Exam 17: Completing the Audit Engagement

After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up review of the working papers. This second review usually focuses on

An auditor will ordinarily examine invoices from lawyers primarily in order to

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with

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

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

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

Reading contracts and loan agreements is one way to identify unrecorded contingent liabilities.

Generally, loss contingencies that are judged to be remote

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a

A Type II subsequent event usually requires

The fieldwork for the December 31, 2013 audit of Pumpkin Corporation ended on March 13, 2014. The financial statements and auditor's report were issued and mailed to stockholders on March 23, 2014. 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, 2014, you discovered that on February 16, 2014, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses. 2. On February 17, 2014, you discovered that on February 16, 2014, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses. 3. On February 17, 2014, you discovered that on November 30, 2013, a flood destroyed the entire uninsured inventory in one of Pumpkin's warehouses. 4. On April 5, 2014, you discovered that on March 30, 2014, a fire destroyed one of Pumpkin's 10 plants. 5. On April 7, 2014, you discovered that a debtor of Pumpkin went bankrupt on January 6, 2014. 6. On January 16, 2014, a lawsuit was filed against Pumpkin for a patent infringement action that allegedly took place in early 2001. 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, 2014, Pumpkin settled a lawsuit out of court that had originated in 2000 and is currently listed as a contingent liability. Possible Actions: a. Adjust the December 31, 2013 financial statements. b. Disclose the information in a footnote in the December 31, 2013 financial statements. c. Request the entity revise and reissue the December 31, 2013 financial statements. The revision should involve an adjustment to the December 31, 2013 financial statements. d. Request the entity revise and reissue the December 31, 2013 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2013 financial statements. e. No action is required.

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter?

Type II subsequent events are conditions that require an adjustment to the account balance shown on the financial statements.

In the course of the examination of financial statements for the purpose of expressing an opinion, the auditor normally prepares a schedule of unadjusted differences for which the auditor did not propose adjustments when they were discovered. What is the primary purpose of this schedule?

What is the difference between a contingent liability and a commitment?

An example of a Type I event or condition is the settlement of a lawsuit after the balance sheet date for an amount different from the amount recorded in the year-end financial statements.

If there is substantial doubt about the entity's ability to continue as a going concern, the auditor should obtain information about the management's plans to mitigate the problem and assess the likelihood that such plans can be implemented.

Subsequent events for which the auditor has a responsibility to actively search are defined as events that occur subsequent to the

A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the

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