Question 1

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belief (documented prior to the end of the entity's fiscal year) that a large portion of the entity's inventory is obsolete.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belief (documented prior to the end of the entity's fiscal year) that a large portion of the entity's inventory is obsolete.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 2

Which of the following expressions is least likely to be included in a management representation letter?

Accepted Answer

A)  No events have occurred subsequent to the balance sheet date that require adjustment to or disclosure in, the financial statements. 
B)  The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 
C)  Management acknowledges responsibility for illegal actions committed by its employees. 
D)  Management has made available all financial statements and related data. 
A)  No events have occurred subsequent to the balance sheet date that require adjustment to or disclosure in, the financial statements. 
B)  The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 
C)  Management acknowledges responsibility for illegal actions committed by its employees. 
D)  Management has made available all financial statements and related data.

Question 3

Dual dating is used to identify unrecorded contingent liabilities.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due.The entity refuses to seek a waiver from the bond trustee.Request for immediate payment is not considered likely.Under these circumstances,the auditor must

Accepted Answer

A)  require classification of bonds payable as a current liability. 
B)  contact the bond trustee directly. 
C)  disclose the situation in the auditor's report. 
D)  obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement. 
A)  require classification of bonds payable as a current liability. 
B)  contact the bond trustee directly. 
C)  disclose the situation in the auditor's report. 
D)  obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement.

Question 6

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.

Accepted Answer

1.d,2.b,3.

Question 7

Which of the following is generally requested in a legal letter?

Accepted Answer

A)  A request that the attorney comment on unasserted claims where his or her views differ from management's evaluation. 
B)  A list of all attorneys that performed any work for the entity during the year. 
C)  A statement indicating that the attorney is responsible for the fair presentation of unasserted claims in the entity's financial statements. 
D)  A request that the attorney provide a copy of all invoices given to the entity during the year. 
A)  A request that the attorney comment on unasserted claims where his or her views differ from management's evaluation. 
B)  A list of all attorneys that performed any work for the entity during the year. 
C)  A statement indicating that the attorney is responsible for the fair presentation of unasserted claims in the entity's financial statements. 
D)  A request that the attorney provide a copy of all invoices given to the entity during the year.

Question 8

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

Accepted Answer

A)  substantiate accruals. 
B)  assess the legal ramifications of litigation in progress. 
C)  estimate the dollar amount of contingent liabilities. 
D)  identify possible unasserted litigation, claims, and assessments. 
A)  substantiate accruals. 
B)  assess the legal ramifications of litigation in progress. 
C)  estimate the dollar amount of contingent liabilities. 
D)  identify possible unasserted litigation, claims, and assessments.

Question 9

If an auditor dates the auditor's report on financial statements for the year ended December 31,2013,as of February 10,2014,except for Note J,as to which the date is March 3,2014,the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of

Accepted Answer

A)  all subsequent events occurring through March 3, 2014. 
B)  all subsequent events occurring through February 10, 2014. 
C)  all subsequent events occurring through February 10, 2014 and the specific subsequent event referred to in Note J through March 3, 2014. 
D)  only the specific subsequent event referred to in Note J as of March 3, 2014. 
A)  all subsequent events occurring through March 3, 2014. 
B)  all subsequent events occurring through February 10, 2014. 
C)  all subsequent events occurring through February 10, 2014 and the specific subsequent event referred to in Note J through March 3, 2014. 
D)  only the specific subsequent event referred to in Note J as of March 3, 2014.

Question 10

When considering the use of management's written representations as audit evidence about the completeness assertion,an auditor should understand that such representations

Accepted Answer

A)  complement, but do not replace, substantive procedures designed to support the assertion. 
B)  constitute sufficient evidence to support the assertion when considered in combination with reliance on internal controls. 
C)  are not part of the evidential matter considered to support the assertion. 
D)  replace reliance on internal controls as evidence to support the assertion. 
A)  complement, but do not replace, substantive procedures designed to support the assertion. 
B)  constitute sufficient evidence to support the assertion when considered in combination with reliance on internal controls. 
C)  are not part of the evidential matter considered to support the assertion. 
D)  replace reliance on internal controls as evidence to support the assertion.

Question 11

The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

Accepted Answer

A) True 
 B)False

Question 12

As part of an audit,a CPA often requests a management representation letter from the entity.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 entity 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 entity 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 13

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 14

"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 15

From the list below,select the procedures that an auditor would use to test for contingent liabilities.
a.Inquire of SEC officials regarding reported violations by the entity that create claims.
b.Read the entity's contracts,loan agreements,leases,and other documents.
c.Read the entity's minutes of meetings of shareholders,directors,and committees.
d.Request a representation letter from all the entity's employees.
e.Read the legal briefs of all suits filed against the entity's competitors.
f.Request the entity's management to prepare a letter of inquiry to the entity's attorney regarding pending litigation against the entity.

Accepted Answer

Audit procedures 'b,

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 inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management. 
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 inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management. 
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

Pretty People Incorporated,is the defendant in a pending discrimination lawsuit.What information about the lawsuit would you,as an auditor,need to know to decide whether to disclose the litigation in the financial statements?

Accepted Answer

If a negative outcome of the lawsuit is

Question 18

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 19

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?

Accepted Answer

A)  January 1, 2012 through December 31, 2013. 
B)  January 1, 2012 through May 1, 2014. 
C)  January 1, 2013 through December 31, 2013. 
D)  January 1, 2013 through May 1, 2014. 
A)  January 1, 2012 through December 31, 2013. 
B)  January 1, 2012 through May 1, 2014. 
C)  January 1, 2013 through December 31, 2013. 
D)  January 1, 2013 through May 1, 2014.

Question 20

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

Accepted Answer

A)  the audit report, financial statements, and footnotes for consistency. 
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)  the audit report, financial statements, and footnotes for consistency. 
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.

An example of a Type I subsequent event is

Which of the following expressions is least likely to be included in a management representation letter?

Dual dating is used to identify unrecorded contingent liabilities.

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

Which of the following is generally requested in a legal letter?

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

If an auditor dates the auditor's report on financial statements for the year ended December 31,2013,as of February 10,2014,except for Note J,as to which the date is March 3,2014,the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of

When considering the use of management's written representations as audit evidence about the completeness assertion,an auditor should understand that such representations

The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

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

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

"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 statements is correct about an auditor's required communication with management and those charged with governance?

Pretty People Incorporated,is the defendant in a pending discrimination lawsuit.What information about the lawsuit would you,as an auditor,need to know to decide whether to disclose the litigation in the financial statements?

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

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 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

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Exam 17: Completing the Audit Engagement

An example of a Type I subsequent event is

Which of the following expressions is least likely to be included in a management representation letter?

Dual dating is used to identify unrecorded contingent liabilities.

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

Which of the following is generally requested in a legal letter?

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

If an auditor dates the auditor's report on financial statements for the year ended December 31,2013,as of February 10,2014,except for Note J,as to which the date is March 3,2014,the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of

When considering the use of management's written representations as audit evidence about the completeness assertion,an auditor should understand that such representations

The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

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

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

"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 statements is correct about an auditor's required communication with management and those charged with governance?

Pretty People Incorporated,is the defendant in a pending discrimination lawsuit.What information about the lawsuit would you,as an auditor,need to know to decide whether to disclose the litigation in the financial statements?

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

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 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