Deck 15: Completing the Audit

Question 1

Toward the end of an audit, it is not necessary that external auditors consider the revenue and expense accounts that were not audited in connection with balance sheet accounts.

Answer 1

False

Question 2

When a report is double-dated, the auditor has no responsibility for other events that have occurred after the end of fieldwork.

Answer 2

True

Question 3

The primary source of information that the auditor can use in corroborating information about litigation, claims, and assessments is the

A)Client's lawyer.
B)Court records.
C)Client's management.
D)Independent auditor.

Answer 3

A

Question 4

The client signs the enquiry letter about claims and possible claims that is sent to the company's law firm for confirmation.

Question 5

At the review stage of an audit, the application of analytical procedures is

A)Recommended by auditing standards.
B)Not mentioned by auditing standards.
C)Not useful, since detailed substantive tests have already been performed.
D)Required by auditing standards.

Question 6

A type I subsequent event requires only footnote disclosure.

Question 7

The audit of the year-end franchise revenue balances is normally conducted in conjunction with which related account group?

A)Fixed assets, receivables.
B)Receivables, intangibles.
C)Receivables, investments.
D)Revenues, receivables.

Question 8

The auditor writes a letter to the audit committee concerning material weaknesses in internal controls.

Question 9

The primary purpose of the second partner review is to help in forming the audit opinion.

Question 10

An analysis of the comparative balances of minor expense accounts is often sufficient to decide whether the amounts are fairly presented.

Question 11

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all

A)Expenditures for repairs and maintenance have been recorded in the proper period.
B)Expenditures for property and equipment have been recorded in the proper period.
C)Expenditures for repairs and maintenance have not been charged to capital accounts.
D)Expenditures for property and equipment have not been charged to expense.

Question 12

Analytical procedures are used during the overall evaluation of the financial statements.

Question 13

The primary objective of performing analytical procedures in the final review stage of an audit is to

A)Obtain evidence from details tested to corroborate management assertions.
B)Obtain evidence on the validity of the assessment of control risk.
C)Assist the auditor in evaluating the overall financial statement presentation.
D)Identify areas that represent specific risks relevant to the audit.

Question 14

All revenue accounts designated "miscellaneous" or "other" are generally immaterial in amount and, therefore, not audited.

Question 15

The primary reason an auditor asks that enquiry letters be sent to a client's lawyers is to provide the auditor with

A)The probable outcome of asserted claims and pending or threatened litigation.
B)Corroboration of the information furnished by management about litigation, claims, and assessments.
C)The lawyer's opinion of the client's historical experiences in recent similar litigation.
D)A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

Question 16

A written letter of representation from a client can provide a good defence for not performing audit procedures.

Question 17

Analytical procedures used in the overall review stage of an audit generally include

A)Considering unusual or unexpected account balances that were not previously identified.
B)Performing tests of transactions to corroborate management's financial statement assertions.
C)Gathering evidence concerning account balances that have not changed from the prior year.
D)Re-testing control procedures that appeared to be ineffective during the assessment of control risk.

Question 18

An entity's income statements were misstated due to the recording of a journal entry that involved debits and credits to an unusual combination of expense and revenue accounts.The auditor is likely to most likely to detect this irregularity by

A)Tracing a sample of journal entries to the general ledger.
B)Evaluating the effectiveness of the internal control system policies and procedures.
C)Investigating the reconciliation of control accounts with the subsidiary records.
D)Performing analytical procedures designed to disclose differences between the balances in the accounts and budgeted amounts.

Question 19

Auditors draft the letter of representation that will be prepared on company letterhead and signed by the officers of the company.

Question 20

Procedures for the audit of warranty expense are generally coordinated with which of the following audit programs?

A)Inventory, accruals, and payables.
B)Inventory, sales, and repairs and maintenance.
C)Sales, cost of goods sold, and interest expense.
D)Sales, inventory, and interest expense.

Question 21

A second-partner review of the working papers and financial statements is performed to ensure that the

A)To-do lists are reviewed and cleared.
B)Audit program procedures are signed off as evidence of completion.
C)Tick-mark notations are cleared.
D)Audit work meets the quality standards of the firm.

Question 22

Which of the following procedures should an auditor generally perform regarding subsequent events?

A)Compare the latest available interim financial statements with the financial statements being reported on.
B)Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests.
C)Communicate material weaknesses in the internal control system to the client's audit committee.
D)Review the cut-off bank statements for several months after the year end.

Question 23

Subsequent to the issuance of the audit report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts.After determining that the information is reliable, the auditor should

A)Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
B)Request that management disclose the newly discovered information by issuing revised financial statements.
C)Issue revised pro forma financial statements taking into consideration the newly discovered information.
D)Give public notice that the auditor is no longer associated with the financial statements.

Question 24

Which of the following can illustrate a subsequent event that requires disclosure but not adjustment?

A)Settlement of long outstanding litigation.
B)Collection of a customer debt that had been written off.
C)Loss of inventory as a result of a flood occurring after year end.
D)An additional tax assessment on prior income.

Question 25

What are the three key features that must be included in the management representation letter?

Question 26

Before adjusting entries proposed by the auditors are included in financial statements, they must be approved by the

A)Client's management.
B)Audit manager.
C)Engagement partner.
D)Cold review partner.

Question 27

Auditors have a responsibility to perform audit procedures

A)After the report date.
B)Until the report date.
C)After the report issuance date.
D)After the report date for events between the report date and a later dual dated event.

Question 28

Management letters are a means of:

A)Reporting recommendations to the client.
B)Making the client aware of the firm's consulting services.
C)Communicating matters related to control risk.
D)Identifying frauds and material misstatements.

Question 29

For audit purposes, subsequent events are defined as events that occur after the

A)Balance sheet date.
B)Date of the audit report.
C)Balance sheet date but prior to the date of the audit report.
D)Date of the audit report and concern contingencies that are not reflected in the financial statements.

Question 30

The refusal by a client's lawyer to provide a representation about the legality of a act committed by the client is generally

A)Sufficient reason to issue an adverse opinion.
B)Considered to be a scope limitation.
C)Insufficient reason to modify the auditor's report due to the attorney's obligation of confidentiality.
D)Proper grounds to withdraw from the engagement.

Question 31

What procedures should an auditor perform if they are auditing the financial statements of a company and find out that the company has several clearing accounts?

Question 32

The Orange Corporation was audited for the year ended December 31, the fieldwork was completed on January 25, and the audit report was delivered on February 15.The auditor learned about a two-for-one stock split on February 1.How should the report be dated?

A)December 31 and January 25.
B)January 25 and February 1.
C)January 25 and February 15.
D)February 1 and February 15.

Question 33

Which of the following items would appear in a management letter of representation?

A)That a physical inventory was taken, and properly valued.
B)That the control systems are operating effectively.
C)That management has adequate insurance to ensure its ongoing operations.
D)That all financial records and related data were made available to the auditors.

Question 34

Auditors must complete phases of an audit after the balance sheet date.This subsequent period extends from the balance sheet date to the date of the

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

Question 35

According to the CICA handbook, auditors should watch for unusual transactions in the course of their audit.List four examples of these transactions.

Question 36

A major means by which an auditor obtains evidence about material contingencies is

A)Examining documents in the client's possession concerning contingencies.
B)Enquiring and discussing them with management.
C)Obtaining a response from the client's lawyer to the client's letter of enquiry.
D)Reading minutes of stockholders' meeting.

Question 37

An auditor might is most likely to suspect the existence of undisclosed related parties by noticing:

A)Large sales transactions.
B)Abnormal long collection terms for a receivable.
C)A large number of sales to numbered corporations.
D)A significant increase in sales over the prior year.

Question 38

In the audit of revenue and expense accounts, a number of accounts will have been audited in connection with related balance sheet accounts.For each of the revenue and expense accounts listed in column A, indicate the related balance sheet account(s).If no account is specifically related, indicate if the account should be analyzed in detail or simply compared to the balance in the previous year.

Question 39

Which of the following representations would be made by the client in writing?

A)Losses from sales commitments.
B)Unasserted claims and assessments.
C)That all transactions have been recorded.
D)Noncompliance with contractual agreements.

Question 40

Having identified related party transactions, the auditor should:

A)Confirm the terms and amounts of the transactions with the related parties.
B)Inform the audit committee in writing.
C)Consult with a fraud specialist to consider extended procedures.
D)Consider including an emphasis of matter paragraph in the audit opinion.

Question 41

Why do auditors ask about related party transactions and where do they typically do this?

Question 42

You are auditing Green Corporation for the calendar year 2009.Among other items related to the audit, Green is being sued for personal injury resulting from the malfunction of one of its products.Sue Ewe filed the lawsuit in September 2001.The officers of the company and its outside legal counsel estimate that the loss from the suit will be approximately
$250,000.This amount has been accrued and properly disclosed in the footnotes of the financial statements.You have no reason to believe that the estimate is wrong.You completed your audit and dated your report March 2, 2010.The financial statements were issued on March 14, 2010.The trial was in progress at that date.On March 20, 2010 you read in a national business periodical that the jury in the trial awarded Sue Ewe $1.5 million.
Required:
Discuss the nature of these events and what responsibility you have, if any, regarding the news of March 20.

Question 43

Green CA is auditing the financial statements of Red Corporation for the year ended December 31, 2009.Green plans to complete the fieldwork and sign the auditor's report around May 10, 2010.Green is concerned about events and transactions occurring after December 31, 2009 that may affect the 2009 financial statements.
Required:

A) What are the subsequent events that require Green's consideration and evaluation? B) What are the auditing procedures Green should perform to gather evidence about subsequent events?

Question 44

Briefly explain the auditor's responsibility for the subsequent discovery of facts existing at the date of the auditor's report.