Chap 011

Chapter 11Completing the Audit

True / False Questions1.Interim testing is ordinarily done prior to the date of the financial statements.TrueFalse

2.Auditors are not responsible for evaluating the accuracy of management's estimates but the reasonableness of those estimates.TrueFalse

3.While useful, analytical procedures are not required in the final review stages of the audit.TrueFalse

4.The existence of "miscellaneous" revenue or expense accounts may signal the practice of earnings management.TrueFalse

5.Auditors' initial source of information about litigation, claims, and assessments is the client's attorney.TrueFalse

6.The auditor ordinarily requests the attorney letter directly from the attorneys.TrueFalse

7.Attorneys should always provide a dollar estimate of the amount of potential loss for items included in the attorney letter.TrueFalse

8.If the attorney's views differ from information provided in the attorney letter, the attorney is not expected to provide additional explanation to auditors.TrueFalse

9.A primary purpose of obtaining written representations is for management to acknowledge their responsibility for the fairness of the financial statements.TrueFalse

10.Written representations should be dated as of the date of the financial statements.TrueFalse

11.If the client refuses to provide written representations, auditors should issue either a qualified opinion or adverse opinion, depending on the importance of the omission.TrueFalse

12.The chief executive officer, chief financial officer, or other executive-level client personnel should sign written representations.TrueFalse

13.It is ultimately the client's responsibility for adjusting the financial statements for matters identified during the audit.TrueFalse

14.The engagement quality review of audit documentation by a different partner focuses on whether all appropriate steps in the audit were performed and whether the referencing among all audit documentation is clear.TrueFalse

15.Roll-forward procedures are normally conducted prior to the date of the financial statements.TrueFalse

16.Reviewing the latest interim financial statements is one method of identifying subsequent events.TrueFalse

17.Subsequent events may provide additional information about a condition that existed at the date of the financial statements.TrueFalse

18.Subsequently discovered facts are matters identified by auditors after the date of the financial statements but prior to the date of the auditors' report.TrueFalse

19.If a necessary audit procedure has been omitted, auditors should first identify whether individuals are currently relying on the client's financial statements and auditors' reports.TrueFalse

20.Auditors' communications with the individuals charged with governance of the client can be provided either during the audit or at the conclusion of the audit.TrueFalse

Multiple Choice Questions21.Which of the following events or activities may occur following the audit report release date?

A.Interim testing.

B.Roll-forward work.

C.Subsequent events.

D.Subsequently discovered facts.

22.Interim testing normally occurs between what two dates?

A.Beginning of the year under audit and audit report release date.

B.Date of the financial statements and audit report release date.

C.Beginning of the year under audit and date of the financial statements.

D.End of the year under audit and date of the auditors' report.

23.Roll-forward work normally occurs between what two dates?




D.Date of the financial statements and date of the auditors' report.

24.For which of the following objectives would auditors be least likely to use analytical procedures in the completion stages of the audit?

A.Obtaining evidence about assertions related to account balances or classes of transactions.

B.Evaluating the adequacy of evidence gathered in response to unexpected account balances.

C.Identifying unusual or unexpected account balances or relationships among account balances that were not identified during the audit.

D.Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances.

25.Which of the following best describes the auditors' responsibility with respect to management's estimates?

A.Verifying the mathematical accuracy of management estimates.

B.Assessing the likelihood that actual results will be consistent with management's estimates.

C.Evaluating the reasonableness of management's estimates.

D.Identifying how the entity's failure to achieve management's estimates will influence users' decisions.

26.Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts?

A.Current-year recorded (unaudited) balances.

B.Expected balances using a statistical analysis or relationships among accounts.

C.Internal budgets and reports.

D.Prior-year balances.

27.Why should auditors be particularly concerned with "miscellaneous" "other," and "clearing" accounts classified as revenues or expenses?

A.These accounts are likely to relate to going-concern matters.

B.These accounts are often more difficult to audit using normal substantive procedures.

C.These accounts may represent attempts of earnings management.

D.These accounts are likely to require the assistance of a specialist.

28.Which of the following is the most effective method of identifying potential earnings management attempts?

A.Analytical procedures.

B.Detailed substantive procedures.

C.Inquiry of client management and key financial personnel.

D.Scanning accounts for unusual items.

29.An important method used by auditors to learn of material contingencies is

A.Examining documents in the client's possession concerning contingencies.

B.Inquiring and discussing them with management.

C.Obtaining responses to an attorney letter.

D.Confirming accounts receivable with the client's customers.

30.Which of the following procedures is not used in auditors' examination of litigation, claims, and assessments?

A.Obtaining a description and evaluation of litigation, claims, and assessments from management.

B.Examining documentary evidence regarding litigation, claims, and assessments.

C.Reading minutes of meetings of stockholders, directors, and appropriate committees.

D.Performing analytical procedures.

31.Which of the following is typically not included in the inquiry letter sent to the client's attorneys?

A.A disclaimer regarding the likelihood of settlement of pending litigation.

B.A listing of pending or threatened litigation, claims, or assessments.

C.An evaluation of the likelihood of an unfavorable outcome.

D.An estimate of the range of potential loss.

32.Which party should request a letter regarding litigation, claims, and assessments from the client's attorney?

A.Attorney.

B.Auditors.

C.Client.

D.Securities and Exchange Commission or other regulatory body.

33.To whom should written representations be addressed?

A.Auditors.

B.Board of directors.

C.Client.

D.Stockholders.

34.Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity?

A.Statements related to management's responsibility for the entity's financial statements.

B.Statements related to management's responsibility for designing internal control to prevent and detect fraud.

C.An indication that all subsequent events have been disclosed to the auditors.

D.Management's opinion as to the effectiveness of its internal control over financial reporting.

35.What is the primary purpose of obtaining written representations?

A.To provide auditors substantive evidence of important assertions.

B.To impress upon management its primary responsibility for the financial statements.

C.To allow auditors to communicate important internal control deficiencies to management.

D.To allow auditors to communicate important suggestions for improvement to management.

36.If auditors are appointed on January 3, 2012, the date of the financial statements is December 31, 2012, the date of the auditors' report is February 7, 2013 and the audit report release date is March 3, 2013, what is the appropriate date of the written representations?

A.January 3, 2012.

B.December 31, 2012.

C.February 7, 2013.

D.March 3, 2013.

37.Which of the following reporting options is available if the client refuses to provide written representations to auditors?

A.Unqualified or qualified opinion.

B.Qualified or adverse opinion.

C.Qualified opinion or disclaimer of opinion.

D.Disclaimer of opinion or adverse opinion.

38.Why is it the client's decision to record adjustments to the financial statements?

A.Having auditors adjust the financial statements would impair independence with respect to the client.

B.The financial statements are the responsibility of the client's management.

C.Auditors often do not have sufficient client-specific expertise to record adjustments to the financial statements.

D.The client will ultimately suffer any losses related to misstated financial statements.

39.Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork?

A.To ensure that all appropriate steps in the audit plan is performed.

B.To ensure that referencing among audit documentation is clear.

C.To ensure that the explanations included in the audit documentation are understandable.

D.To ensure that the overall scope of the audit is appropriate.

40.Before the impact of adjusting entries proposed by auditors are included in the client's financial statements, the adjustments must be approved by the

A.Client's management.

B.Audit manager.

C.Engagement partner.

D.Engagement quality review partner.

41.Subsequent events occur between which two dates?

A.Date of the financial statements and date of the auditors' report.

B.Date of the auditors' report and audit report release date.

C.Date of the financial statements and audit report release date.

D.Audit report release date and beginning of subsequent year's audit.

42.Which of the following substantive procedures would auditors not ordinarily use in evaluating the potential existence of subsequent events?

A.Reviewing the latest interim financial statements.

B.Performing cutoff testing near year-end.

C.Inquiring of officers and other client executives.

D.Obtaining written representations.

43.Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern:

A.Default on a loan due in the previous year.

B.Failure to meet forecasted earnings per share.

C.Legal proceedings that may have a significant negative impact on the entity.

D.Negative cash flow from operations for each of the last three years.

44.Which of the following subsequent events would provide information about conditions that arose following the date of the financial statements?

A.Settlement of long outstanding litigation.

B.Collection of a past due account receivable.

C.Loss of inventory as a result of a flood.

D.An additional tax assessment on prior income.

45.Orange Corporation was audited for the year ended December 31. The audit was completed on January 25; prior to the release of the report, auditors learned of a two-for-one stock split on February 1. If dual dating is used, what are the proper dates for the auditors' reports?

A.December 31 and January 25.

B.January 25 and February 1.

C.January 25 and February 15.

D.February 1 and February 15.

46.Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the

A.Date of the financial statements.

B.Date of the auditors' report.

C.Audit report release date.

D.Subsequent year's date of the financial statements.

47.Management letters are not a means of

A.Reporting recommendations to the client.

B.Assisting the client in improving its operations.

C.Satisfying professional requirements to communicate matters related to the client's internal control.

D.Developing rapport with the client.

48.An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the:

A."To-do lists" are reviewed and cleared.

B.Audit plan procedures are "signed off."

C.Tick-mark notations are cleared.

D.Audit work meets the quality standards of the firm.

49.Auditors must complete various phases of an audit after the date of the financial statements. The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the

A.Date of the auditors' report.

B.Final review of the audit documentation.


D.Delivery of the auditors' reports to the client.

50.Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously expressed opinion. Auditors need not try to perform the omitted procedure if

A.The risk of adverse publicity or litigation is low.

B.Some financial statement users are currently relying on the auditors' reports.

C.The auditors' opinion was qualified because of a departure from generally accepted accounting principles.

D.The results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

51.The primary objective of analytical procedures used in the final review stage of an audit is to

A.Obtain evidence from details tested to corroborate management assertions.

B.Obtain evidence on the validity of the assessment of control risk.

C.Assist auditors in evaluating the overall financial statement presentation.

D.Identify areas that represent specific risks relevant to the audit.

52.In an audit of contingent liabilities, which of the following procedures would be least effective?

A.Examining customer confirmation replies.

B.Reviewing a bank confirmation letter.

C.Examining invoices for professional services.

D.Reading the minutes of the board of directors meetings.

53.At the review stage of an audit, the application of analytical procedures is

A.Recommended by auditing standards.

B.Not mentioned by auditing standards.

C.Not useful because detailed substantive procedures have already been performed.

D.Required by auditing standards.

54.The primary source of information auditors use to obtain information about litigation, claims, and assessments is the

A.Client's attorney.

B.Court records.

C.Client's management.

D.Independent auditors.

55.Long and Short, CPAs, were auditing Island Corporation for the year ended December 31, 2012. On January 11, 2013, a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in its warehouse on January 8, 2013. As a result, a material accounts receivable from the customer was determined to be uncollectible. Long and Short, CPAs, would expect the client to

A.Record the loss on uncollectible accounts as a routine transaction in the year 2013.

B.Treat the loss as a subsequent event and provide a footnote about the loss in the 2012 financial statements.

C.Treat the loss as a subsequent event and adjust the 2012 financial statements to record the loss on uncollectible accounts.

D.File a lawsuit against the customer in hopes of collecting some of the money owed to the client.

56.Small and Tall, CPAs, completed the December 31, 2012 audit of Big Company on February 10, 2013. After the audit report release date, an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31, 2012 financial statements. The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed. Based on this new information, Small and Tall, CPAs should

A.Determine whether persons are currently relying on the auditors' reports.

B.Advise the client to make appropriate changes in the financial statements and reissue them.

C.Notify each member of the board of directors of Big Company.

D.Take no action because the event took place after the audit report release date.

57.A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on

A.The fair presentation of the financial statements in conformity with GAAP.

B.Irregularities involving the client's management and its employees.

C.The materiality of the adjusting entries proposed by the audit staff.

D.The communication of internal control deficiencies to the client's audit committee (or those charged with governance).

58.An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. Auditors most likely could have detected this irregularity by

A.Tracing a sample of journal entries to the general ledger.

B.Evaluating the effectiveness of the internal control policies and procedures.

C.Investigating the reconciliations between controlling accounts and subsidiary records.

D.Performing analytical procedures designed to disclose differences from expectations.

59.Following the audit report release date, auditors became aware of facts existing at the report date that would have affected the reports had auditors then been aware of such facts. What is the most appropriate initial course of action that auditors should take?

A.Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

B.Request that management disclose the newly discovered information by issuing revised financial statements.

C.Issue revised pro forma financial statements taking into consideration the newly discovered information.

D.Give public notice that auditors are no longer associated with financial statements.

60.Analytical procedures used in the overall review stage of an audit generally include

A.Considering unusual or unexpected account balances that were not previously identified.

B.Performing tests of transactions to corroborate management's financial statement assertions.

C.Gathering evidence concerning account balances that have not changed from the prior year.

D.Retesting control activities that appeared to be ineffective during the assessment of control risk.

61.Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

A.Accounts Receivable.

B.Interest Expense.

C.Accounts Payable.

D.Travel and Entertainment Expense.

62.On March 15, 2013, Kent, CPA, issued an unqualified opinion on a client's audited financial statements for the year ended December 31, 2012. On May 4, 2013, Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory. Omission of this procedure impairs Kent's present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first

A.Advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on.

B.Undertake to apply alternative procedures that would provide a satisfactory basis for the opinion.

C.Reissue the auditors' reports and add an explanatory paragraph describing the departure from generally accepted auditing standards.

D.Compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.

63.Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?

A.Determine that changes in employee pay rates after cutoff were properly authorized.

B.Recompute depreciation charges for plant assets sold after cutoff.

C.Inquire about payroll checks that were recorded before cutoff but cashed after cutoff.

D.Investigate changes in long-term debt occurring after cutoff.

64.Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity?

A.Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern.

B.Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

C.Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern.

D.Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

65.Which of the following is an audit procedure that auditors most likely would perform concerning litigation, claims, and assessments?

A.Request the client's attorney to evaluate whether the client's pending litigation claims, and assessments indicate a going-concern problem.

B.Examine the legal documents in the client's attorney's possession concerning litigation, claims, and assessments to which the attorney has devoted substantive attention.

C.Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.

D.Confirm directly with the client's attorney that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.

66.Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?

A.Confirming a sample of material accounts receivable established after year-end.

B.Comparing the financial statements being reported on with those of the prior period.

C.Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements.

D.Inquiring as to whether any unusual adjustments were made after year-end.

67.Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously issued financial statements?

A.An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.

B.A contingency that had been disclosed in the audited financial statements is resolved.

C.New information concerning undisclosed lease transactions during the period under audit is discovered.

D.A subsidiary that accounts for 25% of the entity's consolidated net income is sold.

68.What course of action should auditors take if, after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties, they believe that substantial doubt about going-concern status does not exist?

A.Modify their report on the financial statements to describe management's plan to mitigate going-concern uncertainties, identify the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist.

B.Prepare a separate report that describes management's plan to mitigate going-concern uncertainties, identify the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist.

C.Require financial statement disclosure of management's plan to mitigate going-concern uncertainties with no modification to the auditors' report on the financial statements or no separate report on going concern.

D.Conclude that substantial doubt about going-concern status does not exist and not require financial statement disclosure or modification of the auditors' report.

69.If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date), this is known as a(n):

A.Omitted procedure.

B.Prior-period adjustment.

C.Subsequent event.

D.Subsequently discovered fact.

70.Assume that T. Rory is auditing the financial statements of Augusta, Inc. Rory completes fieldwork on February 25 and issues the report (along with Augusta's financial statements) on March 1. On March 3, a hurricane destroys a warehouse that contains a significant amount of uninsured inventory. Which of the following best describes Rory's responsibility with respect to the effects of this hurricane on Augusta's financial statements?

A.Because the inventory was included in the financial statements audited by Rory, he is required to perform additional procedures and reissue his report on the revised financial statements.

B.Because the hurricane occurred after the date of Rory's report, he has no responsibility to perform additional procedures or reissue his report.

C.Because the hurricane occurred prior to the next fiscal quarter, Rory is required to perform additional procedures and reissue his report on the revised financial statements.

D.Because the hurricane occurred after the release of the financial statements and Rory's report, he has no responsibility to perform additional procedures or reissue his report.

71.If the date of an entity's financial statements is December 31, the date of the auditor's report is February 20, and the audit report release date is February 22, which of the following is considered a subsequent event?

A.A significant acquisition that was announced on February 1 and will be finalized on October 1.

B.A court settlement on March 3 related to a case that was pending on December 31.

C.Losses from the devaluation of a foreign currency that became finalized on February 21.

D.The entity's announcement of a major restructuring plan on December 30 that will be implemented during the upcoming year.

72.Which of the following auditing procedures most likely would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

A.Inspecting title documents to verify whether any assets are pledged as collateral.

B.Confirming with third parties the details of arrangements to maintain financial support.

C.Reconciling the client's cash balance with the cutoff bank statement and the bank confirmation.

D.Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.

73.Which of the following best describes the role of analytical procedures in the review stages of the audit engagement?

A.To identify possible deficiencies in the client's internal control over financial reporting.

B.To identify accounts that appear to be misstated with the intention of planning the nature, timing, and extent of other substantive procedures.

C.To gather evidence to support one or more assertion(s) related to the account balance or class of transactions.

D.To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.

74.A major objective of written representations is to

A.Shift responsibility for financial statements from the management to auditors.

B.Provide a substitute source of audit evidence for substantive procedures that auditors would otherwise perform.

C.Provide management an opportunity to make assertions about the quantity and valuation of the physical inventory.

D.Impress on management its ultimate responsibility for the financial statements and disclosures.

75.Which of these substantive procedures is not used to obtain evidence about contingencies?

A.Scanning expense accounts for credit entries.

B.Obtaining a letter from the client's attorney.

C.Reading the minutes of the board of directors' meetings.

D.Examining terms of sale in sales contracts.

76.Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements?

A.Sale of an issue of new stock for $500,000 on January 30.

B.Settlement of a damage lawsuit for a customer's injury sustained February 15 for $10,000.

C.Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements.

D.Storm damage of $1 million to the entity's buildings on March 1.

77.A. Griffin audited the financial statements of Dodger Magnificat Corporation for the year ended December 31, 2012. She completed gathering sufficient appropriate evidence on January 30 and later learned of a stock split voted by the board of directors on February 5. The financial statements were changed to reflect the split, and she now needs to dual date the report on the company's financial statements before sending it to the company. Which of the following is the proper form?

A.December 31, 2012, except as to Note X, which is dated January 30, 2013.

B.January 30, 2013, except as to Note X, which is dated February 5, 2013.

C.December 31, 2012, except as to Note X, which is dated February 5, 2013.

D.February 5, 2013, except for the date of the auditors' report, for which the date is January 30, 2013.

78.Auditors have a responsibility related to management's disclosure of new information related to subsequent events until

A.The date of the financial statements.

B.The date of the auditors' report.

C.The audit report release date.

D.The following year's date of the financial statements.

79.The auditing standards regarding subsequently discovered facts refers to knowledge obtained after

A.The date the fieldwork began.

B.The date of the auditors' report.

C.The date of the financial statements.

D.The date interim audit work was complete.

80.Which of the following is not required by generally accepted auditing standards?

A.Written representations.

B.Attorney letter.

C.Management letter.

D.Engagement letter.

81.Which of these persons generally does not participate in writing the management letter?

A.Client's outside attorneys.

B.Client's accounting and production managers.

C.Public accounting firm's audit team on the engagement.

D.Public accounting firm's consulting and tax experts.

82.Which of the following is ordinarily performed last in the audit examination?

A.Securing a signed engagement letter from the client.

B.Performing tests of controls.

C.Performing a review for subsequent events.

D.Obtaining signed written representations.

83.Which of the following normally occurs earliest in the audit examination?

A.Discovery of an omitted audit procedure.

B.Dual dating the auditors' report on the entity's financial statements for subsequent events that exist at the date of the financial statements.

C.Preparation of the management letter.

D.Review of audit documentation.

84.Ambrose is auditing the financial statements of Mays (dated December 31, 2012). The date of the auditors' report is February 17, 2013 and the audit report release date is February 20, 2013. For which of the following matters would Ambrose have the least responsibility:

A.The obsolescence of inventory held on December 31, 2012 that was identified on January 20, 2013.

B.A customer's deteriorating financial condition that was identified on February 19, 2013.

C.A merger that was announced by Mays and known by Ambrose on February 12, 2013.

D.A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2013.

85.Which of the following statements is most likely to be included in an attorney letter?

A."Certain representations in this letter are described as being limited to matters that are material."

B."If any unasserted claims or assessments are omitted from this disclosure, please provide this information directly to our auditors."

C."Our work enabled us to notice some actions that could enhance the profitability of the Company."

D."Please furnish to our auditors such explanation, if any, that you consider necessary to supplement the foregoing information."

86.After the audit report release date, the auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate?

A.Perform the omitted procedure or an alternative procedure.

B.Notify the board of directors and regulatory agencies that are currently relying on auditors' reports.

C.Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements.

D.Engage another public accounting firm to conduct a quality assurance review.

87.Which of the following statements is not true with respect to written representations?

A.The failure of management to furnish them is a significant scope limitation, resulting in either an adverse opinion or a disclaimer of opinion.

B.They should address management's responsibility for designing internal control to prevent and detect fraud.

C.Auditors use them to corroborate information received during the audit from the client and its employees.

D.They are dated the same date as the auditors' reports.

88.Hall accepted an engagement to audit the year 1 financial statements of XYZ Company. XYZ completed the preparation of the year 1 financial statements on February 13, year 2, and its auditors began the fieldwork on February 17, year 2. Hall completed gathering sufficient appropriate evidence on March 24, year 2; Hall's report and XYZ's financial statements were released on March 28, year 2. The written representations normally would be dated

A.February 13, year 2.

B.February 17, year 2.

C.March 24, year 2.

D.March 28, year 2.

89.A charge following the date of the financial statements to a notes receivable account from the cash disbursements journal should alert auditors to the possibility that a

A.Contingent asset has come into existence following the date of the financial statements.

B.Contingent liability has come into existence following the date of the financial statements.

C.Provision for contingencies is required.

D.Contingent liability has become a real liability and has been settled.

90.Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events?

A.Compare the latest available interim financial statements with the financial statements being audited.

B.Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests.

C.Communicate material weaknesses in internal control to the client's audit committee.

D.Review the cutoff bank statements for several months after the date of the financial statements.

91.Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?

A.Recompute a sample of large-dollar transactions occurring after cutoff for arithmetic accuracy.

B.Investigate changes in shareholders' equity occurring after the date of the financial statements.

C.Send confirmations to vendors with whom the client normally does business but for which no balance in accounts payable is noted.

D.Confirm bank accounts established after the date of the financial statements.

92.The primary reason auditors request responses to attorney letters is to provide auditors

A.The probable outcome of asserted claims and pending or threatened litigation.

B.Corroboration of the information furnished by management about litigation, claims, and assessments.

C.The attorney's opinions of the client's historical experiences in recent similar litigation.

D.A description and evaluation of litigation, claims, and assessments that existed at the date of the financial statements.

93.The scope of an audit is not restricted when an attorney letter limits the response to

A.Matters to which the attorney has given substantive attention in the form of legal representation.

B.An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity.

C.The attorney's opinion of the entity's historical experience in recent similar litigation.

D.The probable outcome of asserted claims and pending or threatened litigation.

94.Which of the following is not ordinarily associated with the time period following the audit report release date?

A.Management letters.

B.Omitted audit procedures.

C.Roll-forward work.


95.Which of the following statements is not true with respect to the auditors' evaluation of going-concern uncertainties?

A.Auditors are required to gather specific evidence to assess going-concern uncertainties.

B.If management's plans to mitigate going-concern uncertainties reduces the risk to a low level, auditors are not required to revise their opinion on the entity's financial statements.

C.Auditors are required to document the conditions or events that suggested going-concern uncertainties.

D.Auditors are required to evaluate the ability of an entity to continue in existence for up to one year beyond the date of the financial statements being audited.

96.Which of the following forms of communication serves as a critical part of auditors' examination of litigation, claims, and assessments?

A.Attorney letter.

B.Engagement letter.

C.Management letter.

D.Written representations.

97.Which of the following would ordinarily not be performed in the auditors' examination of litigation, claims, and assessments?

A.Inquire of client management with respect to litigation, claims, and assessment.

B.Examine documentary evidence maintained by the client with respect to litigation, claims, and assessments.

C.Read minutes of meetings of stockholders, directors, and appropriate committees.

D.Confirm litigation, claims, and assessments with parties bringing suit or action against the client.

98.A form of communication used by auditors to corroborate information received orally from the client during the audit examination is a(n):

A.Acceptance letter.

B.Confirmation letter.

C.Engagement letter.

D.Written representation.

99.Which of the following is not a subject that appears in all written representations without regard to materiality?

A.Disclosure of all related-party transactions.

B.Management's responsibility for the fair presentation of the financial statements.

C.Availability of all financial records and related data.

D.Information concerning management fraud.

100.Which of the following parties provides a review of audit documentation for the primary purpose of ensuring that the quality of the work and reporting is consistent with the quality standards of the accounting firm?

A.Audit manager.

B.Audit supervisor.


D.Engagement quality partner.

101.Assume that Krenzel Company is subject to a class action lawsuit from its customers resulting from the failure of one of its projects. The suit was filed on November 10, 2012 and properly disclosed in Krenzel's December 31, 2012 financial statements. How would a settlement of this lawsuit on January 17, 2013 be properly reflected in Krenzel's financial statements?

A.The financial statements would not reflect the settlement of the lawsuit because it occurred after the date of the financial statements.

B.Krenzel would prepare pro forma financial statements to reveal the effects of this settlement.

C.Krenzel would adjust its disclosure of the lawsuit to reflect the effects of this settlement.

D.Krenzel would provide a separate disclosure to persons known to be relying on its financial statements to describe the effects of this settlement.

102.K. Navarre, CPA, has just issued her report on Big Blue's financial statements. Following the audit report release date, she learned of an event that occurred after the date of the auditors' report. What is Navarre's most appropriate response?

A.Inform users who are currently known to be relying on the financial statements of the nature of the event.

B.Perform the appropriate substantive procedures related to the event and dual date the audit report.

C.Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event.

D.Withdraw her report on Big Blue's financial statements and reissue the report following her substantive procedures.

103.Which of the following forms of communication ordinarily does not take place following completion of the audit examination?

A.Attorney letter.

B.Communications with individuals charged with governance.

C.Internal control deficiency communications.

D.Management letter.

Fill in the Blank Questions104.Interim testing occurs between the _________________________ of the year and the date of the financial statements.________________________________________

105._____________________________ work extends auditors' conclusion from the date of the interim testing to the date of the financial statements.________________________________________

106._____________________________ are used by auditors to evaluate the relationship among financial and nonfinancial data.________________________________________

107.Auditors are not required to evaluate the accuracy of management's estimates but are required to evaluate the ___________________ of those estimates as well as the process used in developing those estimates.________________________________________

108.To obtain evidence regarding litigation, claims, and assessments, auditors request that the client send a letter to its ____________________________.________________________________________

109.The _________________________________ method of evaluating adjustments considers the aggregated effect of current and prior misstatements in the entity's balance sheet.________________________________________

110._____________________________________ are obtained by auditors from the client to impress upon management their primary responsibility for the financial statements.________________________________________

111.If the client fails to provide written representations to the auditor, a qualified opinion or ___________________________________________ should be issued.________________________________________

112.A situation in which substantial doubt exists about the client's ability to continue in existence is known as __________________________.________________________________________

113.If substantial doubt exists about the entity's ability to continue as a going concern, auditors should ensure that appropriate disclosures are provided in the financial statements and modify their on the entity's financial statements.________________________________________

114.A(n) __________________________________________ is a proposed adjustment auditors decide not to insist that the client make because it does not have a material effect on the client's financial statements.________________________________________

115.The review of audit documentation by a partner or equivalent within the firm who has not been involved with the audit is referred to as a(n) ______________________________ review.________________________________________

116.Subsequent events occur between the date of the financial statements and the date of the _______________________________.________________________________________

117.If a subsequent event provides new information regarding a condition that existed at the date of the financial statements, auditors would ensure that the client's financial statements were _________________________________ to reflect the new information related to the matter.________________________________________

118.______________________________________ are matters that come to the auditors' attention following the date of the auditors' report.________________________________________

119.If auditors learn of facts after the date of the auditors' report but prior to the audit report release date, they may ______________________________ the auditors' reports.________________________________________

120._____________________________ are necessary audit procedures that were not performed prior to the audit report release date that may come to the auditors' attention as a result of a PCAOB inspection, external peer review, or firm's internal inspection program.________________________________________

121.Auditors should communicate matters such as the quality of the client's accounting principles to _________________________________.________________________________________

122.A communication that provides the client with recommendations for improving the effectiveness and efficiency of its operations is known as a(n) _______________________________.________________________________________

123.Subsequently discovered facts may be identified either following the date of the auditors' report or the ________________________________.________________________________________

Short Answer Questions124.Following is a list of events that occur throughout an audit examination. Indicate, using the correct letter, the time period during which these events are most likely to occur. An event may occur in more than one time period.

A. Prior to the date of the financial statements.B. Between the date of the financial statements and the date of the auditors' report.C. Between the date of the auditors' report and the audit report release date.D. After the audit report release date.

____ 1. Subsequently discovered facts.____ 2. Roll-forward work.____ 3. Attorney letters.____ 4. Interim testing relating to substantive procedures.____ 5. Preparation of proposed adjusting journal entries.____ 6. Dual dating for subsequently discovered facts.____ 7. Communications with the individuals charged with governance.____ 8. Written representations.____ 9. Identification of subsequent events.____ 10. Interim testing related to tests of controls.

125.Indicate, using the letters C (client), A (auditors), and AT (attorney) which party is responsible for each of the following duties relating to letters of inquiry of attorneys. Each statement is associated with only one party.

____ 1. Respond directly to auditors' initial inquiries regarding litigation, claims, and assessments.____ 2. Initiate request for attorney letter.____ 3. Respond to attorney letter.____ 4. Provide initial description and evaluation of litigation, claims, and assessments.____ 5. Request attorney letter.____ 6. Perform various procedures relating to litigation, claims, and assessments.____ 7. Identify whether client's views expressed in the attorney letter are appropriate.____ 8. Party the attorney informs if an unasserted claim must be disclosed.

126.Indicate the type of communication(s) that correspond to each of the following statements. Use the letters A (attorney letter), M (management letter), and WR (written representations). Each statement may be related to more than one type of communication.

_____ 1. Discusses management's responsibility for the fairness of the financial statements._____ 2. Is obtained on the date of the auditors' report._____ 3. Provides auditors with significant evidence regarding litigation, claims, and assessments._____ 4. Discusses the absence of fraud activity by the client and its personnel._____ 5. Is not required by generally accepted auditing standards._____ 6. Is intended to be returned to auditors as a form of evidence._____ 7. Is typically prepared following the audit report release date._____ 8. Is signed by an executive of the client.

127.For each of the following communications, indicate (1) the time period during which the communication is typically obtained or provided and (2) whether the communication is oral, written, or either oral or written. Use the following abbreviations in providing your answer:

A. Prior to the engagementB. Prior to or at the date of the auditors' reportC. Following the date of the auditors' reportD. Either following the date of the auditors' report or as significant matters are identifiedE. OralF. WrittenG. Either oral or written

____ 1. Engagement letter____ 2. Acceptance letter (signed copy of engagement letter)____ 3. Attorney letter response____ 4. Written representations____ 5. Internal control deficiencies____ 6. Communications with individuals charged with governance____ 7. Management letter

128.For each of the following types of communications, indicate (a) the party issuing or providing the communication, (b) the party receiving the communication, and (c) the time period during which the communication is typically issued.

a. Acceptance letter.b. Attorney letter response.c. Communication with individuals charged with governance.d. Engagement letter.e. Internal control deficiency communication.f. Management letter.g. Written representations.

Essay Questions129.Explain briefly (a) written representations, (b) internal control communications, and (c) management letters. In your answer, include the general content of the communication, the parties involved with the communication, the required form of the communication, and whether the communication is required under generally accepted auditing standards.

130.Explain briefly auditors' responsibility for subsequently discovered facts existing at the date of the auditors' reports.

131.Define what is meant by the term "subsequent event." In addition, identify the two types of subsequent events and indicate how auditors should modify the engagement for the discovery of subsequent events.

132.You are auditing Green Corporation for the calendar year 2012. Among other items related to the audit, Green is being sued for personal injury resulting from the malfunction of one of its products. Sue Ewe initiated the lawsuit in September 2012. Management and the company's outside legal counsel estimated the loss from the suit to be approximately $250,000. This amount is accrued and properly disclosed in the footnotes of the financial statements. You have no reason to believe that the estimate is inaccurate. You completed your audit and dated your report March 2, 2013. The financial statements were issued on March 14, 2013. On March 20, 2013, you read in a national business periodical that the jury in the trial awarded Sue Ewe $1.5 million.

Required:

Discuss the nature of these events and what responsibility, if any, you have regarding the news of March 20, 2013.

Matching Questions133.Match each statement or descriptions with the terms to which it is most likely related. Each term is associated with only one statement.

1.Audit documentation and financial statements, including footnotes, are reviewed by a partner who did not participate on the auditEngagement quality review____

2.There have been no irregularities involving management or employees who have significant roles in the client's internal controlAttorney letters____

3.We discussed the following recommendation for streamlining the receiving department document flow with Phyllis Cook, receiving department supervisorInterim audit work____

4.Includes statements regarding auditors' judgment of the quality of the client's accounting principlesWritten representations____

5.Based on the facts, known to us, after a full investigation, it is our opinion that no liability will be established against this entityManagement letter____

6.Audit procedures performed several weeks or months before the date of the financial statementsCommunication with individuals charged with governance____

Chapter 11 Completing the Audit Answer Key

True / False Questions1.Interim testing is ordinarily done prior to the date of the financial statements.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Topic: Procedures Performed During Field Work

2.Auditors are not responsible for evaluating the accuracy of management's estimates but the reasonableness of those estimates.TRUEReference: Question also found in study guide


3.While useful, analytical procedures are not required in the final review stages of the audit.FALSEReference: Question also found in study guide


4.The existence of "miscellaneous" revenue or expense accounts may signal the practice of earnings management.TRUEReference: Question also found in study guide


5.Auditors' initial source of information about litigation, claims, and assessments is the client's attorney.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Topic: Attorney Letters in Evaluating Litigation, Claims, and Assessments

6.The auditor ordinarily requests the attorney letter directly from the attorneys.FALSEReference: Question also found in study guide


7.Attorneys should always provide a dollar estimate of the amount of potential loss for items included in the attorney letter.FALSEReference: Question also found in study guide


8.If the attorney's views differ from information provided in the attorney letter, the attorney is not expected to provide additional explanation to auditors.FALSEReference: Question also found in study guide


9.A primary purpose of obtaining written representations is for management to acknowledge their responsibility for the fairness of the financial statements.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-03 Explain why auditors obtain written representations and identify the key components of written representations.Topic: Written Representations

10.Written representations should be dated as of the date of the financial statements.FALSEReference: Question also found in study guide


11.If the client refuses to provide written representations, auditors should issue either a qualified opinion or adverse opinion, depending on the importance of the omission.FALSEReference: Question also found in study guide


12.The chief executive officer, chief financial officer, or other executive-level client personnel should sign written representations.TRUEReference: Question also found in study guide


13.It is ultimately the client's responsibility for adjusting the financial statements for matters identified during the audit.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Topic: Final Steps in the Completion of an Audit

14.The engagement quality review of audit documentation by a different partner focuses on whether all appropriate steps in the audit were performed and whether the referencing among all audit documentation is clear.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Topic: Final Steps in the Completion of an Audit

15.Roll-forward procedures are normally conducted prior to the date of the financial statements.FALSEReference: Question also found in study guide


16.Reviewing the latest interim financial statements is one method of identifying subsequent events.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Topic: Subsequent Events and Subsequently Discovered Facts

17.Subsequent events may provide additional information about a condition that existed at the date of the financial statements.TRUEReference: Question also found in study guide


18.Subsequently discovered facts are matters identified by auditors after the date of the financial statements but prior to the date of the auditors' report.FALSEReference: Question also found in study guide


19.If a necessary audit procedure has been omitted, auditors should first identify whether individuals are currently relying on the client's financial statements and auditors' reports.TRUEReference: Question also found in study guide


20.Auditors' communications with the individuals charged with governance of the client can be provided either during the audit or at the conclusion of the audit.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-06 Identify important activities and communications following the completion of the audit and audit report release date.Topic: Responsibilities Following the Audit Report Release Date

Multiple Choice Questions21.Which of the following events or activities may occur following the audit report release date?

A.Interim testing.

B.Roll-forward work.

C.Subsequent events.


AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Subsequently Discovered Facts

22.Interim testing normally occurs between what two dates?




D.End of the year under audit and date of the auditors' report.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Interim Testing

23.Roll-forward work normally occurs between what two dates?




D.Date of the financial statements and date of the auditors' report.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Roll-Forward Work

24.For which of the following objectives would auditors be least likely to use analytical procedures in the completion stages of the audit?

A.Obtaining evidence about assertions related to account balances or classes of transactions.

B.Evaluating the adequacy of evidence gathered in response to unexpected account balances.

C.Identifying unusual or unexpected account balances or relationships among account balances that were not identified during the audit.

D.Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Analytical Procedures

25.Which of the following best describes the auditors' responsibility with respect to management's estimates?

A.Verifying the mathematical accuracy of management estimates.

B.Assessing the likelihood that actual results will be consistent with management's estimates.

C.Evaluating the reasonableness of management's estimates.

D.Identifying how the entity's failure to achieve management's estimates will influence users' decisions.

AACSB: AnalyticAICPA BB: LegalAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Analytical Procedures

26.Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts?

A.Current-year recorded (unaudited) balances.

B.Expected balances using a statistical analysis or relationships among accounts.

C.Internal budgets and reports.

D.Prior-year balances.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Analytical Procedures

27.Why should auditors be particularly concerned with "miscellaneous" "other," and "clearing" accounts classified as revenues or expenses?

A.These accounts are likely to relate to going-concern matters.

B.These accounts are often more difficult to audit using normal substantive procedures.

C.These accounts may represent attempts of earnings management.

D.These accounts are likely to require the assistance of a specialist.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Scanning Journal Entries

28.Which of the following is the most effective method of identifying potential earnings management attempts?

A.Analytical procedures.

B.Detailed substantive procedures.

C.Inquiry of client management and key financial personnel.

D.Scanning accounts for unusual items.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Scanning Journal Entries

29.An important method used by auditors to learn of material contingencies is

A.Examining documents in the client's possession concerning contingencies.

B.Inquiring and discussing them with management.

C.Obtaining responses to an attorney letter.

D.Confirming accounts receivable with the client's customers.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Source: OriginalTopic: Attorney Letters

30.Which of the following procedures is not used in auditors' examination of litigation, claims, and assessments?

A.Obtaining a description and evaluation of litigation, claims, and assessments from management.

B.Examining documentary evidence regarding litigation, claims, and assessments.

C.Reading minutes of meetings of stockholders, directors, and appropriate committees.

D.Performing analytical procedures.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Source: OriginalTopic: Contingencies

31.Which of the following is typically not included in the inquiry letter sent to the client's attorneys?

A.A disclaimer regarding the likelihood of settlement of pending litigation.

B.A listing of pending or threatened litigation, claims, or assessments.

C.An evaluation of the likelihood of an unfavorable outcome.

D.An estimate of the range of potential loss.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Source: OriginalTopic: Attorney Letters

32.Which party should request a letter regarding litigation, claims, and assessments from the client's attorney?

A.Attorney.

B.Auditors.

C.Client.

D.Securities and Exchange Commission or other regulatory body.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Source: OriginalTopic: Attorney Letters

33.To whom should written representations be addressed?

A.Auditors.

B.Board of directors.

C.Client.

D.Stockholders.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-03 Explain why auditors obtain written representations and identify the key components of written representations.Source: OriginalTopic: Written Representations

34.Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity?

A.Statements related to management's responsibility for the entity's financial statements.

B.Statements related to management's responsibility for designing internal control to prevent and detect fraud.

C.An indication that all subsequent events have been disclosed to the auditors.

D.Management's opinion as to the effectiveness of its internal control over financial reporting.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-03 Explain why auditors obtain written representations and identify the key components of written representations.Source: OriginalTopic: Written Representations

35.What is the primary purpose of obtaining written representations?

A.To provide auditors substantive evidence of important assertions.

B.To impress upon management its primary responsibility for the financial statements.

C.To allow auditors to communicate important internal control deficiencies to management.

D.To allow auditors to communicate important suggestions for improvement to management.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-03 Explain why auditors obtain written representations and identify the key components of written representations.Source: OriginalTopic: Written Representations

36.If auditors are appointed on January 3, 2012, the date of the financial statements is December 31, 2012, the date of the auditors' report is February 7, 2013 and the audit report release date is March 3, 2013, what is the appropriate date of the written representations?

A.January 3, 2012.

B.December 31, 2012.

C.February 7, 2013.

D.March 3, 2013.


37.Which of the following reporting options is available if the client refuses to provide written representations to auditors?

A.Unqualified or qualified opinion.

B.Qualified or adverse opinion.

C.Qualified opinion or disclaimer of opinion.

D.Disclaimer of opinion or adverse opinion.


38.Why is it the client's decision to record adjustments to the financial statements?

A.Having auditors adjust the financial statements would impair independence with respect to the client.

B.The financial statements are the responsibility of the client's management.

C.Auditors often do not have sufficient client-specific expertise to record adjustments to the financial statements.

D.The client will ultimately suffer any losses related to misstated financial statements.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Source: OriginalTopic: Adjustments

39.Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork?

A.To ensure that all appropriate steps in the audit plan is performed.

B.To ensure that referencing among audit documentation is clear.

C.To ensure that the explanations included in the audit documentation are understandable.

D.To ensure that the overall scope of the audit is appropriate.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Source: OriginalTopic: Review of Audit Documentation

40.Before the impact of adjusting entries proposed by auditors are included in the client's financial statements, the adjustments must be approved by the

A.Client's management.

B.Audit manager.


D.Engagement quality review partner.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-04 Identify the final steps in the completion of an audit.Source: OriginalTopic: Adjustments

41.Subsequent events occur between which two dates?

A.Date of the financial statements and date of the auditors' report.

B.Date of the auditors' report and audit report release date.

C.Date of the financial statements and audit report release date.

D.Audit report release date and beginning of subsequent year's audit.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Subsequent Events

42.Which of the following substantive procedures would auditors not ordinarily use in evaluating the potential existence of subsequent events?

A.Reviewing the latest interim financial statements.

B.Performing cutoff testing near year-end.

C.Inquiring of officers and other client executives.

D.Obtaining written representations.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Subsequent Events

43.Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern:

A.Default on a loan due in the previous year.

B.Failure to meet forecasted earnings per share.

C.Legal proceedings that may have a significant negative impact on the entity.

D.Negative cash flow from operations for each of the last three years.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Source: OriginalTopic: Going-Concern Evaluation

44.Which of the following subsequent events would provide information about conditions that arose following the date of the financial statements?

A.Settlement of long outstanding litigation.

B.Collection of a past due account receivable.

C.Loss of inventory as a result of a flood.

D.An additional tax assessment on prior income.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Subsequent Events

45.Orange Corporation was audited for the year ended December 31. The audit was completed on January 25; prior to the release of the report, auditors learned of a two-for-one stock split on February 1. If dual dating is used, what are the proper dates for the auditors' reports?

A.December 31 and January 25.

B.January 25 and February 1.

C.January 25 and February 15.

D.February 1 and February 15.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Dual Dating

46.Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the

A.Date of the financial statements.

B.Date of the auditors' report.


D.Subsequent year's date of the financial statements.


47.Management letters are not a means of

A.Reporting recommendations to the client.

B.Assisting the client in improving its operations.

C.Satisfying professional requirements to communicate matters related to the client's internal control.

D.Developing rapport with the client.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-06 Identify important activities and communications following the completion of the audit and audit report release date.Source: OriginalTopic: Management Letter

48.An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the:

A."To-do lists" are reviewed and cleared.

B.Audit plan procedures are "signed off."

C.Tick-mark notations are cleared.

D.Audit work meets the quality standards of the firm.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Source: OriginalTopic: Review of Audit Documentation

49.Auditors must complete various phases of an audit after the date of the financial statements. The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the

A.Date of the auditors' report.

B.Final review of the audit documentation.


D.Delivery of the auditors' reports to the client.


50.Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously expressed opinion. Auditors need not try to perform the omitted procedure if

A.The risk of adverse publicity or litigation is low.

B.Some financial statement users are currently relying on the auditors' reports.

C.The auditors' opinion was qualified because of a departure from generally accepted accounting principles.

D.The results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-06 Identify important activities and communications following the completion of the audit and audit report release date.Source: OriginalTopic: Omitted Procedures

51.The primary objective of analytical procedures used in the final review stage of an audit is to

A.Obtain evidence from details tested to corroborate management assertions.

B.Obtain evidence on the validity of the assessment of control risk.

C.Assist auditors in evaluating the overall financial statement presentation.

D.Identify areas that represent specific risks relevant to the audit.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Analytical Procedures

52.In an audit of contingent liabilities, which of the following procedures would be least effective?

A.Examining customer confirmation replies.

B.Reviewing a bank confirmation letter.

C.Examining invoices for professional services.

D.Reading the minutes of the board of directors meetings.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Source: OriginalTopic: Contingencies

53.At the review stage of an audit, the application of analytical procedures is

A.Recommended by auditing standards.

B.Not mentioned by auditing standards.

C.Not useful because detailed substantive procedures have already been performed.

D.Required by auditing standards.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: OriginalTopic: Analytical Procedures

54.The primary source of information auditors use to obtain information about litigation, claims, and assessments is the

A.Client's attorney.

B.Court records.

C.Client's management.

D.Independent auditors.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-02 Understand the role of attorney letters in evaluating litigation; claims; and assessments.Source: OriginalTopic: Attorney Letters

55.Long and Short, CPAs, were auditing Island Corporation for the year ended December 31, 2012. On January 11, 2013, a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in its warehouse on January 8, 2013. As a result, a material accounts receivable from the customer was determined to be uncollectible. Long and Short, CPAs, would expect the client to

A.Record the loss on uncollectible accounts as a routine transaction in the year 2013.

B.Treat the loss as a subsequent event and provide a footnote about the loss in the 2012 financial statements.

C.Treat the loss as a subsequent event and adjust the 2012 financial statements to record the loss on uncollectible accounts.

D.File a lawsuit against the customer in hopes of collecting some of the money owed to the client.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: EvaluateDifficulty: 3 HardLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Subsequent Events

56.Small and Tall, CPAs, completed the December 31, 2012 audit of Big Company on February 10, 2013. After the audit report release date, an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31, 2012 financial statements. The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed. Based on this new information, Small and Tall, CPAs should

A.Determine whether persons are currently relying on the auditors' reports.

B.Advise the client to make appropriate changes in the financial statements and reissue them.

C.Notify each member of the board of directors of Big Company.

D.Take no action because the event took place after the audit report release date.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: EvaluateDifficulty: 3 HardLearning Objective: 11-05 Understand auditors' responsibility for subsequent events and subsequently discovered facts.Source: OriginalTopic: Subsequently Discovered Facts

57.A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on

A.The fair presentation of the financial statements in conformity with GAAP.

B.Irregularities involving the client's management and its employees.

C.The materiality of the adjusting entries proposed by the audit staff.

D.The communication of internal control deficiencies to the client's audit committee (or those charged with governance).

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 11-04 Identify the final steps in the completion of an audit.Source: AICPATopic: Review of Audit Documentation

58.An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. Auditors most likely could have detected this irregularity by

A.Tracing a sample of journal entries to the general ledger.

B.Evaluating the effectiveness of the internal control policies and procedures.

C.Investigating the reconciliations between controlling accounts and subsidiary records.

D.Performing analytical procedures designed to disclose differences from expectations.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 11-01 Identify major activities performed by auditors in completing the substantive procedures following the date of the financial statements.Source: AICPATopic: Analytical Procedures

59.Following the audit report release date, auditors became aware of facts existing at the report date that would have affected the reports had auditors then been aware of such facts. What is the most appropriate initial course of action

Chap 011

Documents

clients financial statements

audit report release

auditors reports

auditors communications

chief financial officer

necessary audit procedure

written representations

clients attorney