Question 1

When a subsequent event provides evidence about conditions that existed at the balance sheet date, what is the best course of action for the auditor to follow?

Accepted Answer

A)  Assign a specialist. 
B)  Ensure that the financial statements are adjusted to reflect the information, including any necessary footnote disclosures. 
C)  Shop for an opinion that fits the desired type of event. 
D)  Provide management with a new engagement letter to document the terms of the revised arrangement.

Question 2

Multiple internal control deficiencies in the same cycle may actually decrease the likelihood of misstatement in that cycle.

Accepted Answer

A) True 
 B)False

Question 3

If the auditor concludes that there may be a going-concern problem with the client, which of the following is the best course of action for the auditor to follow?

Accepted Answer

A)  Issue a qualified opinion. 
B)  Identify and assess management's plan to overcome the situation. 
C)  Chart the negative trends as an addendum to the audit report. 
D)  Increase fees to cover the probable exposure.

Question 4

Audit firm portfolio management decisions are not important in achieving audit quality.

Accepted Answer

A) True 
 B)False

Question 5

Property and casualty insurance premiums are examples of estimates found on financial statements.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not an indicator of a potential going-concern problem?

Accepted Answer

A)  Negative trends in profitability. 
B)  External matters increasing regulatory requirements. 
C)  Significant changes in competition. 
D)  An Altman Z-score above 3.0.

Question 7

Where would the auditor make mention of issues noted during audit procedures that are not of audit significance?

Accepted Answer

A)  Engagement letter. 
B)  Management letter. 
C)  Representation letter. 
D)  Attorney letter.

Question 8

A culture that encourages auditors to seek consultation with other members of the audit firm will be more likely to result in auditors who will acquiesce to inappropriate or aggressive client preferences.

Accepted Answer

A) True 
 B)False

Question 9

The date of the audit opinion of Upton Industries, Inc. reads: March 7, 2014 except for Note D, as to which the date is March 12, 2014. What is this an example of?

Accepted Answer

A)  Improper reporting. 
B)  A GAAP violation. 
C)  Dual dating. 
D)  A contingent event.

Question 10

After an audit report is issued, the auditor discovers through a peer review that an important audit procedure has been omitted. In this case, what should the auditor do?

Accepted Answer

A)  Notify all parties known to be relying on the report. 
B)  Immediately request the client recall the report. 
C)  Contact his or her professional liability insurance carrier. 
D)  Determine whether the report can still be supported in light of the omitted procedure.

Question 11

If the auditor failed to confirm receivables when that should have been done and it may be too late to confirm now, what should the auditor do?

Accepted Answer

A)  Issue an adverse opinion. 
B)  Extend the previous work done on subsequent collections to help determine that the receivables existed and were properly valued at the balance sheet date 
C)  Automatically decide that the previously issued audit report cannot be supported in light of the omitted procedures. 
D)  Issue a disclaimer of opinion.

Question 12

Which of the following is not a typical analytical procedure for the completion of the audit?

Accepted Answer

A)  Ratio analysis. 
B)  Common-size analysis. 
C)  Changes from the prior year. 
D)  All of the above would typically be used.

Question 13

Assessing disclosures does not require reasonable assurance of which of the following?

Accepted Answer

A)  The disclosures are understandable to users. 
B)  Disclosed events and transactions have occurred and pertain to the entity. 
C)  All material and immaterial disclosures have been reported. 
D)  The information is disclosed accurately and at appropriate amounts.

Question 14

Management letters to clients.
What is a management letter and how does it differ from a management representation letter?

Accepted Answer

The answer of Management letters to clients.
What is a management...

Question 15

Which of the following is not a purpose of the management representation letter?

Accepted Answer

A)  It reminds management of its responsibility for the financial statements. 
B)  It confirms oral responses obtained by the auditor earlier in the audit and the continuing appropriateness of those responses. 
C)  It decreases the possibility of misunderstanding concerning the matters that are the subject of the representations. 
D)  It implies that the auditor is responsible for the design of the internal controls.

Question 16

Which one of the following is not an example of an additional procedure that typically relates to the discovery of subsequent events?

Accepted Answer

A)  Partner review of all workpapers. 
B)  Reading interim financial statements and comparing them to the audited statements to note significant changes. 
C)  Reading the board of directors' minutes for all meetings during the year and after year- end through the end of field work. 
D)  Management inquiry.

Question 17

Which of the following is false regarding the use of an audit checklist for disclosures?

Accepted Answer

A)  It is a convenient documentation format. 
B)  It reminds the auditor of matters that should be considered for disclosure. 
C)  It can be organized to include relevant professional guidance. 
D)  It covers all potential unusual circumstances.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

If an experienced reviewer who was not a part of the audit team, but who has appropriate competence, independence, integrity, and objectivity, performs an independent quality review, this is referred to as a reoccurring partner review.

Accepted Answer

A) True 
 B)False

Question 20

The auditor is responsible for evaluating the likelihood of a client continuing as a going concern for a reasonable period of time. What is considered to be a reasonable time period?

Accepted Answer

A)  One year from the audit report date. 
B)  One year from the last day of field work. 
C)  One year from the balance sheet date. 
D)  Two years from the balance sheet date.

Exam 14: Activities Required in Completing a Quality Audit

When a subsequent event provides evidence about conditions that existed at the balance sheet date, what is the best course of action for the auditor to follow?

Multiple internal control deficiencies in the same cycle may actually decrease the likelihood of misstatement in that cycle.

If the auditor concludes that there may be a going-concern problem with the client, which of the following is the best course of action for the auditor to follow?

Audit firm portfolio management decisions are not important in achieving audit quality.

Property and casualty insurance premiums are examples of estimates found on financial statements.

Which of the following is not an indicator of a potential going-concern problem?

Where would the auditor make mention of issues noted during audit procedures that are not of audit significance?

A culture that encourages auditors to seek consultation with other members of the audit firm will be more likely to result in auditors who will acquiesce to inappropriate or aggressive client preferences.

The date of the audit opinion of Upton Industries, Inc. reads: March 7, 2014 except for Note D, as to which the date is March 12, 2014. What is this an example of?

After an audit report is issued, the auditor discovers through a peer review that an important audit procedure has been omitted. In this case, what should the auditor do?

If the auditor failed to confirm receivables when that should have been done and it may be too late to confirm now, what should the auditor do?

Which of the following is not a typical analytical procedure for the completion of the audit?

Assessing disclosures does not require reasonable assurance of which of the following?

Management letters to clients. What is a management letter and how does it differ from a management representation letter?

Which of the following is not a purpose of the management representation letter?

Which one of the following is not an example of an additional procedure that typically relates to the discovery of subsequent events?

Which of the following is false regarding the use of an audit checklist for disclosures?

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

If an experienced reviewer who was not a part of the audit team, but who has appropriate competence, independence, integrity, and objectivity, performs an independent quality review, this is referred to as a reoccurring partner review.

The auditor is responsible for evaluating the likelihood of a client continuing as a going concern for a reasonable period of time. What is considered to be a reasonable time period?