Exam 14: Completing a Quality Audit

The auditor compares the total likely misstatements to each significant segment of the financial statements,such as total current assets,total noncurrent assets,total current liabilities,total noncurrent liabilities,owners' equity,and pretax income,to determine if they are,in aggregate,material to the financial statements.

Some auditors may be reluctant to issue a going-concern audit opinion because it may hasten the failure of the client company.

Noncompliance with laws and regulations includes only acts of omission by the entity that are considered to be unintentional and contrary to the prevailing laws or regulations.

During which of the following phases of the audit are analytical review procedures required by the auditing standards?

If management or those charged with governance do not demonstrate a commitment to internal control over noncompliance with laws and regulations,then the auditor should withdraw from the engagement.

A number of studies of bankruptcies have shown that certain combinations of ratios,like the Altman Z-score,have good predictive power in indicating the likelihood of bankruptcy.

What is the letter called that is drafted by the auditor and reports observations to management which may help management perform more effectively?

A disclosure checklist is a convenient documentation format for evidence that the auditor adequately evaluated the client's disclosures.

Which one of the following is the best example of a Type II subsequent event?

Procedures such as a cutoff test and a search for unrecorded liabilities are related to subsequent events.

Which of the following types of information is not a type of evidence that the auditor should obtain concerning contingencies?

Management will often resist a going-concern modification because investors,lenders,and customers may lose faith in the business.

By performing a final analytical review,the audit firm will identify any unusual,unexpected,or unexplained relationships that should be resolved before the issuance of the audit report.

Analytical procedures conducted during the final review phase of the audit should corroborate conclusions formed during the audit,which enables the auditor to draw conclusions upon which to base the audit opinion.

If a client makes payments to a middle-man who uses the funds to obtain corporate tax refunds for the client from government officials,this is not considered a violation of the Foreign Corrupt Practices Act of 1977 (FCPA).

An audit firm culture that emphasizes "doing the right thing" does not incorporate which of the following to enhance audit quality?

Litigation,claims,and assessments Discuss the information management should provide related to litigation,claims,and assessments.Also describe the purpose of the letter of audit inquiry,who writes it,who it is addressed to,and the important inquiries that are made of the client's lawyer in the letter of audit inquiry.

Ratio analysis,common-size analysis,and analysis of the dollar and percentage changes in each income statement item over the previous year are useful in assessing whether certain relationships make sense in light of knowledge obtained during the audit.

The going-concern assumption must be based on separate procedures that test the client's ability to continue as a going concern.

Which of the following is not an inherent limitation in an auditor's ability to detect material misstatements relating to a client's compliance with laws and regulations?