Question 1

Significant changes in working capital during the subsequent events period should be investigated by the auditor.

Accepted Answer

A) True 
 B)False

Question 2

A quality audit provides reasonable assurance that the audited financial statements are free from all errors and that every possible disclosure is made.

Accepted Answer

A) True 
 B)False

Question 3

Settlement of a lawsuit in January for a materially different amount than was accrued at December 31 calls for an adjustment to the financial statements.

Accepted Answer

A) True 
 B)False

Question 4

The subsequent events period usually extends to the date that the management representation letter is signed.

Accepted Answer

A) True 
 B)False

Question 5

The letter drafted by the auditor which reports observations to management which may help management perform more effectively is referred to as which of the following?

Accepted Answer

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

Question 6

A stock split takes place March 30,three days after the audit report is delivered to the client.The auditor is not required to do anything.

Accepted Answer

A) True 
 B)False

Question 7

When requiring a letter of audit inquiry from the client's attorney,which of the following information will be requested?

Accepted Answer

A) A statement regarding conflicts of interest that the attorney may have with the client. 
B) The attorney's expert opinion of proper GAAP treatment related to client contingencies. 
C) An evaluation of the likelihood of unfavorable outcome of,and estimated losses from contingencies. 
D) Possible auditor defenses for third-party litigation related to ordinary negligence claims.

Question 8

When responding to the auditor as a result of the audit client's letter of inquiry,the attorney may limit the response to which of the following?

Accepted Answer

A) litigations in process. 
B) asserted claims. 
C) matters to which the attorney has given substantive attention in the form of legal consultation or representation. 
D) items which the attorney believes will result in loss to the client.

Question 9

Contingencies include purchase and sale commitments and obligations to banks under standby letters of credit.

Accepted Answer

A) True 
 B)False

Question 10

When the client is filing a registration statement with the SEC subsequent to fieldwork,the auditor is required to perform a subsequent events review up to the effective date of the registration statement.

Accepted Answer

A) True 
 B)False

Question 11

The auditor is responsible for evaluating the likelihood of a client continuing as a going concern for a reasonable period of time.A reasonable period of time is which of the following?

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.

Question 12

The auditor is responsible for evaluating the likelihood of a client not going bankrupt for the next 12 months.What basis will the auditor use to assess this issue?

Accepted Answer

A) Management integrity. 
B) Control environment. 
C) Absolute assurance. 
D) Substantial doubt.

Question 13

ASC 450 (previously SFAS No.5,"Accounting for Contingencies")requires the accrual and disclosure of probable contingent losses that can be reasonably estimated.

Accepted Answer

A) True 
 B)False

Question 14

If substantial doubt remains about going concern for a client at the end of the audit,then the auditor would do which of the following?

Accepted Answer

A) issue an unqualified audit report. 
B) issue an unqualified audit report with an explanatory paragraph. 
C) issue a qualified report. 
D) issue an adverse report.

Question 15

Pending litigation can often be discovered by the audit team in its review of the minutes of the board of directors meetings.

Accepted Answer

A) True 
 B)False

Question 16

A stock split takes place March 30,three days after the audit report is delivered to the client.The auditor should ask the client to recall the audit report.

Accepted Answer

A) True 
 B)False

Question 17

The audit partner must make a client continuance decision after the client submits an engagement letter for consideration.

Accepted Answer

A) True 
 B)False

Question 18

Management responsibilities
Explain how management explicitly asserts their confidence and responsibility over the financial statements of the company.

Accepted Answer

The answer of Management responsibilities
Explain how management explicitly asserts their...

Question 19

Contingencies are considered by the auditor in relation to the ASC 450 (SFAS No.5)criteria to determine whether material contingencies exist with the client and,if so,that they are properly accrued or disclosed.

Accepted Answer

A) True 
 B)False

Question 20

The partner responsible for performing an engagement quality review will review the working papers and financial statements to perform all of the following except:

Accepted Answer

A) members of the audit committee and board of directors. 
B) chief executive officer and the chief financial officer. 
C) chief financial officer and the treasurer. 
D) controller and the auditor.

Exam 15: Ensuring Audit Quality in Completing the Audit

Significant changes in working capital during the subsequent events period should be investigated by the auditor.

A quality audit provides reasonable assurance that the audited financial statements are free from all errors and that every possible disclosure is made.

Settlement of a lawsuit in January for a materially different amount than was accrued at December 31 calls for an adjustment to the financial statements.

The subsequent events period usually extends to the date that the management representation letter is signed.

The letter drafted by the auditor which reports observations to management which may help management perform more effectively is referred to as which of the following?

A stock split takes place March 30,three days after the audit report is delivered to the client.The auditor is not required to do anything.

When requiring a letter of audit inquiry from the client's attorney,which of the following information will be requested?

When responding to the auditor as a result of the audit client's letter of inquiry,the attorney may limit the response to which of the following?

Contingencies include purchase and sale commitments and obligations to banks under standby letters of credit.

When the client is filing a registration statement with the SEC subsequent to fieldwork,the auditor is required to perform a subsequent events review up to the effective date of the registration statement.

The auditor is responsible for evaluating the likelihood of a client continuing as a going concern for a reasonable period of time.A reasonable period of time is which of the following?

The auditor is responsible for evaluating the likelihood of a client not going bankrupt for the next 12 months.What basis will the auditor use to assess this issue?

ASC 450 (previously SFAS No.5,"Accounting for Contingencies")requires the accrual and disclosure of probable contingent losses that can be reasonably estimated.

If substantial doubt remains about going concern for a client at the end of the audit,then the auditor would do which of the following?

Pending litigation can often be discovered by the audit team in its review of the minutes of the board of directors meetings.

A stock split takes place March 30,three days after the audit report is delivered to the client.The auditor should ask the client to recall the audit report.

The audit partner must make a client continuance decision after the client submits an engagement letter for consideration.

Management responsibilities Explain how management explicitly asserts their confidence and responsibility over the financial statements of the company.

Contingencies are considered by the auditor in relation to the ASC 450 (SFAS No.5)criteria to determine whether material contingencies exist with the client and,if so,that they are properly accrued or disclosed.

The partner responsible for performing an engagement quality review will review the working papers and financial statements to perform all of the following except: