Question 1

The auditing standards have identified transactions that may indicate the existence of related parties.These include

Accepted Answer

A) borrowing or lending at an interest rate or a rate of interest above or below market rates 
B) selling real estate at a price that differs significantly from its advertised value 
C) exchanging property for similar property in a nonmonetary transaction 
D) making loans with no scheduled terms for when or how the funds will be repaid 
E) designing off-balance sheet debt agreements with one of the purposes being keeping the debt off the books of the company
F)both A and B
G)both C and D
H)both D and E 
A) borrowing or lending at an interest rate or a rate of interest above or below market rates 
B) selling real estate at a price that differs significantly from its advertised value 
C) exchanging property for similar property in a nonmonetary transaction 
D) making loans with no scheduled terms for when or how the funds will be repaid 
E) designing off-balance sheet debt agreements with one of the purposes being keeping the debt off the books of the company
F)both A and B
G)both C and D
H)both D and E

Question 2

The auditor's responsibility when considering the company's compliance with laws and regulations during an audit of financial statements is

Accepted Answer

A) to ensure that the company complies with the laws and regulations that affect the company 
B) to identify material misstatements that might occur in the financial statements due to noncompliance with laws and regulations 
C) to ensure that the company complies with the laws and regulations that might affect the company 
D) to identify misstatements that have occurred in the financial statements due to noncompliance with laws and regulations 
A) to ensure that the company complies with the laws and regulations that affect the company 
B) to identify material misstatements that might occur in the financial statements due to noncompliance with laws and regulations 
C) to ensure that the company complies with the laws and regulations that might affect the company 
D) to identify misstatements that have occurred in the financial statements due to noncompliance with laws and regulations

Question 3

Contingent liabilities are liabilities that may arise in the future based on an event that may have occurred in the current year.

Accepted Answer

A) True 
 B)False

Question 4

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Accepted Answer

A) asking management and others in the company,including the in-house legal counsel about potential legal liabilities 
B) reviewing minutes of meetings of those charged with governance and correspondence between the company and its external counsel 
C) reviewing the expense accounts related to audit expense 
D) reviewing tax returns 
E) investigating customer complaints
F)both A and B
G)both C and E
H)both D and E 
A) asking management and others in the company,including the in-house legal counsel about potential legal liabilities 
B) reviewing minutes of meetings of those charged with governance and correspondence between the company and its external counsel 
C) reviewing the expense accounts related to audit expense 
D) reviewing tax returns 
E) investigating customer complaints
F)both A and B
G)both C and E
H)both D and E

Question 5

Examples of Type I events are

Accepted Answer

A) a customer with a material accounts receivable balance goes bankrupt between the balance sheet date and the date of the audit report 
B) the purchase of a new business between the balance sheet date and the date of the audit report 
C) the loss of a warehouse as a result of a fire with a material amount of the loss not reimbursed by insurance between the balance sheet date and the date of the audit report 
D) sale of a bond between the balance sheet date and the date of the audit report 
E) settlement of a legal case between the balance sheet date and the date of the audit report
F)both A and C
G)both A and E
H)both D and E 
A) a customer with a material accounts receivable balance goes bankrupt between the balance sheet date and the date of the audit report 
B) the purchase of a new business between the balance sheet date and the date of the audit report 
C) the loss of a warehouse as a result of a fire with a material amount of the loss not reimbursed by insurance between the balance sheet date and the date of the audit report 
D) sale of a bond between the balance sheet date and the date of the audit report 
E) settlement of a legal case between the balance sheet date and the date of the audit report
F)both A and C
G)both A and E
H)both D and E

Question 6

The auditor seeks direct communication with the company's external legal counsel by

Accepted Answer

A) a letter of inquiry,prepared by the auditor,sent by management,requesting the company's legal counsel to communicate directly with the auditor 
B) a demand letter,prepared by management,sent by the auditor,instructing the company's legal counsel to communicate directly with the auditor 
C) a letter of inquiry,prepared by the auditor,sent by management,requesting the company's legal counsel to communicate directly with management 
D) a letter of inquiry,prepared by management,sent by the auditor,requesting the company's legal counsel to communicate directly with the auditor 
A) a letter of inquiry,prepared by the auditor,sent by management,requesting the company's legal counsel to communicate directly with the auditor 
B) a demand letter,prepared by management,sent by the auditor,instructing the company's legal counsel to communicate directly with the auditor 
C) a letter of inquiry,prepared by the auditor,sent by management,requesting the company's legal counsel to communicate directly with management 
D) a letter of inquiry,prepared by management,sent by the auditor,requesting the company's legal counsel to communicate directly with the auditor

Question 7

At the end of an audit,the information given by management to the auditor is formalized in the form of an attorney's letter.

Accepted Answer

A) True 
 B)False

Question 8

When a company issues an annual report including financial statements and footnotes to the financial statements,additional information is often included in the annual report.

Accepted Answer

A) True 
 B)False

Question 9

There are two types of events of interest to the auditor

Accepted Answer

A) subsequently discovered events 
B) prior period events 
C) subsequent events 
D) current period events 
E) subsequently discovered facts
F)both A and B
G)both C and E
H)both D and E 
A) subsequently discovered events 
B) prior period events 
C) subsequent events 
D) current period events 
E) subsequently discovered facts
F)both A and B
G)both C and E
H)both D and E

Question 10

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

Accepted Answer

A) net asset positions 
B) positive operating cash flows 
C) ability to pay creditors on due dates 
D) change from credit to cash-on-delivery transactions with suppliers 
E) loss of key management without replacement
F)both A and B
G)both C and E
H)Both D and E 
A) net asset positions 
B) positive operating cash flows 
C) ability to pay creditors on due dates 
D) change from credit to cash-on-delivery transactions with suppliers 
E) loss of key management without replacement
F)both A and B
G)both C and E
H)Both D and E

Question 11

Which of the following procedures should the search for subsequent events involve?

Accepted Answer

A) Gain an understanding of the procedures used by auditors to ensure that subsequent events are identified 
B) Inquire of management about whether there had been any events that have occurred after the date of the financial statements that might affect the financial statements 
C) Request the minutes of meetings of shareholders,directors,and management and inquire about matters discussed at such meetings for which minutes are not yet available 
D) Read the interim financial statements 
E) Review the subsequent event expense account
F)both B and D
G)both C and A
H)both D and E 
A) Gain an understanding of the procedures used by auditors to ensure that subsequent events are identified 
B) Inquire of management about whether there had been any events that have occurred after the date of the financial statements that might affect the financial statements 
C) Request the minutes of meetings of shareholders,directors,and management and inquire about matters discussed at such meetings for which minutes are not yet available 
D) Read the interim financial statements 
E) Review the subsequent event expense account
F)both B and D
G)both C and A
H)both D and E

Question 12

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Accepted Answer

A) asking management and others in the company,including the in-house legal counsel about potential legal liabilities 
B) reviewing minutes of meetings of those charged with monitoring and correspondence between the company and its internal counsel 
C) reviewing the expense accounts related to legal expense 
D) reviewing tax returns 
E) investigating customer complaints
F)both A and B
G)both A and C
H)both D and E 
A) asking management and others in the company,including the in-house legal counsel about potential legal liabilities 
B) reviewing minutes of meetings of those charged with monitoring and correspondence between the company and its internal counsel 
C) reviewing the expense accounts related to legal expense 
D) reviewing tax returns 
E) investigating customer complaints
F)both A and B
G)both A and C
H)both D and E

Question 13

What should the auditor do if the auditor decides that there is substantial doubt about the company's ability to continue as a going concern?

Accepted Answer

The auditor should consider management's

Question 14

In the evidence gathering process,the auditor seeks to determine

Accepted Answer

A) the existence of a condition indicating a contingent liability 
B) the location where the cause for the legal action occurred 
C) the probability of an unfavorable outcome 
D) the actual amount of the loss 
E) the person in the company responsible for the condition
F)both A and B
G)both A and C
H)both D and E 
A) the existence of a condition indicating a contingent liability 
B) the location where the cause for the legal action occurred 
C) the probability of an unfavorable outcome 
D) the actual amount of the loss 
E) the person in the company responsible for the condition
F)both A and B
G)both A and C
H)both D and E

Question 15

The auditor's responsibility regarding the going concern assumption is to

Accepted Answer

A) evaluate the possibility that the company could go bankrupt 
B) obtain sufficient appropriate evidence to evaluate the appropriateness of management's use of the going concern assumption in the preparation and presentation of the financial statements 
C) formulate an assumption about whether there is a material uncertainty about the company's ability to continue as a going concern 
D) determine the implications for the audit report 
E) estimate the net income that the company expects to earn during the current year
F)both B and D
G)both C and E
H)both D and E 
A) evaluate the possibility that the company could go bankrupt 
B) obtain sufficient appropriate evidence to evaluate the appropriateness of management's use of the going concern assumption in the preparation and presentation of the financial statements 
C) formulate an assumption about whether there is a material uncertainty about the company's ability to continue as a going concern 
D) determine the implications for the audit report 
E) estimate the net income that the company expects to earn during the current year
F)both B and D
G)both C and E
H)both D and E

Question 16

Examples of Type II events are

Accepted Answer

A) a customer with a material accounts receivable balance goes bankrupt between the balance sheet date and the date of the audit report 
B) the purchase of a new business between the balance sheet date and the date of the audit report 
C) the loss of a warehouse as a result of a fire with the loss reimbursed by insurance between the balance sheet date and the date of the audit report 
D) sale of a bond between the balance sheet date and the date of the audit report 
E) settlement of a legal case between the balance sheet date and the date of the audit report
F)both A and B
G)both B and D
H)both C and E 
A) a customer with a material accounts receivable balance goes bankrupt between the balance sheet date and the date of the audit report 
B) the purchase of a new business between the balance sheet date and the date of the audit report 
C) the loss of a warehouse as a result of a fire with the loss reimbursed by insurance between the balance sheet date and the date of the audit report 
D) sale of a bond between the balance sheet date and the date of the audit report 
E) settlement of a legal case between the balance sheet date and the date of the audit report
F)both A and B
G)both B and D
H)both C and E

Question 17

The auditing standards have identified transactions that may indicate the existence of related parties.These include

Accepted Answer

A) borrowing or lending at an interest rate or a rate of interest significantly above or below market rates 
B) selling real estate at a price that differs significantly from its appraised value 
C) exchanging property for similar property in a monetary transaction 
D) making loans with scheduled terms for when and how the funds will be repaid 
E) designing off-balance sheet debt agreements with one of the purposes being keeping the debt off the books of the company
F)both A and B
G)both C and D
H)both D and E 
A) borrowing or lending at an interest rate or a rate of interest significantly above or below market rates 
B) selling real estate at a price that differs significantly from its appraised value 
C) exchanging property for similar property in a monetary transaction 
D) making loans with scheduled terms for when and how the funds will be repaid 
E) designing off-balance sheet debt agreements with one of the purposes being keeping the debt off the books of the company
F)both A and B
G)both C and D
H)both D and E

Question 18

If the auditors find misstatements in the account balance or class of transactions,the auditors make audit adjustments to correct the financial statements.

Accepted Answer

A) True 
 B)False

Question 19

Normally,the auditor's work does not extend into the following year.However,the auditing standards require the auditor to consider certain events that occur in the year following the year under audit and determine if any of these events require

Accepted Answer

A) disclosure in the financial records for the year under audit 
B) adjustment to the financial statements under audit 
C) disclosure in the prior financial statements 
D) adjustment to the financial records for the year under audit 
E) disclosure in the financial statements under audit
F)both A and B
G)both B and E
H)both C and D 
A) disclosure in the financial records for the year under audit 
B) adjustment to the financial statements under audit 
C) disclosure in the prior financial statements 
D) adjustment to the financial records for the year under audit 
E) disclosure in the financial statements under audit
F)both A and B
G)both B and E
H)both C and D

Question 20

When a contingent liability exists,the likelihood for loss can be evaluated as probable,reasonably possible,or remote.A reasonably possible loss is

Accepted Answer

A) a loss where the chance of occurrence is slight 
B) a loss that is likely to occur 
C) a loss where the chance of occurrence is moderate 
D) falls between the chance of occurrence is slight and a loss is likely to occur 
A) a loss where the chance of occurrence is slight 
B) a loss that is likely to occur 
C) a loss where the chance of occurrence is moderate 
D) falls between the chance of occurrence is slight and a loss is likely to occur

The auditing standards have identified transactions that may indicate the existence of related parties.These include

The auditor's responsibility when considering the company's compliance with laws and regulations during an audit of financial statements is

Contingent liabilities are liabilities that may arise in the future based on an event that may have occurred in the current year.

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Examples of Type I events are

The auditor seeks direct communication with the company's external legal counsel by

At the end of an audit,the information given by management to the auditor is formalized in the form of an attorney's letter.

When a company issues an annual report including financial statements and footnotes to the financial statements,additional information is often included in the annual report.

There are two types of events of interest to the auditor

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

Which of the following procedures should the search for subsequent events involve?

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

What should the auditor do if the auditor decides that there is substantial doubt about the company's ability to continue as a going concern?

In the evidence gathering process,the auditor seeks to determine

The auditor's responsibility regarding the going concern assumption is to

Examples of Type II events are

The auditing standards have identified transactions that may indicate the existence of related parties.These include

If the auditors find misstatements in the account balance or class of transactions,the auditors make audit adjustments to correct the financial statements.

Normally,the auditor's work does not extend into the following year.However,the auditing standards require the auditor to consider certain events that occur in the year following the year under audit and determine if any of these events require

When a contingent liability exists,the likelihood for loss can be evaluated as probable,reasonably possible,or remote.A reasonably possible loss is

What Is Auditing

The Audit Planning Process: Understanding the Risk of Material Misstatement

Internal Controls

Auditing the Revenue Business Process

Audit Evidence and the Auditors Responsibility for Fraud Detection

Auditing the Acquisition and Expenditure Business Process

Auditing the Inventory Business Process

Audit Sampling: Tests of Internal Controls

Audit Sampling: Substantive Tests of Details

Cash and Investment Business Processes

Long-Term Debt and Owners Equity Business Process

Audit Reports

The Auditing Profession Glossary

Filters

Exam 12: Completing the Audit

The auditing standards have identified transactions that may indicate the existence of related parties.These include

The auditor's responsibility when considering the company's compliance with laws and regulations during an audit of financial statements is

Contingent liabilities are liabilities that may arise in the future based on an event that may have occurred in the current year.

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Examples of Type I events are

The auditor seeks direct communication with the company's external legal counsel by

At the end of an audit,the information given by management to the auditor is formalized in the form of an attorney's letter.

When a company issues an annual report including financial statements and footnotes to the financial statements,additional information is often included in the annual report.

There are two types of events of interest to the auditor

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

Which of the following procedures should the search for subsequent events involve?

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

What should the auditor do if the auditor decides that there is substantial doubt about the company's ability to continue as a going concern?

In the evidence gathering process,the auditor seeks to determine

The auditor's responsibility regarding the going concern assumption is to

Examples of Type II events are

The auditing standards have identified transactions that may indicate the existence of related parties.These include

If the auditors find misstatements in the account balance or class of transactions,the auditors make audit adjustments to correct the financial statements.

Normally,the auditor's work does not extend into the following year.However,the auditing standards require the auditor to consider certain events that occur in the year following the year under audit and determine if any of these events require

When a contingent liability exists,the likelihood for loss can be evaluated as probable,reasonably possible,or remote.A reasonably possible loss is

What Is Auditing

The Audit Planning Process: Understanding the Risk of Material Misstatement

Internal Controls

Auditing the Revenue Business Process

Audit Evidence and the Auditors Responsibility for Fraud Detection

Auditing the Acquisition and Expenditure Business Process

Auditing the Inventory Business Process

Audit Sampling: Tests of Internal Controls

Audit Sampling: Substantive Tests of Details

Cash and Investment Business Processes

Long-Term Debt and Owners Equity Business Process

Audit Reports

The Auditing Profession Glossary

Filters