Deck 13: Completing the Audit

Question 1

Where an event occurring after the end of the reporting period provides new information that does not relate to conditions existing at year end and, if its non-disclosure has the potential to adversely affect decisions made by users of the financial statements:

A)it is required to be disclosed in the notes to the accounts.
B)it is an adjusting event.
C)it is a non-adjusting event.
D)a and C

Answer 1

D

Question 2

When a solicitor refuses to respond to a letter of audit inquiry and alternative audit procedures are unsuccessful, the auditor will normally:

A)contact the client's in-house solicitor for the relevant information.
B)issue a qualified opinion or a disclaimer of opinion.
C)issue an unqualified opinion with an emphasis of matter paragraph.
D)issue an adverse opinion.

Answer 2

B

Question 3

The auditing standards suggest that management representations are acceptable audit evidence where other sufficient appropriate audit evidence:

A)management representations are never appropriate audit evidence for financial statement assertions.
B)cannot reasonably be expected to exist.
C)can reasonably be expected to exist.
D)has not been furnished to the auditor.

Answer 3

B

Question 4

An existing condition, situation or set of circumstances that involves uncertainty as to a possible gain, that will be resolved when one or more future events occur or fail to occur is:

A)estimated value.
B)projected event.
C)a contingent asset.
D)a contingent liability.

Question 5

Ordinarily, an event indicating a material condition arising after the reporting date requires:

A)disclosure.
B)adjustment.
C)inclusion as an 'except for'.
D)adjustment and disclosure.

Question 6

The event in a subsequent period that is an example of a condition existing at the reporting date is:

A)loss resulting from a flood.
B)discovery of fraud or errors.
C)purchase of a business.
D)the issue of preferred shares.

Question 7

When a question arises regarding the going-concern basis, additional procedures may be necessary.Which of the following procedures is an example of a valid additional procedure?

A)Evaluate management's plans for future actions in relation to its going concern assessment.
B)Consider whether any additional facts or information have become available since the date on which management made its assessment.
C)Where the entity has prepared a cash flow forecast, and analysis of the forecast is a significant factor in considering the future outcome of events or conditions in the evaluation of management's plans for future actions, determine whether there is adequate support for the assumptions underlying the forecast.
D)All of the above.

Question 8

Which of these is among the characteristics of the procedures performed in completing the audit?

A)They involve many subjective judgements by the auditor.
B)They do not relate to specific transaction cycles or accounts.
C)They are usually performed by audit managers or seniors.
D)All of the above are characteristics of the procedures performed in completing the audit.

Question 9

Normally the initial source of information about litigation, claims, and unrecorded or contingent liabilities is:

A)the board of directors.
B)the client's solicitors.
C)the audit committee.
D)management.

Question 10

The auditor has decided that the financial statements are affected by an uncertainty that is not susceptible to reasonable estimation at the balance sheet date.If this uncertainty is adequately disclosed in the financial statements, the auditor's report should contain a(n):

A)standard unqualified opinion.
B)adverse opinion.
C)disclaimer of opinion.
D)unqualified opinion with an 'emphasis of matter' paragraph.

Question 11

ASA 502.2 Audit Evidence - Specific Considerations for Litigation and Claims states that the auditor shall obtain sufficient appropriate audit evidence regarding:

A)the completeness of litigation and claims involving the entity.
B)the probability of any revenue or expense arising from legal matters.
C)the adequacy of the legal representation of the entity.
D)all of the above.

Question 12

If the auditor discovers that management intends to liquidate the entity:

A)it is irrelevant if they did not intend to liquidate the entity at reporting date.
B)it requires inclusion as a disclaimer of opinion.
C)it requires inclusion as an 'except for' opinion.
D)the going concern basis is inappropriate.

Question 13

In working with the minutes of meetings of shareholders, those charged with governance, and their subcommittees, the auditor should:

A)read the minutes of all important meetings.
B)read the minutes of a sample of meetings.
C)read the minutes of all meetings.
D)read the minutes of AGMs.

Question 14

A representation letter to a lawyer would not normally ask for confirmation of, or information about:

A)directors' description of the situation.
B)reasonableness of directors' estimates of the likely amounts of settlement.
C)any open files that may have been referred to other legal firms.
D)a representation letter would normally ask about all of the above.

Question 15

The management representation letter will not normally be:

A)prepared on the client's stationery.
B)addressed to the auditor.
C)dated as of the date of the auditor's report.
D)tabled at the annual general meeting of the firm.

Question 16

Financial statements are usually prepared on the going concern basis.The auditor is required by ASA 570 (ISA 570) to assess the risk of going concern problems at which stage of the audit?

A)During the final review.
B)The planning stage.
C)The planning stage and again during the final review.
D)ASA 570 (ISA 570) does not require the assessment of the risk of going concern problems, this is left to the directors.

Question 17

The auditor relies on the management representation letter to:

A)guarantee the absence of management fraud.
B)confirm written representations given to the auditor.
C)document the continuing materiality of management representations.
D)reduce the possibility of misunderstanding concerning management's representations.

Question 18

The representation letter to a lawyer provides the auditor with:

A)initial information about litigation and claims.
B)corroboration of the information on litigation and claims provided by the auditor's solicitors.
C)corroboration of the information on litigation and claims provided by management.
D)corroboration of the information on litigation and claims provided by the other party to the matter.

Question 19

Analytical procedures are used in the overall review for all of these reasons except:

A)to identify contingent liabilities.
B)to corroborate conclusions formed during the audit.
C)to gain assurance that the company will remain a going concern.
D)to assist in arriving at the overall conclusion that the financial information is consistent with the knowledge of the business.

Question 20

The subsequent event that is an example of a condition occurring after the reporting date is:

A)realisation of recorded year-end receivables at a different amount than recorded.
B)settlement of recorded year-end estimated product warranty liabilities at a different amount than recorded.
C)determining the proceeds of assets sold before the end of the reporting period.
D)purchase of a business.

Question 21

What are the objectives of the management representation letter? Under what circumstances are management representations considered acceptable audit evidence?

Question 22

What is the relevant period for assessing whether or not the use of the going concern basis is appropriate? During which stage of the audit does the auditor perform most of the procedures for assessing the use of the going concern basis? Give four examples of such procedures.

Question 23

Significant matters identified as a result of audit procedures often include those relating to the internal control structure that the auditor feels would be of particular interest to:

A)the CEO.
B)the regulators.
C)the accounting staff.
D)the audit committee.

Question 24

For subsequent events occurring during the post-audit period, auditors have a responsibility to:

A)examine only events that come to their attention and that existed at the date of the auditor's report.
B)discover and evaluate all subsequent events that may have a material effect on the financial statements.
C)examine only events that come to their attention.
D)none of the above.

Question 25

Professional standards require the auditor to communicate certain matters pertaining to the audit to those charged with governance.This communication would normally include all of the following except:

A)disagreements with management.
B)audit adjustments.
C)specific audit procedures performed.
D)material uncertainties that may cast doubt on the entity's ability to continue as a going concern.

Question 26

Which of these responsibilities of the auditor is not undertaken as part of the evaluation of the findings?

A)Undertake a final assessment of materiality and audit risk.
B)Undertake a technical review of the financial report.
C)Prepare the written communication to those charged with governance.
D)Formulate an opinion and draft the audit report.

Question 27

Legal precedent requires the auditor to report not just to management but to an appropriate level of management, any significant matters identified as a result of audit procedures performed.Which of the following cases is the relevant legal precedent?

A)Pacific Acceptance.
B)AWA.
C)Kingston Cotton Mills.
D)Esanda Finance.

Question 28

Your client has returned to you the representation letter that they sent to their lawyer.The letter contains the following statement from the client's lawyer:
"the directors seem to underestimate the likelihood of losing the case, and the potential financial settlement amount.We believe that there is little chance of successfully defending the matter, and expect that there will be amounts payable in the vicinity of $3 million, not $1 million.We do however remind you that the matter is only in preliminary stages and could still go either way".
Has the auditor collected this evidence in the appropriate way? What should the auditor do in regards to the information provided by the lawyer?

Question 29

The manager's review of the working papers is not designed to obtain assurance that:

A)the judgements exercised by subordinates were reasonable and appropriate in the circumstances.
B)the work done by subordinates has been completed in a cost effective manner.
C)the working papers support the auditor's opinion.
D)all significant accounting, auditing, and reporting questions raised during the examination have been properly resolved.

Question 30

During the final review of the working papers, the partner in charge of the engagement would ordinarily be expected to review working papers:

A)prepared by seniors.
B)reviewed by managers.
C)reviewed by seniors.
D)perceived to have high risk.

Question 31

Contrast the roles of audit managers and audit partners in the final review stage of the audit.
Why would a firm require a second partner review?

Question 32

Before reaching a final decision on the audit opinion to be issued, a conference is generally held with the client.At this meeting, all of the following may be expected, except:

A)an oral report of the auditor's major findings.
B)the auditor's rationale for proposed adjustments or additional disclosures.
C)delivery of the written communication of audit matters to those charged with governance.
D)agreement between the auditor and client on the changes to be made.

Question 33

Matters that would ordinarily be communicated to an audit committee do not include:

A)proposed coordination with the internal audit function, including any planned use of their work.
B)the nature and extent of specialized skill or knowledge needed, including the use of auditor's and management's experts.
C)all errors and problems revealed by the audit.
D)all of the above matters would ordinarily be communicated to an audit committee.

Question 34

In making the technical review of the financial statements, the auditor is likely to use a detailed financial statement checklist provided by:

A)the client.
B)CPA Australia.
C)the ASIC.
D)the audit firm.