Question 1

Significant changes in the competitive market and a decrease in the competitiveness of the client's products are potential indicators of going-concern problems.

Accepted Answer

A) True 
 B)False

Question 2

Review activities that are completed towards the end of the audit are quite varied.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not a potential indicator of going concern problems for a client?

Accepted Answer

A) Negative trends in key financial ratios. 
B) Loss of key personnel. 
C) Plan to sell nonessential assets. 
D) Default on a loan.

Question 4

Analytical procedures conducted at the end of an audit are performed to examine trends and changes.What is typically another purpose of analytical procedures at the end of the audit?

Accepted Answer

A) To document planning in accordance with GAAS. 
B) To provide the client with a value added service in conjunction with audit activities. 
C) To ask "hard questions" about the company's results and its relationship to external factors. 
D) To increase the amount of items reported in the management letter.

Question 5

Which one of the following is not a key condition indicating doubt about a client's ability to continue as a going-concern?

Accepted Answer

A) Adverse key financial ratios. 
B) Employee strike that halts operations for several months. 
C) Company has not paid dividends to date. 
D) Default on bank debt.

Question 6

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

Accepted Answer

A) The letter of reportable conditions. 
B) The management representation letter. 
C) The management letter. 
D) The contingent events document.

Question 7

Which of the following is not true regarding accounting estimates?

Accepted Answer

A) Accounting estimates are based on management's knowledge and experience of past and current events. 
B) Accounting estimates are based on management's assumptions about conditions that are expected to exist and courses of action the company expects to take. 
C) Accounting estimates are based on both subjective and objective factors 
D) Because accounting estimates are based,in part,on management's knowledge and experience,they are not biased.

Question 8

If the audit team encounters difficulties in performing an audit,who should the audit team communicate these matters to?

Accepted Answer

A) The SEC. 
B) The audit committee. 
C) Management. 
D) The PCAOB.

Question 9

Which one of the following would the auditor consider to be an indication of a potential going-concern problem?

Accepted Answer

A) Loss of the controller to a competitor. 
B) Improper reporting of internal controls by management. 
C) Adverse key financial ratios. 
D) Large increase to sales in the month previous to year-end.

Question 10

During the course of an audit,misstatements that are individually immaterial may be detected.What should the auditor do with these?

Accepted Answer

A) Permanently pass on these immaterial misstatements as they do not individually impact the financial statements. 
B) Request that management footnote the immaterial misstatements in the financial statements for fair presentation. 
C) Accumulate all of the known and projected misstatements to determine if the impact is material in the aggregate. 
D) Roll them forward for three years when they will become material enough to adjust.

Question 11

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

Accepted Answer

A) Election of new board members. 
B) Change in auditors. 
C) Inability to collect from a significant customer. 
D) Acquisition of a subsidiary.

Question 12

Fulton Educational Company,Inc.has a matter of material litigation that is threatened,but that has not gone to trial.The auditor's consideration of such a matter will not include which of the following?

Accepted Answer

A) Sending a letter to the client's attorneys for more information. 
B) Discussing the matter with the client and their insurance adjuster. 
C) Confirming with the harmed party regarding the amount that will be claimed. 
D) Assessing whether accrual or disclosure by the client was reported in accordance with GAAP.

Question 13

When obtaining reasonable assurance that the financial statements are free from material misstatements,auditors should consider the applicable legal and regulatory frameworks that apply to the entity.

Accepted Answer

A) True 
 B)False

Question 14

The audit documentation when performing an engagement quality review should include such information such as how much the firm paid for the review.

Accepted Answer

A) True 
 B)False

Question 15

Final Analytical Procedures and Disclosures When auditing Global Alliance Industries,Inc.,the auditor performed extensive analytical procedures and found the following: (a)The commission expenses as a percentage of sales has stayed constant for several years,but has increased significantly in the current year.However,commission rates have not changed. (b)The rate of inventory turnover has steadily decreased for the past four years. (c)The inventory as a percentage of current assets has steadily increased for the past four years. (d)The number of days' sales in accounts receivable has steadily increased for three years. (e)The allowance for uncollectible accounts as a percentage of accounts receivable has steadily decreased for three years. (f)The absolute amounts of depreciation expense and depreciation expense as a percentage of gross fixed assets are significantly smaller than in the preceding year. REQUIRED: (1)Evaluate the significance of not disclosing or adjusting these items,if material,in the fair presentation of financial statements. (2)When assessing disclosures,what criteria do auditors use?

Accepted Answer

The answer of Final Analytical Procedures and Disclosures When auditing...

Question 16

Rules are standardized internationally in terms of mandatory partner rotation and mandatory audit firm rotation.

Accepted Answer

A) True 
 B)False

Question 17

Auditors are responsible for designing and maintaining policies and procedures to identify,evaluate,and account for contingencies.

Accepted Answer

A) True 
 B)False

Question 18

Two paragraphs should be added to the auditor's report when the auditor concludes that substantial doubt remains about the client's ability to continue as a going concern for a reasonable period of time.

Accepted Answer

A) True 
 B)False

Question 19

In an integrated audit,if one or more material weaknesses exist,the auditor will need to issue a qualified opinion on internal control over financial reporting.

Accepted Answer

A) True 
 B)False

Question 20

Type I subsequent events Provide two examples of a Type I subsequent event and explain how these events would be treated in the financial statements.

Accepted Answer

The answer of Type I subsequent events Provide two examples...

Exam 14: Activities Required in Completing a Quality Audit

Significant changes in the competitive market and a decrease in the competitiveness of the client's products are potential indicators of going-concern problems.

Review activities that are completed towards the end of the audit are quite varied.

Which of the following is not a potential indicator of going concern problems for a client?

Analytical procedures conducted at the end of an audit are performed to examine trends and changes.What is typically another purpose of analytical procedures at the end of the audit?

Which one of the following is not a key condition indicating doubt about a client's ability to continue as a going-concern?

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

Which of the following is not true regarding accounting estimates?

If the audit team encounters difficulties in performing an audit,who should the audit team communicate these matters to?

Which one of the following would the auditor consider to be an indication of a potential going-concern problem?

During the course of an audit,misstatements that are individually immaterial may be detected.What should the auditor do with these?

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

Fulton Educational Company,Inc.has a matter of material litigation that is threatened,but that has not gone to trial.The auditor's consideration of such a matter will not include which of the following?

When obtaining reasonable assurance that the financial statements are free from material misstatements,auditors should consider the applicable legal and regulatory frameworks that apply to the entity.

The audit documentation when performing an engagement quality review should include such information such as how much the firm paid for the review.

Rules are standardized internationally in terms of mandatory partner rotation and mandatory audit firm rotation.

Auditors are responsible for designing and maintaining policies and procedures to identify,evaluate,and account for contingencies.

Two paragraphs should be added to the auditor's report when the auditor concludes that substantial doubt remains about the client's ability to continue as a going concern for a reasonable period of time.

In an integrated audit,if one or more material weaknesses exist,the auditor will need to issue a qualified opinion on internal control over financial reporting.

Type I subsequent events Provide two examples of a Type I subsequent event and explain how these events would be treated in the financial statements.