Question 1

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. B

Question 2

A legal letter will include and evaluate all contingent liabilities of the company.

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

A)  a final resolution of a contingency that had resulted in a qualification of the auditor's report is made. 
B)  a development occurs that may affect the entity's ability to continue as a going concern. 
C)  an investigation of the auditor's practice by a peer review committee ensues. 
D)  new information is discovered concerning undisclosed related party transactions of the previously audited period. 
A)  a final resolution of a contingency that had resulted in a qualification of the auditor's report is made. 
B)  a development occurs that may affect the entity's ability to continue as a going concern. 
C)  an investigation of the auditor's practice by a peer review committee ensues. 
D)  new information is discovered concerning undisclosed related party transactions of the previously audited period. D

Question 4

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

Accepted Answer

A)  balance sheet date. 
B)  date of the auditor's report. 
C)  balance sheet date but prior to the date of the auditor's report. 
D)  date of the auditor's report and concern contingencies that are not reflected in the financial statements. 
A)  balance sheet date. 
B)  date of the auditor's report. 
C)  balance sheet date but prior to the date of the auditor's report. 
D)  date of the auditor's report and concern contingencies that are not reflected in the financial statements.

Question 5

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation,claims,and assessments?

Accepted Answer

A)  Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments. 
B)  Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date. 
C)  Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are likely to be asserted and must be disclosed. 
D)  Confirm directly with the entity's lawyer that all claims have been recorded in the financial statements. 
A)  Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments. 
B)  Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date. 
C)  Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are likely to be asserted and must be disclosed. 
D)  Confirm directly with the entity's lawyer that all claims have been recorded in the financial statements.

Question 6

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

Accepted Answer

A)  notify the entity's creditors that the financial statements and the related auditor's report should no longer be relied upon. 
B)  notify each member of the entity's board of directors about management's refusal to adjust the financial statements. 
C)  issue revised financial statements and distribute them to each creditor known to be relying on the financial statements. 
D)  issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements. 
A)  notify the entity's creditors that the financial statements and the related auditor's report should no longer be relied upon. 
B)  notify each member of the entity's board of directors about management's refusal to adjust the financial statements. 
C)  issue revised financial statements and distribute them to each creditor known to be relying on the financial statements. 
D)  issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements.

Question 7

Who generally signs the legal letter?

Accepted Answer

A)  The board of directors. 
B)  The audit partner. 
C)  The CEO of the entity being audited. 
D)  The entity's attorneys. 
A)  The board of directors. 
B)  The audit partner. 
C)  The CEO of the entity being audited. 
D)  The entity's attorneys.

Question 8

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 9

Which of the following auditing procedures is ordinarily performed last?

Accepted Answer

A)  Confirming accounts payable. 
B)  Testing the purchasing function. 
C)  Reading the minutes of directors' meetings. 
D)  Obtaining a management representation letter. 
A)  Confirming accounts payable. 
B)  Testing the purchasing function. 
C)  Reading the minutes of directors' meetings. 
D)  Obtaining a management representation letter.

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 items to be communicated are organiz

Question 11

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

Accepted Answer

A)  an estimate of the dollar amount of the probable loss. 
B)  an expert opinion as to whether a loss is possible, probable, or remote. 
C)  information concerning the progress of cases to date. 
D)  corroborative inquiries made of the entity by the auditor. 
A)  an estimate of the dollar amount of the probable loss. 
B)  an expert opinion as to whether a loss is possible, probable, or remote. 
C)  information concerning the progress of cases to date. 
D)  corroborative inquiries made of the entity by the auditor.

Question 12

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?

Accepted Answer

A)  To point out to the responsible entity officials the errors made by various company personnel. 
B)  To summarize the adjustments that must be made before the company can prepare and submit its federal tax return. 
C)  To identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered. 
D)  To summarize the errors made by the company so that corrections can be made after the audited financial statements are released. 
A)  To point out to the responsible entity officials the errors made by various company personnel. 
B)  To summarize the adjustments that must be made before the company can prepare and submit its federal tax return. 
C)  To identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered. 
D)  To summarize the errors made by the company so that corrections can be made after the audited financial statements are released.

Question 13

"There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency." The foregoing passage most likely is from a(an)

Accepted Answer

A)  entity engagement letter. 
B)  report on compliance with laws and regulations. 
C)  management representation letter. 
D)  attestation report on internal controls. 
A)  entity engagement letter. 
B)  report on compliance with laws and regulations. 
C)  management representation letter. 
D)  attestation report on internal controls.

Question 14

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

Accepted Answer

A contingent liability is an existing co

Question 15

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 16

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 entity. 
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 entity.

Question 17

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 18

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 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 19

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 20

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?

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.

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

A legal letter will include and evaluate all contingent liabilities of the company.

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

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

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation,claims,and assessments?

Who generally signs the legal letter?

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

Which of the following auditing procedures is ordinarily performed last?

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

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

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?

"There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency." The foregoing passage most likely is from a(an)

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

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

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.

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 an auditor's report unless

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

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 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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters

Exam 17: Completing the Audit Engagement

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

A legal letter will include and evaluate all contingent liabilities of the company.

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

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

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation,claims,and assessments?

Who generally signs the legal letter?

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

Which of the following auditing procedures is ordinarily performed last?

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

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

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?

"There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency." The foregoing passage most likely is from a(an)

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

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

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.

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 an auditor's report unless

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

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 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

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

Filters