Question 1

The adjustments arising from the audit that were considered to be material should be informed by the auditor to the:

Accepted Answer

A)  audit staff.
B)  management.
C)  audit committee.
D)  internal auditors. C

Question 2

Considering Qualitative Factors
What are the considerations that may cause a quantitatively small misstatement to be considered material?

Accepted Answer

Some of the considerations that may cause a quantitatively small misstatement to be considered material include whether the potential misstatement:
1.Arises from an item capable of precise measurement or whether it arises from an estimate and if so,the degree of imprecision inherent in the estimate.
2.Masks a change in earnings or other trends.
3.Hides a failure to meet analysts' consensus expectations for the enterprise.
4.Changes a loss into income or vice versa.
5.Is in a segment that has been identified as having a significant effect on the company's stock valuation.
6.Affects compliance with regulatory requirements.
7.Affects loan covenants or other contractual requirements.
8.Has the effect of increasing management's compensation-for example,by satisfying requirements for the award of bonuses or other forms of incentive compensation.
9.Involves concealment of an unlawful transaction.

Question 3

Considering SAB 59 and SAS No.92,the cash position of the investee is one of the factors that indicate that an other-than-temporary impairment of a security's value has occurred.

Accepted Answer

A) True 
 B)False  True

Question 4

The groups that have demanded that companies provide sustainability disclosures include which of the following.

Accepted Answer

A)  external auditors.
B)  socially responsible investment funds.
C)  the PCAOB.
D)  all of the above.

Question 5

External assurance over sustainability reports must be provided by which of the following:

Accepted Answer

A)  Certified Public Accountants in conjunction with the annual financial audit.
B)  those with competence in the subject matter and assurance practices.
C)  Certified Sustainability Experts.
D)  individuals that are not independent with the company issuing the sustainability report.

Question 6

If the auditor believes that misstatements aggregating approximately $50,000 would be material to the income statement,but misstatements aggregating approximately $100,000 would be material to the balance sheet,the auditor typically assesses overall materiality at $100,000 or less.

Accepted Answer

A) True 
 B)False

Question 7

The significant judgments of net finance receivables are subject to allowance for noncollectibility.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is true of internal auditing?

Accepted Answer

A)  Only serves the audit committee of the board of directors
B)  Primary nature of services include assurance and consulting
C)  Is required to report activities and department findings to external stakeholders annually
D)  Independence and objectivity are not relevant because they are employees of the company

Question 9

SAB 108 mandates what is termed a(n)___ to uncorrected misstatements.

Accepted Answer

A)  matrix approach
B)  dual approach.
C)  percentage approach
D)  judgmental approach

Question 10

The auditor need not inform the audit committee about adjustments arising from the audit that were considered to be material.

Accepted Answer

A) True 
 B)False

Question 11

In performing substantive analytical procedures,the threshold for determining whether differences between the client's account balance and the auditor's expectation should be based on planning materiality.

Accepted Answer

A) True 
 B)False

Question 12

Relevant economic and industry factors could be used as a source of audit evidence while addressing the audit challenge of determining active or inactive markets.

Accepted Answer

A) True 
 B)False

Question 13

If a company's net income varies significantly from year to year,the auditor might consider using an average of the net income from the prior three to five years as the materiality benchmark.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following factors in assessing severity of internal control deficiencies indicates that a deficiency that may have been considered a material weakness at an interim date would not be considered a material weakness at the year end?

Accepted Answer

A)  Remediation of a control deficiency.
B)  Existence of compensating controls.
C)  Complexity and subjectivity of the account balance.
D)  Effectiveness of oversight and governance.

Question 15

The purpose of making materiality judgments is to make sure that financial statements are free of any material misstatement.

Accepted Answer

A) True 
 B)False

Question 16

Planning materiality is typically less than overall materiality and helps the auditor to determine the extent of:

Accepted Answer

A)  audit evidence needed.
B)  analytical procedure performed.
C)  substantive procedure performed.
D)  work performed.

Question 17

Which of the following is needed by a client while estimating fair value?

Accepted Answer

A)  A systematic process to identify each asset that is subject to realizable value or at cost.
B)  A process to identify relevant historical values.
C)  An analysis of whether the organization has the ability to hold the asset to maturity and whether the decline in value is permanent.
D)  A realistic process to estimate future cash flows to discount back to a present value.

Question 18

Sustainability reporting is required to be filed with the SEC as part of a public company's annual 10-K.

Accepted Answer

A) True 
 B)False

Question 19

Misstatements detected during the audit that were initially deemed to be immaterial need not be summarized to determine their aggregate effects.

Accepted Answer

A) True 
 B)False

Question 20

The two general types of assurance that can be provided to sustainability reports include which of the following:

Accepted Answer

A)  Reasonable assurance and Limited assurance.
B)  Material assurance and Reasonable assurance.
C)  Limited assurance and material assurance.
D)  Reasonable assurance and Compliance assurance

Exam 18: Advanced Topics Concerning Complex Audit Judgments

The adjustments arising from the audit that were considered to be material should be informed by the auditor to the:

Considering Qualitative Factors What are the considerations that may cause a quantitatively small misstatement to be considered material?

Considering SAB 59 and SAS No.92,the cash position of the investee is one of the factors that indicate that an other-than-temporary impairment of a security's value has occurred.

The groups that have demanded that companies provide sustainability disclosures include which of the following.

External assurance over sustainability reports must be provided by which of the following:

If the auditor believes that misstatements aggregating approximately $50,000 would be material to the income statement,but misstatements aggregating approximately $100,000 would be material to the balance sheet,the auditor typically assesses overall materiality at $100,000 or less.

The significant judgments of net finance receivables are subject to allowance for noncollectibility.

Which of the following is true of internal auditing?

SAB 108 mandates what is termed a(n) ___ to uncorrected misstatements.

The auditor need not inform the audit committee about adjustments arising from the audit that were considered to be material.

In performing substantive analytical procedures,the threshold for determining whether differences between the client's account balance and the auditor's expectation should be based on planning materiality.

Relevant economic and industry factors could be used as a source of audit evidence while addressing the audit challenge of determining active or inactive markets.

If a company's net income varies significantly from year to year,the auditor might consider using an average of the net income from the prior three to five years as the materiality benchmark.

Which of the following factors in assessing severity of internal control deficiencies indicates that a deficiency that may have been considered a material weakness at an interim date would not be considered a material weakness at the year end?

The purpose of making materiality judgments is to make sure that financial statements are free of any material misstatement.

Planning materiality is typically less than overall materiality and helps the auditor to determine the extent of:

Which of the following is needed by a client while estimating fair value?

Sustainability reporting is required to be filed with the SEC as part of a public company's annual 10-K.

Misstatements detected during the audit that were initially deemed to be immaterial need not be summarized to determine their aggregate effects.

The two general types of assurance that can be provided to sustainability reports include which of the following: