Question 1

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.

Question 2

An auditor is concerned with completing various phases of the examination after the balance sheet date.This "subsequent period" involving formal audit procedures extends to the date of the

Accepted Answer

A)  Auditor's report. 
B)  Final review of the audit working papers. 
C)  Public issuance of the financial statements. 
D)  Delivery of the auditor's report to the client. 
A)  Auditor's report. 
B)  Final review of the audit working papers. 
C)  Public issuance of the financial statements. 
D)  Delivery of the auditor's report to the client.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

Accepted Answer

A)  Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters. 
B)  Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters. 
C)  Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company. 
D)  Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters. 
A)  Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters. 
B)  Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters. 
C)  Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company. 
D)  Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters.

Question 5

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

Accepted Answer

A)  Letter of audit inquiry to the client's lawyer. 
B)  Letter of corroboration from the auditor's lawyer upon review of the legal documentation. 
C)  Confirmation of claims and assessments from the other parties to the litigation. 
D)  Confirmation of claims and assessments from an officer of the court presiding over the litigation. 
A)  Letter of audit inquiry to the client's lawyer. 
B)  Letter of corroboration from the auditor's lawyer upon review of the legal documentation. 
C)  Confirmation of claims and assessments from the other parties to the litigation. 
D)  Confirmation of claims and assessments from an officer of the court presiding over the litigation.

Question 6

State the two primary purposes of the client letter of representation.

Accepted Answer

● To corroborate oral representations ma

Question 7

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

Accepted Answer

A)  An analysis of related party transactions for the discovery of possible irregularities. 
B)  A review of the cut-off bank statements for the period after the year-end. 
C)  An inquiry of the client's legal counsel concerning litigation. 
D)  An investigation of material weaknesses in internal control previously communicated to the client. 
A)  An analysis of related party transactions for the discovery of possible irregularities. 
B)  A review of the cut-off bank statements for the period after the year-end. 
C)  An inquiry of the client's legal counsel concerning litigation. 
D)  An investigation of material weaknesses in internal control previously communicated to the client.

Question 8

An example of a Type I subsequent event is

Accepted Answer

A)  A tornado that destroys a client'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 client's fiscal year) that a large portion of the client's inventory is obsolete. 
C)  Notification of an IRS audit after the balance sheet date. 
D)  The client's Board of Directors unexpectedly resigns after the balance sheet date. 
A)  A tornado that destroys a client'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 client's fiscal year) that a large portion of the client's inventory is obsolete. 
C)  Notification of an IRS audit after the balance sheet date. 
D)  The client's Board of Directors unexpectedly resigns after the balance sheet date.

Question 9

Which of the following statements ordinarily is included among the written client 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 weaknesses in the account balances. 
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 weaknesses in the account balances.

Question 10

Define the term "contingent liability" and discuss the criteria used to classify these events or conditions.Provide some examples of contingent liabilities.

Accepted Answer

A contingent liability is defined as an

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

What is an unasserted claim and why would an attorney and/or client be reluctant to disclose an unasserted claim in the financial statements?

Accepted Answer

An unasserted claim is one in which the

Question 14

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

Accepted Answer

A)  Advise management to disclose the event in the notes to the financial statements. 
B)  Disclose the event in the auditor's report. 
C)  Withhold submission of the auditor's report until the extent of the direct effect on the financial statements is known. 
D)  Advise management to adjust the financial statements. 
A)  Advise management to disclose the event in the notes to the financial statements. 
B)  Disclose the event in the auditor's report. 
C)  Withhold submission of the auditor's report until the extent of the direct effect on the financial statements is known. 
D)  Advise management to adjust the financial statements.

Question 15

As part of an audit,a CPA often requests a representation letter from the client.Which one of the following is not a valid purpose of such a letter?

Accepted Answer

A)  To provide audit evidence. 
B)  To emphasize to the client their responsibility for the fairness of the financial statements. 
C)  To satisfy himself or herself that a certain account balance is fairly stated when certain customary auditing procedures are not performed. 
D)  To provide possible protection to the CPA against a charge of knowledge in cases where fraud is subsequently discovered to have existed in the accounts. 
A)  To provide audit evidence. 
B)  To emphasize to the client their responsibility for the fairness of the financial statements. 
C)  To satisfy himself or herself that a certain account balance is fairly stated when certain customary auditing procedures are not performed. 
D)  To provide possible protection to the CPA against a charge of knowledge in cases where fraud is subsequently discovered to have existed in the accounts.

Question 16

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)  Significant audit adjustments. 
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)  Significant audit adjustments. 
C)  Consultations with other accountants. 
D)  Major issues discussed with management before the auditor was retained.

Question 17

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

Accepted Answer

A)  Revising the audit plan. 
B)  Considering overall reasonableness of the financial statements. 
C)  Reviewing adequacy of evidence gathered to investigate unusual fluctuations. 
D)  Recalculating some of the ratios examined during audit planning. 
A)  Revising the audit plan. 
B)  Considering overall reasonableness of the financial statements. 
C)  Reviewing adequacy of evidence gathered to investigate unusual fluctuations. 
D)  Recalculating some of the ratios examined during audit planning.

Question 18

A Type II subsequent event usually requires

Accepted Answer

A)  An adjustment to the financial statements and the footnotes. 
B)  An adjustment to the financial statements but no special disclosure is required. 
C)  Disclosure in the footnotes. 
D)  Neither an adjustment to the financial statements nor disclosure in the footnotes. 
A)  An adjustment to the financial statements and the footnotes. 
B)  An adjustment to the financial statements but no special disclosure is required. 
C)  Disclosure in the footnotes. 
D)  Neither an adjustment to the financial statements nor disclosure in the footnotes.

Question 19

"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

Accepted Answer

A)  Report on internal control. 
B)  Special report. 
C)  Management representation letter. 
D)  Letter for underwriters. 
A)  Report on internal control. 
B)  Special report. 
C)  Management representation letter. 
D)  Letter for underwriters.

Question 20

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

Accepted Answer

A)  An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. 
B)  A contingency is resolved that had been disclosed in the audited financial statements. 
C)  New information is discovered concerning undisclosed lease transactions in the audited period. 
D)  A subsidiary that accounts for 25 percent of the entity's consolidated net income is sold. 
A)  An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. 
B)  A contingency is resolved that had been disclosed in the audited financial statements. 
C)  New information is discovered concerning undisclosed lease transactions in the audited period. 
D)  A subsidiary that accounts for 25 percent of the entity's consolidated net income is sold.

Exam 17: Completing the Audit Engagement

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

An auditor is concerned with completing various phases of the examination after the balance sheet date.This "subsequent period" involving formal audit procedures extends to the date of the

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

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

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

State the two primary purposes of the client letter of representation.

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

An example of a Type I subsequent event is

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

Define the term "contingent liability" and discuss the criteria used to classify these events or conditions.Provide some examples of contingent liabilities.

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.

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.

What is an unasserted claim and why would an attorney and/or client be reluctant to disclose an unasserted claim in the financial statements?

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

As part of an audit,a CPA often requests a representation letter from the client.Which one of the following is not a valid purpose of such a letter?

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

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

A Type II subsequent event usually requires

"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

Which of the following events occurring after the issuance of a client'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 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

Assurance,Attestation,and Internal Auditing Services

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

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