors learn of facts after the date of the auditors' report but prior to the audit report release date,they may ______________________________ the auditors' reports.

Which of the following is typically not included in the inquiry letter sent to the client's attorneys?

Which of the following forms of communication ordinarily does not take place following completion of the audit examination?

The engagement quality review of audit documentation by a different partner focuses on whether all appropriate steps in the audit were performed and whether the referencing among all audit documentation is clear.