Deck 18: Completing the Audit

Question 1

If the auditor discovers that management intends to liquidate the entity:

A) the going concern basis is inappropriate.
B) it is irrelevant if they did not intend to liquidate the entity at reporting date.
C) it requires inclusion as a disclaimer of opinion.
D) it requires inclusion as an 'except for'.

Answer 1

A

Question 2

In working with the minutes of meetings of shareholders, those charged with governance, and their subcommittees, the auditor should:

A) read the minutes of all important meetings.
B) read the minutes of a sample of meetings.
C) read the minutes of all meetings.
D) read the minutes of AGMs.

Answer 2

C

Question 3

Financial statements are usually prepared on the going concern basis. The auditor is required by ASA 570 (ISA 570) to assess the risk of going concern problems at which stage of the audit?

A) ASA 570 (ISA 570) does not require the assessment of the risk of going concern problems, this is left to the directors
B) during the final review.
C) the planning stage.
D) the planning stage and again during the final review.

Answer 3

D

Question 4

Ordinarily, an event indicating a material condition arising after the reporting date requires:

A) adjustment.
B) adjustment and disclosure.
C) disclosure.
D) inclusion as an 'except for'.

Question 5

When a question arises regarding the going-concern basis additional procedures may be necessary. Which of the following procedures is an example of a valid additional procedure?

A) consider the effect of unfilled customer orders.
B) review the terms of debenture and loan agreements
C) analyse the final financial statements.
D) all of the above.

Question 6

When a solicitor refuses to respond to a letter of audit inquiry and alternative audit procedures are unsuccessful, the auditor will normally:

A) contact the client's in-house solicitor for the relevant information.
B) issue a qualified opinion or a disclaimer of opinion.
C) issue an unqualified opinion with an emphasis of matter paragraph.
D) issue an adverse opinion.

Question 7

A client's refusal to provide a management representation letter to the auditor will normally require the auditor to:

A) issue a qualified opinion or a disclaimer of opinion.
B) contact the audit committee for the relevant information.
C) issue an unqualified opinion with an 'emphasis of matter' paragraph.
D) issue an adverse opinion.

Question 8

The subsequent event that is an example of a condition occurring after the reporting date is:

A) realisation of recorded year-end receivables at a different amount than recorded.
B) settlement of recorded year-end estimated product warranty liabilities at a different amount than recorded.
C) determining the proceeds of assets sold before the end of the reporting period
D) purchase of a business.

Question 9

Which of the following is not among the specific auditing procedures the auditor performs to obtain additional audit evidence to complete the audit?

A) make subsequent events review.
B) place a notice in the daily newspaper asking if anyone has any matters they wish to bring up concerning the audit.
C) obtain a management representation letter.
D) review the possibility of contingent liabilities

Question 10

Normally the initial source of information about litigation, claims, and unrecorded or contingent liabilities is:
A) management.

A) the client's solicitors.
B) the audit committee.
B) the board of directors.

Question 11

The auditor has decided that the financial statements are affected by an uncertainty that is not susceptible to reasonable estimation at the balance sheet date. If this uncertainty is adequately disclosed in the financial statements, the auditor's report should contain a(n):

A) standard unqualified opinion.
B) adverse opinion.
C) disclaimer of opinion.
D) unqualified opinion with an 'emphasis of matter' paragraph.

Question 12

A representation letter to a lawyer would not normally ask for confirmation of, or information about:

A) directors' description of the situation.
B) reasonableness of directors' estimates of the likely amounts of settlement.
C) any open files that may have been referred to other legal firms.
D) a representation letter would normally ask about all of the above

Question 13

After the auditor's report has been signed, the auditor:

A) does not have a responsibility to detect subsequent events.
B) has a responsibility to detect subsequent events only if they will have a material effect on the financial statements
C) has provided absolute assurance that all significant events occurring up to that date have been identified.
D) only has responsibility to detect subsequent events if they have a negative impact on the financial statements

Question 14

The auditor relies on the management representation letter to:

A) confirm written representations given to the auditor.
B) document the continuing materiality of management representations.
C) reduce the possibility of misunderstanding concerning management's representations.
D) guarantee the absence of management fraud.

Question 15

The management representation letter will not normally be:

A) prepared on the client's stationery.
B) addressed to the auditor.
C) dated as of the date of the auditor's report.
D) tabled at the annual general meeting of the firm

Question 16

Which of these is among the characteristics of the procedures performed in completing the audit?

A) they involve many subjective judgements by the auditor.
B) they do not relate to specific transaction cycles or accounts.
C) they are usually performed by audit managers or seniors.
D) all of the above are characteristics of the procedures performed in completing the audit

Question 17

In regard to identifying and evaluating subsequent events, ASA560.10 (ISA 560) specifies that the auditor make inquiries of management. Which of the following is not an example of a specific inquiry?

A) whether new commitments, borrowings or guarantees have been entered into.
B) whether sales of assets have occurred or are planned.
C) whether any unusual accounting adjustments are being contemplated.
D) the current status of items previously accounted for on the basis of preliminary or inconclusive data.

Question 18

The representation letter to a lawyer provides the auditor with:

A) initial information about litigation and claims.
B) corroboration of the information on litigation and claims provided by the auditor's solicitors.
C) corroboration of the information on litigation and claims provided by management.
D) corroboration of the information on litigation and claims provided by the other party to the matter.

Question 19

The event in a subsequent period that is an example of a condition existing at the reporting date is:

A) loss resulting from a flood.
B) discovery of fraud or errors.
C) purchase of a business.
D) the issue of preferred shares.

Question 20

The auditing standards suggest that management representations are acceptable audit evidence where other sufficient appropriate audit evidence:

A) cannot reasonably be expected to exist.
B) can reasonably be expected to exist.
C) has not been furnished to the auditor.
D) management representations are never appropriate audit evidence for financial statement assertions.

Question 21

After the auditor's report has been signed, the auditor has:

A) a responsibility to perform procedures to detect subsequent events.
B) a responsibility to make enquiries regarding the financial statements.
C) no responsibility to perform procedures to detect subsequent events.
D) no responsibility to make enquiries regarding subsequent events.

Question 22

The following steps are taken during the evaluation of the audit findings: The order in which these steps should be performed is:

A) ABCD.
B) DCAB.
C) CABD.
D) BACD.

Question 23

The manager's review of the working papers is not designed to obtain assurance that:

A) the judgements exercised by subordinates were reasonable and appropriate in the circumstances.
B) the work done by subordinates has been completed in a cost effective manner.
C) the working papers support the auditor's opinion.
D) all significant accounting, auditing, and reporting questions raised during the examination have been properly resolved.

Question 24

Before reaching a final decision on the audit opinion to be issued, a conference is generally held with the client. At this meeting, all of the following may be expected, except:

A) an oral report of the auditor's major findings.
B) the auditor's rationale for proposed adjustments or additional disclosures.
C) delivery of the written communication of audit matters to those charged with governance
D) agreement between the auditor and client on the changes to be made.

Question 25

Analytical procedures are used in the overall review for all of these reasons except:

A) to corroborate conclusions formed during the audit.
B) to assist in arriving at the overall conclusion that the financial information is consistent with the knowledge of the business.
C) to identify contingent liabilities.
D) to gain assurance that the company will remain a going concern.

Question 26

Identify the audit procedures normally associated with subsequent events.
2. What actions may the auditor take when he concludes at the end of the audit that audit risk is not acceptable?

Question 27

Legal precedent requires the auditor to report not just to management but to an appropriate level of management, any significant matters identified as a result of audit procedures performed. Which of the following cases is the relevant legal precedent?

A) Pacific Acceptance.
B) AWA.
C) Kingston Cotton Mills.
D) Esanda Finance.

Question 28

Distinguish conditions existing at the reporting date and conditions arising after the reporting date as they relate to subsequent events.

Question 29

In making the technical review of the financial statements, the auditor is likely to use a detailed financial statement checklist provided by the:

A) client.
B) CPA Australia.
C) ASIC.
D) audit firm.

Question 30

Analytical procedures in the overall review should be:

A) reviewed by the partner or manager on the engagement.
B) applied to every item on the financial statements.
C) based on financial statement data before audit adjustments.
D) performed only when material misstatement is expected.

Question 31

Matters that would ordinarily be communicated to an audit committee do not include:

A) major issues that were discussed with management pertaining to the appointment of the auditor.
B) unreasonable delays in management providing information.
C) all errors and problems revealed by the audit.
D) all of the above matters would ordinarily be communicated to an audit committee

Question 32

Explain the responsibilities of the auditor regarding subsequent events:
1.after reporting date, but before the audit report is signed,
2.after the audit report is signed, but before the financial statements are issued, and
3.after the financial statements are issued.

Question 33

During the final reviews of the working papers, the partner in charge of the engagement would ordinarily be expected to review working papers:

A) perceived to have high risk.
B) prepared by seniors.
C) reviewed by managers.
D) reviewed by seniors.

Question 34

ASA 502.3.Audit Evidence - Specific Considerations for Litigation and Claims states that the auditor shall obtain sufficient appropriate audit evidence regarding:

A) the completeness of litigation and claims involving the entity
B) the probability of any revenue or expense arising from legal matters.
C) the adequacy of the legal representation of the entity.
D) all of the above

Question 35

Which of these responsibilities of the auditor is not undertaken as part of the evaluation of the findings?

A) undertake a final assessment of materiality and audit risk.
B) undertake a technical review of the financial report.
C) prepare the written communication to those charged with governance.
D) formulate an opinion and draft the audit report.

Question 36

If the auditor amends the financial statements due to subsequent events what further actions are necessary?
What are the auditor's options if management refuses to amend the financial statements, where the auditor believes they should be amended, when?
1. the auditor has not released the report to the entity.
2. the auditor has released the report to the entity.

Question 37

An existing condition, situation or set of circumstances that involves uncertainty as to a possible gain, that will be resolved when one or more future events occur or fail to occur is:

A) a contingent liability.
B) a contingent asset.
C) projected event.
D) estimated value.

Question 38

Significant matters identified as a result of audit procedures often include those relating to the internal control structure that the auditor feels would be of particular interest to:

A) the audit committee.
B) the CEO.
C) the regulators.
D) the accounting staff

Question 39

How should the auditor disclose material adjusting events? Give three examples of common adjusting events.
2.How should the auditor disclose material non-adjusting events? Give three examples of common non-adjusting events.

Question 40

Professional standards require the auditor to communicate certain matters pertaining to the audit to those charged with governance. This communication would normally include all of the following except:

A) disagreements with management.
B) audit adjustments.
C) specific audit procedures performed.
D) material uncertainties that may cast doubt on the entity's ability to continue as a going concern.

Question 41

What are the objectives of the management representation letter? Under what circumstances are management representations considered acceptable audit evidence?

Question 42

Contrast the roles of audit managers and audit partners in the final review stage of the audit. Why would a firm require a second partner review?

Question 43

What is the relevant period for assessing whether or not the use of the going concern basis is appropriate? During which stage of the audit does the auditor perform most of the procedures for assessing the use of the going concern basis? Give four examples of such procedures.

Question 44

Your client has returned to you the representation letter that they sent to their lawyer. The letter contains the following statement from the client's lawyer:
"the directors seem to underestimate the likelihood of losing the case, and the potential financial settlement amount. We believe that there is little chance of successfully defending the matter, and expect that there will be amounts payable in the vicinity of $3.million, not $1.million. We do however remind you that the matter is only in preliminary stages and could still go either way".
Has the auditor collected this evidence in the appropriate way? What should the auditor do in regards to the information provided by the lawyer?