Question 1

Governance relates to

Accepted Answer

A)   the responsibility of the Audit Committee and its relationship to the auditor.
B)   the responsibility of those charged with governance regarding compliance with GAAP.
C)   responsibilities ensuring that the entity achieves its objectives regarding reliability of financial statements, effectiveness and efficiency of operations and compliance with laws.
D)   none of the above. C

Question 2

Identify quantitative and qualitative considerations that are taken into account when the auditor evaluates whether misstatements either cause financial statements to be materially misstated or require additional disclosure.

Accepted Answer

Examples of quantitative and qualitative considerations include:
a) the risk of additional misstatements remaining undetected
b) the effects of identified misstatements on the client's compliance with covenants under debt or similar agreements
c) whether the proposed corrections result from an error or are the result of a judgmental misstatement between the client's and the auditor's application of accounting policies
d) the turnaround effect on the current year's financial statements of uncorrected misstatements identified in the prior year
e) the likelihood that recurring differences, which currently are immaterial, will have a material effect in the future
f) the sensitivity of the circumstances surrounding the misstatements, for example, the implications of differences involving fraud and possible illegal acts, or violations of contractual provisions
g) the significance of the financial statement elements affected by the misstatements
h) the significance of the misstatements relative to known user needs, for example, the magnifying effects of the misstatements on the calculation of a purchase price in a transfer of interests (buy/sell agreement)
i) the effect of the misstatements on segment information or on another portion of the client's business that has been identified as playing a significant role in the client's operations or profitability
j) the effects of offsetting misstatements in different financial statement captions (or balance names within the financial statements, for example, cash at bank, prepayments, payables)

Question 3

Discuss the factors that are relevant when management is assessing the going concern assumption.

Accepted Answer

The following factors are relevant when management is assessing the going concern assumption:
a) Generally, the further into the future an event is likely to take place, the greater the uncertainty surrounding that event. For that reason, most financial reporting frameworks specify the period management is required to assess all available information when making their going concern assessment. In Canada, this is typically 12 months from the date of the directors' report and audit opinion.
b) Any judgment about the future is based on information available at the time at which the judgment is made. Subsequent events can contradict a judgment that was reasonable at the time it was made. Management of clients in industries subject to frequent change face more difficulty when assessing the going concern assumption.
c) The size and complexity of the entity, the nature and condition of its business and the degree to which it is affected by external factors all affect judgment regarding the outcome of events or conditions.

Question 4

When an auditor expresses an unqualified audit opinion, it means the

Accepted Answer

A)   entity has complied with the reporting obligations as required by CPAB.
B)   internal controls of the entity are operating efficiently and effectively.
C)   financial statements are accurate in all respects.
D)   financial statements have been prepared in accordance with an applicable accounting framework.

Question 5

Sufficiency relates to the quality of audit evidence gathered.

Accepted Answer

A) True 
 B)False

Question 6

Material disagreements with management will result in either:

Accepted Answer

A)   a qualified opinion or adverse opinion.
B)   an emphasis of matter or adverse opinion.
C)   an adverse opinion or an unqualified opinion.
D)   an unqualified opinion or a qualified opinion.

Question 7

An error is an intentional misstatement in the client's financial statements.

Accepted Answer

A) True 
 B)False

Question 8

The final phase of an audit includes which of the following?

Accepted Answer

A)   performing substantive tests of account balances
B)   gaining an understanding of the client's internal control system
C)   confirming the terms of the audit engagement with the auditor
D)   determining whether the audit evidence obtained is sufficient and appropriate to reduce the risk of material misstatements in the financial statements to an acceptably low level

Question 9

An auditor may prepare or provide an opinion on information other than general purpose financial statement information, on all the following engagements except

Accepted Answer

A)   reports prepared in accordance with a special purpose framework.
B)   reports on the component of the financial statements.
C)   reports on the expected market value of the shares price for the following five years.
D)   reports on compliance with contractual agreements.

Question 10

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Mathew Punkinnen, the senior auditor at Jackson & Wartkauf LLP made the following statement to his audit team: "What constitutes sufficient appropriate audit evidence is a matter of judgment."
b) Ingram Foods Company operates as a specialty food distributor. Philippe Parenteaux, auditor, has told his staff that the bankruptcy of a customer at year-end should not be considered a type 1 event.
c) Manitoba Ice Dogs auditor Henry Pilon found an omission of a disclosure in the financial statements of the hockey team. He called this an error.
d) Janice Olympus was told by the client that a limitation in the scope of his work would require a modification to the audit report.

Accepted Answer

The answer of Indicate whether you agree or disagree with...

Question 11

Type 1 subsequent events are events that

Accepted Answer

A)   occur after the issuance of the financial statements.
B)   require changes to amounts in the financial statements.
C)   do not require changes to amounts in the financial statements.
D)   occur after the end of the financial year and do not affect the financial statements.

Question 12

Matters of governance that the auditor may wish to discuss with those charged with
governance include any practical difficulties encountered in performing the audit.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following dates is least relevant when considering subsequent events?

Accepted Answer

A)   the date on which the financial statements are approved
B)   the audit report date
C)   the date on which the financial statements are issued
D)   the date the auditor completes the field-work

Question 14

Mark Danyluk, the partner in charge of the Bombardier Aerospace audit, was reviewing the work his team had completed.
Bombardier is a Canadian company. They used to be involved in recreational equipment such as Ski-Doo snowmobiles and Sea-Doo watercraft. Their Aerospace division, however, is probably their best known operating segment and is known as a leading manufacturer of commuter jets containing 50-100 seats.
Bombardier's operations were by far the largest of the aerospace companies in Montreal and several of the new programs were very ambitious and very risky. It seemed to Mark that every review he performed had material misstatement possibilities.
Mark was thinking that an audit of this magnitude was challenging his abilities in evaluating what was sufficient and appropriate audit evidence.
When Mark started the audit of the current year's operations, he was surprised with the events that took place in 2015 at the Bourget and Farnborough air shows. The anticipation for Bombardier's new CSeries aircraft turned out to be less than positive as other manufacturers seemed to pile up the orders. Airbus executives had also been claiming for months that their company's introduction of a new engine option (NEO) for the A320 narrowbody voided the business case for the CSeries.
Although Bombardier has been able to get commitments up to 100 aircraft, the company is only one-third of the way to its goal of 300 orders for the CSeries scheduled service entry in late 2017. This also still leaves Bombardier 350 aircraft short of the sales required for the project to break even.
As Bombardier attempts to expand its aircraft product line into medium-sized aircraft (100-149 seats), it is entering a space that is getting very close to the market segment dominated by industry giants, Boeing and Airbus. While those companies tend to focus on even larger aircraft, they may want to protect themselves by defending against Bombardier in the medium-sized aircraft segment because Bombardier could later expand into the lucrative large-aircraft segment. Bombardier's $3.4-billion bet on the market for narrow-bodied aircraft faces a potential threat: a price war instigated by Boeing Co. and Airbus SAS.
Mark Danyluk had an uneasy feeling about the viability of the Aerospace sector of the company's operations.
Required:
a) Describe the factors that Mark Danyluk and his firm will have to consider in evaluating the sufficiency and appropriateness of audit evidence at Bombardier Aerospace.
b) What factors are relevant when management assesses the going concern issue at Bombardier?

Accepted Answer

The answer of Mark Danyluk, the partner in charge of...

Question 15

Explain the difference between management's and the auditor's responsibility for the financial statements.

Accepted Answer

The answer of Explain the difference between management's and the...

Question 16

When misstatements or deviations from controls are found in planned procedures, consideration should always be given to:

Accepted Answer

A)   the need to modify or perform further audit procedures.
B)   the reason for the misstatement or deviation.
C)   both a and b.
D)   none of the above.

Question 17

The components of an audit report include all of the following except

Accepted Answer

A)   title, address and introductory paragraph.
B)   management's responsibility for the financial statements.
C)   a statement that accounting estimates are reasonable.
D)   other reporting responsibilities.

Question 18

The client's compliance with contractual requirements of operating agreements is an example
of a qualitative factor that may cause misstatements of quantitatively immaterial amounts to be
considered material.

Accepted Answer

A) True 
 B)False

Question 19

When Sydney Burns was unable to perform work on inventory because of a client's insistence that she not perform an inventory taking, what kind of audit opinion would she most
Likely consider?

Accepted Answer

A)   adverse opinion
B)   emphasis of matter
C)   limitation of scope
D)   disclaimer of opinion

Question 20

Which of the following are included in the main components of the auditor's report?

Accepted Answer

A)   management's responsibility for the financial statements
B)   the auditor's opinion on whether the financial statements are fairly presented
C)   the date of the audit report
D)   all of the above

Exam 13: Completing and Reporting on the Audit

Governance relates to

Identify quantitative and qualitative considerations that are taken into account when the auditor evaluates whether misstatements either cause financial statements to be materially misstated or require additional disclosure.

Discuss the factors that are relevant when management is assessing the going concern assumption.

When an auditor expresses an unqualified audit opinion, it means the

Sufficiency relates to the quality of audit evidence gathered.

Material disagreements with management will result in either:

An error is an intentional misstatement in the client's financial statements.

The final phase of an audit includes which of the following?

An auditor may prepare or provide an opinion on information other than general purpose financial statement information, on all the following engagements except

Type 1 subsequent events are events that

Matters of governance that the auditor may wish to discuss with those charged with governance include any practical difficulties encountered in performing the audit.

Which of the following dates is least relevant when considering subsequent events?

Explain the difference between management's and the auditor's responsibility for the financial statements.

When misstatements or deviations from controls are found in planned procedures, consideration should always be given to:

The components of an audit report include all of the following except

The client's compliance with contractual requirements of operating agreements is an example of a qualitative factor that may cause misstatements of quantitatively immaterial amounts to be considered material.

When Sydney Burns was unable to perform work on inventory because of a client's insistence that she not perform an inventory taking, what kind of audit opinion would she most Likely consider?

Which of the following are included in the main components of the auditor's report?