Audit exam 3

When the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall the auditor will issue a(n) opinion. (Enter only one word per blank.)

Blank 1: adverse

To consider the overall reasonableness of the financial statement amounts, the auditor performs final . (Enter only one word per blank.)

Blank 1: analytical Blank 2: procedures

Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this refers to the in particular. (Enter only one word per blank.)

Blank 1: audit Blank 2: committee

True or false: In a going concern evaluation, "substantial doubt" means is it reasonably possible that the entity will be unable to continue for a reasonable period of time. True false question. True False

False

True or false: The auditor's opinions on the financial statements and on the effectiveness of internal control must be presented in two separate reports with the same dates. True false question. True False

False

Which of the following categories is a particularly important issue for going concern assessment because it could impact the ability to meet cash requirements? Multiple choice question. Internal problems External matters Negative financial trends Other financial difficulties

Other financial difficulties

Which of the following are example of an element, account, or item for which an auditor can perform a separate engagement? Multiple select question. Stockholders' equity Royalties Profit participation Net income Provision for income taxes

Royalties Profit participation Provision for income taxes

True or false: An entity received a going concern report in 20X1. The auditor determines the substantial doubt regarding going concern has been removed in 20X2. The explanatory paragraph included in the prior year's audit report is not included with the auditor's report covering the comparative financial statements. True false question. True False

True

True or false: Auditors explicitly consider auditor subjectivity when determining what matters should be considered CAMs. True false question. True False

True

When the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall, the audit will issue a(n) __ opinion. Multiple choice question. adverse disclaimer of qualified with explanation

adverse

The auditor reviews the financial statements to ______. Multiple select question. assist with drafting the footnotes check proper presentation of accounts ensure compliance with GAAP verify the inclusion of all necessary disclosures

check proper presentation of accounts ensure compliance with GAAP verify the inclusion of all necessary disclosures

Working papers prepared by the audit manager are reviewed by the ______. Multiple choice question. senior-in-charge entity audit staff engagement partner

engagement partner

Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this includes the ______. Multiple select question. SEC staff auditors entity's board of directors entity's audit committee auditing firm's head office

entity's board of directors entity's audit committee

When evaluating management's plans regarding going concern issues, the auditor should ______ Multiple select question. consult with legal counsel regarding the likelihood of success examine assumptions used in developing the plan obtain evidence about plan elements

examine assumptions used in developing the plan obtain evidence about plan elements

The PCAOB presumption is that in most audits the auditor will ______ CAM(s). Multiple choice question. not identify any identify at least one identify multiple

identify at least one

An error was judged to be material by the auditor even though it did not rise to conventional levels of materiality in quantitative terms. This was likely because the error was ______. Multiple choice question. intentional accidental due to carelessness due to lack of auditor independence

intentional

That an entity will continue as a going concern ______. Multiple select question. refers to a period of time not to exceed two years from the date of the financial statements being audited is evaluated by the auditor is a basic assumption of financial reporting is assessed by management

is evaluated by the auditor is a basic assumption of financial reporting is assessed by management

The auditor obtains the representation letter from ______. Multiple choice question. the SEC legal counsel management the board of directors

management

With respect to the audit of internal control over financial reporting, the auditor communicates in writing to management and the audit committee ______. Multiple select question. material weaknesses significant deficiencies control deficiencies that are not significant deficiencies

material weaknesses significant deficiencies

Auditing standards identify four conditions and events which may indicate going concern issues including ______. Multiple choice question. additional sources of financing are available at above-market rates negative financial trends long-term commitments

negative financial trends

The representation letter is addressed to ______. Multiple choice question. legal counsel the auditor the SEC the PCAOB

the auditor

A "clean" opinion is also called a(n) ______ opinion. Multiple select question. qualified unqualified unmodified modified

unqualified unmodified

A fundamental principle of accounting is that financial statements should be between periods. (Enter only one word per blank.)

Blank 1: comparable

True or false: When an auditor reports on an entity's compliance with certain contractual agreements or regulatory requirements, the auditor uses the words "In our opinion...." in the audit report. True false question. True False

False

The auditor's standard unqualified audit report for a public company contains the ______. Multiple select question. breakdown of fees billed to the client "Critical Audit Matters" section name and signature of firm "Opinion" section how long the auditor has served

"Critical Audit Matters" section name and signature of firm "Opinion" section how long the auditor has served

Unmodified or unqualified opinions both refer to a(n) audit opinion. (Enter only one word per blank.)

Blank 1: clean

When misstatements are quantified based on the amount required to correct the misstatement in the balance sheet at period end, regardless of misstatement's year of origination, the approach is being used. (Enter only one word per blank.)

Blank 1: iron Blank 2: curtain

A letter of audit inquiry sent to the entity's attorneys is often referred to as a(n) . (Enter only one word per blank.)

Blank 1: legal Blank 2: letter

When the auditor is not required to audit management's assessment of internal control over financial reporting, the auditor must ______. Multiple choice question. add an explanatory paragraph to the audit report not mention internal control over financial reporting in the audit report qualify his or her audit opinion with an "except for"

add an explanatory paragraph to the audit report

The Sarbanes-Oxley Act of 2002 requires the CEO and the CFO to certify the appropriateness of the financial statements and related disclosures for ______. Multiple select question. annual filings with the IRS annual filings with the SEC quarterly filings with the SEC monthly filings with financial institutions

annual filings with the SEC quarterly filings with the SEC

Changes that affect comparability but not consistency include a change in ______. Multiple select question. reporting entity accounting principle classification accounting estimate

classification accounting estimate

If an entity's disclosures with respect to its ability to continue as a going concern are inadequate, the result could be for the auditor to ______. Multiple select question. issue a qualified opinion disclaim an opinion on the entity issue an adverse opinion issue an unqualified opinion with an explanatory paragraph

issue a qualified opinion issue an adverse opinion

The auditor must communicate, in writing, all control deficiencies identified including those that are of a lesser magnitude than significant deficiencies to the ______. Multiple choice question. management board of directors SEC audit committee

management

Poor results from operations and adverse financial ratios are the basis of ______. Multiple choice question. external matters internal problems other financial difficulties negative financial trends

negative financial trends

If management determines it is ______ that the entity will be unable to meet its obligations within the look-forward period, management is required to make appropriate disclosures. Multiple choice question. reasonably possible probable possible

probable

Under PCAOB standards, when multiple firms participate in an audit, the principal auditor must disclose the other firms that participated ______ referenced in the audit report. Multiple choice question. only if they are not only if they are whether or not they are

whether or not they are

When an auditor reports on an entity's compliance with certain contractual agreements or regulatory requirements, the auditor provides as to the entity's compliance with the requirements. (Enter only one word per blank.).

Blank 1: negative Blank 2: assurance

Under the new PCAOB reporting standards, the section of the report is now presented first. (Enter only one word per blank.)

Blank 1: opinion

With regard to other information in documents containing audited financial statements, the auditor is required to ______. Multiple select question. perform audit procedures to corroborate the other information consider whether such information is consistent with the information in the audited financial statements read the other information take responsibility for information that is not financial in nature

consider whether such information is consistent with the information in the audited financial statements read the other information

Accounting standards on derivatives and hedging require such commitments to be disclosed in a footnote to the financial statements with an adjustment to for any gains or losses. (Enter only one word per blank.)

Blank 1: other Blank 2: comprehensive Blank 3: income

When part of the audit has been completed by a separate, unaffiliated public accounting firm, the auditor for the parent company must be satisfied that he or she is the auditor. (Enter only one word per blank.)

Blank 1: principal or lead

A GAAP departure that is seen as and will generally result in an adverse opinion. (Enter only one word per blank.)

Blank 1: material Blank 2: pervasive

When an auditor adds explanatory wording to the existing paragraphs of the report it is referred to as wording. (Enter only one word per blank.)

Blank 1: modified

An existing condition or set of circumstances involving uncertainty about a possible loss that will ultimately be resolved when some future event occurs or fails to occur is a(n) . (Enter only one word per blank.)

Blank 1: contingent Blank 2: liability

All financial statements, including related notes, have been prepared and all significant audit documentation have reviewed and approved by the ______. Multiple choice question. subsequent events date date of the auditor's report date of issuance of the financial statements balance sheet date

date of the auditor's report

If the final analytical procedures indicate material misstatements, exist the auditor should ______. Multiple choice question. issue a qualified opinion withdraw from the engagement issue a disclaimer of opinion gather additional audit evidence

gather additional audit evidence

Contingent liabilities include ______. Multiple select question. customer advances income tax disputes unearned revenues product warranties

income tax disputes product warranties

The legal letter routinely requests that the attorney _____. Multiple select question. identify short-term obligations expected to be refinanced provide the amount that should be accrued for a loss related to general business risks indicate if his or her response is limited in any way comment on unasserted claims where his or her views differ from management

indicate if his or her response is limited in any way comment on unasserted claims where his or her views differ from management

The auditor ____ require all proposed adjustments to be booked. Multiple choice question. should always should never may or may not

may or may not

Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ______. Multiple choice question. subsequent commitments contingent commitments contingent events subsequent events

subsequent events

To ensure all required footnotes have been properly included, most public accounting firms use some type of financial statement . (Enter only one word per blank.)

Blank 1: disclosure Blank 2: checklist

The auditor has a responsibility to evaluate whether there is substantial doubt about an entity's ability to keep doing business or, in other words, whether or not the entity considered to be a(n) . (Enter only one word per blank.)

Blank 1: going Blank 2: concern

If a misstatement accumulates to a material amount over two or more periods, the entire accumulated misstatement must be corrected under the approach. (Enter only one word per blank.)

Blank 1: iron Blank 2: curtain

Reviewers evaluate whether the work was performed and documented and whether the objectives of the procedure were achieved when reviewing the . (Enter only one word per blank.)

Blank 1: working Blank 2: papers

There should be a review by an audit team member who is senior to the person in charge of preparing the . (Enter only one word per blank.)

Blank 1: working Blank 2: papers

The settlement of a lawsuit after the balance sheet date but before the financial statements are issued for an amount different from the amount recorded in the year-end financial statements is considered a Type ______ subsequent event. Multiple choice question. II I

I

Which of the following statements is correct? Multiple choice question. It is expected that only material misstatements will be corrected. Immaterial misstatements are not communicated to the entity. The auditor generally requires all proposed adjustments be booked. It is expected that all known misstatements will be corrected.

It is expected that all known misstatements will be corrected.

Which of the following items that occurred after the balance sheet date but prior to issuance of the financial statements are considered Type II subsequent events? Multiple select question. Losses on receivables caused by conditions arising such as a business failure. A capital stock or bond issuance. Purchase or disposal of a business by the entity. The settlement of a lawsuit for an amount different from the amount recorded in the year-end financial statements.

Losses on receivables caused by conditions arising such as a business failure. A capital stock or bond issuance. Purchase or disposal of a business by the entity.

Which of the following is included in the footnotes to the financial statements but does not require an explanatory paragraph in the auditor's report? Multiple choice question. A change in accounting principle that does not have a material effect in the current year but is expected to have a material effect in future years A departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements. Accounting for a major subsidiary using the equity method in 20X1 and consolidating the subsidiary's and parent's financial statements in 20X2.

A change in accounting principle that does not have a material effect in the current year but is expected to have a material effect in future years

Which of the following parties is most likely involved in the decision to issue a going concern opinion? Multiple select question. Accounting firm's head office Engagement partner Entity internal audit staff Engagement senior manager Entity CEO and CFO

Accounting firm's head office Engagement partner Engagement senior manager

With respect to the audit of internal control over financial reporting, the auditor must communicate all significant deficiencies and material weaknesses in writing to management and the . (Enter only one word per blank.)

Blank 1: audit Blank 2: committee

The auditor is determining whether there is enough to support each relevant assertion when evaluating the sufficiency of the . (Enter only one word per blank.)a

Blank 1: audit Blank 2: evidence

Companies often enter into long-term agreements to purchase raw materials or sell products at a fixed price. Such agreements are called . (Enter only one word per blank.)

Blank 1: commitments

True or false: When an entity issues comparative financial statements, the auditor can express a standard unmodified report on prior years' financial statements but qualify the opinion on the current-year financial statements. True false question. True False

True

The new PCAOB reporting standards include ______. Multiple select question. an implicit statement that the auditor is independent a clearer description of management and auditor responsibilities reporting the opinion section last separate disclosure of critical audit matters

a clearer description of management and auditor responsibilities separate disclosure of critical audit matters

When there is a lack of consistency in the application of accounting principles due to accounting changes, an auditor ______. Multiple choice question. disclaims an opinion on the current year financial statements due to a lack of consistency issues an adverse report on the entity's financial statements issues a qualified audit report stating "except for the change in accounting method described in Note XX" adds an explanatory paragraph to a standard unqualified audit report

adds an explanatory paragraph to a standard unqualified audit report

Under ASB standards ______ Multiple choice question. other-matter paragraphs are sometimes required but emphasis-of-matter paragraphs are always optional emphasis-of-matter paragraphs are sometimes required but other-matter paragraphs are always optional both emphasis-of-matter and other-matter paragraphs are always optional both emphasis-of-matter and other-matter paragraphs are sometimes required

both emphasis-of-matter and other-matter paragraphs are sometimes required

When an entity has changed auditors, the predecessor auditor can reissue, at the request of the entity, the report on the financial statements of prior periods when those prior period statements are presented for comparative purposes. The predecessor auditor must ______. Multiple choice question. determine if the previously issued reports are still appropriate participate in the current year audit in order to determine if the report still applies provide a letter of representation to the current-year, successor auditor

determine if the previously issued reports are still appropriate

If an entity is experiencing immediate financial distress and a bankruptcy is impending, the auditor will generally ______. Multiple choice question. issue a qualified opinion disclaim an opinion on the entity issue an unqualified opinion with an explanatory paragraph issue an adverse opinion

disclaim an opinion on the entity

If a scope limitation is so significant that the auditor considers the financial statements taken as a whole to be unreliable, the auditor will likely issue a(n) ______ opinion.

disclaimer of

When required supplementary information (RSI) is omitted or departs materially from the requirements of the applicable financial reporting framework the auditor must ______. Multiple choice question. disclaim an opinion of the financial statements issue an adverse opinion include an explanatory paragraph in the audit report make no mention of RSI in the audit report

include an explanatory paragraph in the audit report

When a scope limitation exists but overall the financial statements present fairly in conformity with GAAP the auditor will ______. Multiple select question. issue a qualified opinion explain the impact of the faulty accounting issue an adverse opinion issue an unqualified opinion with explanation use the word "except for" in the report

issue a qualified opinion use the word "except for" in the report

An entity is issuing comparative financial statements. In prior years, the auditor expressed a standard unmodified report. This year the entity has inappropriately not capitalized certain lease obligations. The auditor should ______. Multiple choice question. issue a report similar to a qualified report for a GAAP departure clarifying the departure only affects the current year's statements issues a qualified report for a GAAP departure for both the current year and prior years withdraw from the engagement due to the entity's lack of conformity with GAAP re-audit the prior years' financial statements to ensure the accounting for leases complies with GAAP

issue a report similar to a qualified report for a GAAP departure clarifying the departure only affects the current year's statements

An auditor disclaimed an opinion on the prior period financial statements but was able to conduct the current year audit without limitations. In this case the auditor ______. Multiple choice question. may issue an unmodified opinion on this year's statements must issued a qualified opinion for this year's statements that explains the prior limitation may issue an unmodified opinion on both this year's and last year's statements

may issue an unmodified opinion on this year's statements

When the other auditor's report is not a standard, unqualified report, the principal auditor ______ refer to to the departure in his or her report. Multiple choice question. may or may not have to is always required is never required

may or may not have to

For public companies registered with the SEC, the financial statements ______. Multiple choice question. can have a qualified or an adverse audit opinion as long as the entity corrects the issue in the next year's filing can have a qualified audit opinion with explanation must have a clean audit opinion

must have a clean audit opinion

If management concludes it is probable that the entity will not be able to meet its obligations within the look-forward period but develops a plan to mitigate the risk, the plan can be considered sufficient to overcome a substantial doubt conclusion ______. Multiple choice question. as long as management discloses the plan only if the auditor review determines that the plan is feasible only if it is probable that the plans can be effectively implemented as long as the plan is in writing and approved by the board of directors

only if it is probable that the plans can be effectively implemented

If an entity fails to disclose information in the financial statements or footnotes as required by GAAP, the auditor should ______. Multiple select question. provide the omitted information, if practicable, in the audit report issue a qualified or adverse audit report amend the financial statements to include the omitted information, if practicable

provide the omitted information, if practicable, in the audit report issue a qualified or adverse audit report

A material, but not pervasive, scope limitation will normally result in a(n) ______. Multiple choice question. qualified opinion standard unqualified opinion disclaimer of opinion standard unqualified opinion with an explanatory paragraph

qualified opinion

When an auditor is not independent the auditor must disclaim an opinion ______. Multiple choice question. only if the factors impacting independence are pervasive only if the condition that caused the lack of independence is material regardless of the significance of the condition that caused the lack of independence

regardless of the significance of the condition that caused the lack of independence

The auditor has determined that previously issued financial statements are in error and the audit report is affected. If possible, the auditor should notify regulatory agencies that the auditor's report can no longer be relied upon when ______. Multiple choice question. legal counsel has approved the communication on the part of the auditor the entity refuses to cooperate and make the necessary disclosures the determination of the error has been made, regardless of the entity's actions

the entity refuses to cooperate and make the necessary disclosures

Management's going concern assessment is independently assessed by auditors ______. Multiple choice question. to provide extra assurance to financial statement users that the company will not go bankrupt and included as part of the audit report to ensure management's assessment has been adequately conducted and disclosed

to ensure management's assessment has been adequately conducted and disclosed

The auditor's standard unqualified audit report implies that the of the financial statements is not materially affected by inconsistent use of accounting principles. (Enter only one word per blank.)

Blank 1: comparability

The loss of an entity's manufacturing facility resulting from an earthquake that occurred after the balance sheet date but before the financial statements are issued is considered a Type ______ subsequent event. Multiple choice question. II I

II

The primary purpose of a legal letter is to ______. Multiple choice question. corroborate information provided by management about litigation, claims and assessments corroborate legal expense for the period identify a list of attorneys who have been consulted by the entity determine if there is substantial doubt about the entity's ability to continue as a going concern

corroborate information provided by management about litigation, claims and assessments

Poor results from operations and adverse financial ratios are the basis of ______. Multiple choice question. internal problems external matters other financial difficulties negative financial trends

negative financial trends

A change from an inappropriate use or application of accounting principle in prior years to an acceptable accounting principle in the current year ______. Multiple select question. requires the prior-period financial statements to be restated retroactively means that the auditor cannot issue an unqualified opinion on the current year financial statements requires an explanatory paragraph to highlight a lack of comparability is considered a change in accounting principle or method of application

requires the prior-period financial statements to be restated retroactively requires an explanatory paragraph to highlight a lack of comparability

When misstatements are quantified based only on the amount of the error that originates in the current year income statement, the ______ method is being used. Multiple choice question. quantifying iron curtain rollover

rollover

For public companies, qualified and adverse opinions on financial statements are not accepted by ______. Multiple choice question. the IRS the SEC investors and creditors state corporation commissions

the SEC

Special purpose financial statements prepared under a(n) basis comply with an agreement between th entity and one or more third parties other than the auditor. (Enter only one word per blank.)

Blank 1: contractual

Any matters arising from the audit of financial statements that are communicated or required to be communicated, to the audit committee, that relate to material financial statement accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment are called matters. (Enter only one word per blank.)

Blank 1: critical Blank 2: audit

The PCAOB anticipates that the audit report's new emphasis on or audit matters will enhance auditor communication and thus improve the quality of financial reporting. (Enter only one word per blank.)

Blank 1: critical Blank 2: key

The period from the date of the financial statements to the date of the auditor's report is sometimes referred to as the subsequent-events period. (Enter only one word per blank.)

Blank 1: formal

To make recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues, the auditor normally prepares a(n) . (Enter only one word per blank.)

Blank 1: management Blank 2: letter

An intentional management error can be considered by the auditor regardless of the magnitude of the error. (Enter only one word per blank.)

Blank 1: material

Most firms have a policy requiring an engagement be performed for publicly traded companies and for privately held companies whose financial statements are expected to be widely distributed. (Enter only one word per blank.)

Blank 1: quality Blank 2: review

True or false: In evaluating misstatements related to accounting estimates, if the auditor believes the estimated amount included in the financial statements is unreasonable, the difference between the estimated amount and the closest reasonable estimate should be disclosed in the footnotes. True false question. True False

False

True or false: Prior period statements received a qualified or adverse opinion because the entity did not follow GAAP. If the entity conforms to GAAP in the current year and restates the prior-period results, the auditor must still express a qualified opinion on the restated prior-period financial statements if they are presented with the current period statements as comparatives. True false question. True False

False

The principal auditor accepts full responsibility for the work done and conclusions drawn by other auditors when the ______. Multiple choice question. audit report does not refer to the work of other auditors auditor determines the other auditors were not independent of the entity other auditors did not conduct the majority of the audit work audit report refers to the work of other auditors

audit report does not refer to the work of other auditors

Under PCAOB standards, when an auditor's opinion is based in part on the report of another auditor, explanatory language is added to the ______ paragraphs. Multiple select question. basis for opinion opinion management's responsibility scope

basis for opinion opinion

If the auditor has evaluated management's plans to mitigate going concern issues and concludes that substantial doubt exists, the auditor will ______. Multiple select question. consider the adequacy of the disclosures about the entity's ability to continue as a going concern include an explanatory paragraph in the audit report withdraw from the engagement, notify legal counsel, and disclaim an opinion retain all audit documentation for 10 years because there is an increased chance of legal action

consider the adequacy of the disclosures about the entity's ability to continue as a going concern include an explanatory paragraph in the audit report

If the auditor determines that previously issued financial statements are in error, the audit report is affected and the effect on the financial statements cannot be immediately determined, the entity should ______. Multiple select question. notify legal council that the auditor's report must no longer be associated with the financial statements contact appropriate regulatory agencies contact the SEC notify persons relying on the statements and audit report

contact appropriate regulatory agencies contact the SEC notify persons relying on the statements and audit report

When there is a known departure from GAAP, a(n) ______ opinion is not an option. Multiple choice question. disclaimer of qualified adverse

disclaimer of

The final evaluation of audit evidence from the financial statement audit is primarily concerned with _______. Multiple select question. valuation of the audit evidence effects of detected misstatements in the financial statements completeness of the audit evidence sufficiency of the audit evidence

effects of detected misstatements in the financial statements sufficiency of the audit evidence

Under PCAOB standards ______ Multiple choice question. emphasis paragraphs are sometimes required but explanatory paragraphs are always optional explanatory paragraphs are sometimes required but emphasis paragraphs are always optional both explanatory and emphasis paragraphs are always optional both explanatory and emphasis paragraphs are sometimes required

explanatory paragraphs are sometimes required but emphasis paragraphs are always optional

Auditing standards identify four conditions and events which may indicate going concern issues including ______. Multiple select question. external matters other financial difficulties neutral financial trends internal problems

external matters other financial difficulties internal problems

An auditor perform analytical procedures to help evaluate overall financial statement presentation during the ______ stage of the audit. Multiple choice question. planning field work final review interim

final review

According to auditing standards, analytical procedures are required during the ______ stages of an audit. Multiple select question. field work final review interim planning

final review planning

A change in accounting estimate is ______. Multiple choice question. considered a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements generally disclosed in a footnote but does not require an explanatory paragraph in the auditor's report described in an explanatory paragraph in the auditor's report

generally disclosed in a footnote but does not require an explanatory paragraph in the auditor's report

Management is required to make disclosures when it is determined that the entity ________ within the forward looking period. Multiple select question. has developed a plan that reduces the doubt of meeting obligations to less than probable will probably be unable to meet its obligations will be able to meet its obligations has developed a probable plan to mitigate the risk of not meeting obligations

has developed a plan that reduces the doubt of meeting obligations to less than probable will probably be unable to meet its obligations

Auditors express a qualified or adverse opinion for departures from GAAP including ______. Multiple select question. inadequate disclosure an unjustified change in accounting principle use of an unacceptable accounting principle management-imposed scope limitations

inadequate disclosure an unjustified change in accounting principle use of an unacceptable accounting principle

When other information in a document containing audited financial statements is materially inconsistent with information appearing in the financial statements the auditor must ______. Multiple choice question. ensure the financial statements included with the other information are marked "Unaudited" include an explanatory paragraph in the audit report disclaim an opinion of the financial statements

include an explanatory paragraph in the audit report

Pervasive effects on the financial statements are those that ______ of the financial statements. Multiple select question. include disclosures fundamental to users' understanding are confined to specific elements, accounts, or items represent or could represent a substantial proportion

include disclosures fundamental to users' understanding represent or could represent a substantial proportion

An ASB audit report ______. Multiple choice question. is titled "Report of Independent Registered Public Accounting Firm" contains an opinion on the effectiveness of the entity's internal control over financial reporting indicates the audit was conducted in accordance with generally accepted auditing standards

indicates the audit was conducted in accordance with generally accepted auditing standards

Auditors can add explanatory language to the standard unqualified audit report by ______. Multiple select question. omitting the opinion paragraph or the introductory paragraph, but not both inserting an additional explanatory paragraph adding explanatory wording to the existing paragraphs of the report

inserting an additional explanatory paragraph adding explanatory wording to the existing paragraphs of the report

The most common situation where an auditor becomes aware that previously issued financial statements contain material misstatements is due to ______. Multiple choice question. acts of sabotage such as corporate espionage acts of God, such as hurricanes and earthquakes intentional or unintentional acts by management

intentional or unintentional acts by management

If a departure from GAAP is pervasive and the financial statements taken as a whole do not fairly present the entity's financial position, results of operations, and cash flows in accordance with GAAP, the auditor should __. Multiple choice question. issue an adverse opinion resign from the engagement and consult legal counsel disclaim an opinion on the financial statements issue an audit opinion that includes the words "except for"

issue an adverse opinion

If an entity's disclosures with respect to its ability to continue as a going concern are inadequate, the result could be for the auditor to ______. Multiple select question. disclaim an opinion on the entity issue an adverse opinion issue a qualified opinion issue an unqualified opinion with an explanatory paragraph

issue an adverse opinion issue a qualified opinion

The new PCAOB reporting standards include ______. Multiple select question. laying out the key features of an audit more clearly a Basis of Opinion section a reduction of information related to management's responsibilities the retention of the binary, pass/fair reporting approach

laying out the key features of an audit more clearly a Basis of Opinion section the retention of the binary, pass/fair reporting approach

When an auditor is engaged to report only on specific parts of financial statements to ensure compliance with the provisions of a contract or agreement, the auditor ______. Multiple choice question. references the financial statements as a whole in the scope paragraph uses an introductory paragraph that is identical to the one used for a standard unmodified report limits the distribution of the report to the parties who are part of the contract

limits the distribution of the report to the parties who are part of the contract

The auditor makes recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues by preparing a(n) ______. Multiple choice question. audit report legal letter management letter representation letter

management letter

Generally, the procedures applied in an audit of an element, account, or item are ______ than if the same information were considered part of an audit of the overall financial statements. Multiple choice question. less extensive more extensive no different

more extensive

When an auditor is engaged to report on ______, the auditor must audit the entire set of financial statements. Multiple select question. net income rentals or royalties stockholders' equity provision for income taxes special purpose framework financial statements

net income stockholders' equity

An auditor has ______ to conduct audit procedures after the financial statements and the accompanying audit report have been issued. Multiple choice question. limited responsibility no obligation a legal duty an ethical duty

no obligation

When the auditor is not required to audit management's assessment of internal control over financial reporting, the auditor must add an explanatory paragraph in the Basis for Opinion section indicating ______. Multiple select question. no opinion on ICFR is being expressed the auditor takes no responsibility as related to ICFR the company was not required to have an audit of its ICFR

no opinion on ICFR is being expressed the company was not required to have an audit of its ICFR

When an auditor is not independent, the reason(s) for the lack of independence should ______ ASB standards. Multiple choice question. not be stated under PCAOB standards, but may be stated under be stated under PCAOB standards, but should not be stated under be stated under both PCAOB and not be stated under PCABOB or

not be stated under PCAOB standards, but may be stated under

Contingent liabilities judged to be remote are ______. Multiple select question. not disclosed in the footnotes disclosed in the footnotes not accrued reported as part of comprehensive income, but not as net income

not disclosed in the footnotes not accrued

If, during the planning, performance or completion of the audit there is substantial doubt about the entity's ability to continue as a going concern, the next step for the auditor is to ______. Multiple choice question. prepare the explanatory paragraph used in the audit report withdraw from the engagement and disclaim an opinion prepare the footnotes to the financial statements explaining the going concern problems and management's response obtain management's plan to mitigate the going concern problem

obtain management's plan to mitigate the going concern problem

A predecessor auditor should obtain a letter of representations from the current-year, successor auditor when the predecessor auditor ______. Multiple choice question. indicates material items were discovered in the prior year that require disclosure in the current year will not reissue a report to be included with the current-year financial statements plans to reissue a report on the financial statements of prior periods presented for comparative purposes

plans to reissue a report on the financial statements of prior periods presented for comparative purposes

An inability to collect sufficient appropriate evidence is considered a(n): Multiple choice question. departure from GAAP lack of auditor independence scope limitation lack of auditor competence

scope limitation

The PCAOB believes the new auditor's report will ______. Multiple select question. sharpen auditors' sense of professional skepticism in dealing with audit matters provide more information and insight to stakeholders improve the quality of financial reporting enhance communication between management and investors

sharpen auditors' sense of professional skepticism in dealing with audit matters provide more information and insight to stakeholders improve the quality of financial reporting

The auditor's standard unqualified audit report for a public company contains the ______. Multiple select question. the addressee "Basis for Opinion" section name of the engagement partner report title audit report date

the addressee "Basis for Opinion" section report title audit report date

In a legal letter management should request the attorneys provide information including ______. Multiple select question. the amount or range of potential loss for any pending or threated litigation a description and evaluation of any ongoing litigation an indication of the attorney's response is limited in any way a list of pending or threatened litigation

the amount or range of potential loss for any pending or threated litigation an indication of the attorney's response is limited in any way a list of pending or threatened litigation

An auditor adds an explanatory paragraph to a standard unqualified report on an entity's financial statements when ______. Multiple select question. the auditor references the report on the audit of internal control for public companies. the auditor decides to refer to the report of other auditors as the basis, in part, for the opinion there is a lack of independence of the auditor there is a scope limitation resulting from an inability to collect sufficient appropriate evidence there is substantial doubt about an entity's ability to continue as a going concern

the auditor references the report on the audit of internal control for public companies. the auditor decides to refer to the report of other auditors as the basis, in part, for the opinion there is substantial doubt about an entity's ability to continue as a going concern

An immaterial scope limitation will normally result in a(n) ______. Multiple choice question. qualified opinion disclaimer of opinion unqualified opinion standard unqualified opinion with an explanatory paragraph

unqualified opinion

Management's refusal to provide a representation letter is ordinarily sufficient to cause an auditor to ______. Multiple select question. issue an qualified opinion withdraw from the engagement disclaim an opinion issue an adverse opinion

withdraw from the engagement disclaim an opinion

The FASB standard relating to going concern issues requires a "look-forward" period of ______. Multiple choice question. 1 year from the financial statement issuance date 120 days from the end of field work 45 days from the date of the auditor's report 1 year from the balance sheet date

1 year from the financial statement issuance date

The Sarbanes-Oxley Act of 2002 requires the ______ to certify the appropriateness of the financial statements and related disclosures. Multiple select question. CFO board of directors CEO audit committee

CFO CEO

True or false: The auditor's treatment of subsequent events relating to internal control is similar to the engagement quality review performed at the conclusion of the audit. True false question. True False

False

True or false: When a correction to a material misstatement in previously issued financial statements is made, the auditor is not required to mention the misstatement in the current year report. True false question. True False

False

What is meant by saying a going concern opinion can be a "self-fulling prophecy"? Multiple choice question. It can interfere with the entity's ability to obtain capital through issuances of debt or equity. It is a subjective judgment that involves the senior manager, the audit partner and the accounting firm's head office. Management must first evaluate the likelihood of the entity continuing in existence as a going concern.

It can interfere with the entity's ability to obtain capital through issuances of debt or equity.

True or false: The entity's balance sheet date is December 31, 2016, the date of the auditor's report is February 8, 2017, and the financial statements are issued on March 2, 2017. The auditor is not responsible for making any inquiries or conducting any audit procedures in the period between February 8, 2017 and March 2, 2017. True false question. True False

True

Which of the following are characteristics of a contingent liability? Multiple select question. Uncertainty about the amount of loss. Ultimate resolution when some future event occurs or fails to occur. An existing condition or set of circumstances. An unavoidable obligation that will occur sometime in the future.

Uncertainty about the amount of loss. Ultimate resolution when some future event occurs or fails to occur. An existing condition or set of circumstances.

Which of the following are evaluated during a working paper review? Multiple select question. Was the work performed? Were the objectives of the procedure achieved? Was the correct audit opinion reached? Was the work documented?

Was the work performed? Were the objectives of the procedure achieved? Was the work documented?

Materiality not a factor when considering ______. Multiple choice question. scope limitations work performed by other auditors departures from GAAP auditor independence

auditor independence

The PCAOB requires that audit documentation be retained for 7 years from the date of the ______. Multiple choice question. balance sheet auditor's report engagement quality review

auditor's report

The successor auditor includes an explanatory paragraph indicating that the prior period financial statements were audited along with the date and type of report issued when the ______. Multiple choice question. predecessor's report is being reissued with the current report predecessor's report will not be included with the current report successor auditor takes responsibility for the prior-year financial statements

predecessor's report will not be included with the current report

The engagement partner generally reviews working papers ______. Multiple select question. reviewed by the senior-in-charge related to critical audit areas prepared by staff auditors prepared by the manager

related to critical audit areas prepared by the manager

When an entity has a departure from GAAP judged to be immaterial by the auditor, the auditor will most likely issue a(n) ______. Multiple choice question. opinion qualified for a scope limitation disclaimer of opinion standard unqualified opinion opinion qualified for a GAAP departure

standard unqualified opinion

In identifying CAMS, auditors must take into account ______. Multiple select question. the nature and timing of significant unusual transaction transactions degree of auditor judgment related to areas that involved significant management judgment management's assessment of significant risks of material misstatement

the nature and timing of significant unusual transaction transactions degree of auditor judgment related to areas that involved significant management judgment

If an entity fails to disclose information in the financial statements or footnotes as required by GAAP, the auditor should provide the omitted information ______. Multiple choice question. unless the omission is the statement of cash flows and notify the SEC and the IRS that the entity has violated GAAP by amending the entity's financial statements to include the omitted information unless doing so jeopardizes the audit firm's independence

unless the omission is the statement of cash flows

When an auditor reports on an entity's compliance with certain contractual agreements or regulatory requirements, the auditor ______. Multiple select question. uses a statement that in applying procedures "nothing came to the auditor's attention" expresses an affirmative opinion about the entity's compliance provides negative assurance only uses the words "In our opinion" in the report

uses a statement that in applying procedures "nothing came to the auditor's attention" provides negative assurance only

A disclaimer of opinion is not an option when there is ______. Multiple choice question. a known departure from GAAP substantial doubt about an entity's ability to continue as a going concern a circumstance-imposed scope limitation

a known departure from GAAP

An entity received a going concern report in 20X1. The auditor determines the substantial doubt regarding going concern has been removed in 20X2. The explanatory paragraph included in the prior year's audit report is ______. Multiple choice question. included in the report for 20X1, but is not included for 20X2 included in the report for both the 20X1 and 20X2 for consistency not included with the auditor's report covering the comparative financial statements

not included with the auditor's report covering the comparative financial statements

When a client significantly restricts the scope of the engagement ______. Multiple choice question. alternative procedures must be used to gather sufficient appropriate evidence the auditor should consider disclaiming an opinion the auditor should issue a qualified opinion with explanation the audit fee should be adjusted since less work will be performed

the auditor should consider disclaiming an opinion

Under ASB standards, when an issue other than those presented or disclosed in the financial statements is relevant to understanding the audit, the auditor's responsibilities, or the auditor's report a(n) - paragraph can be included in the audit report. (Enter only one word per blank.)

Blank 1: other Blank 2: matter

Auditing standards use the term to describe the potential effects of a scope limitation or departure from GAAP on the auditor's report. (Enter only one word per blank.)

Blank 1: pervasive

The portion of the consolidated financial statements audited by one independent auditor compared to another independent auditor is used to determine the designation as auditor. (Enter only one word per blank.)

Blank 1: principal or lead

If the financial statements are materially affected by a departure from GAAP, the auditor should express a(n) or opinion, depending on the pervasiveness of the misstatement. (Enter only one word per blank.)

Blank 1: qualified Blank 2: adverse

Circumstances that likely will result in an audit opinion that departs from an unqualified opinion include ______. Multiple select question. important events that occurred after the balance sheet date. significant related-party transactions that are appropriately disclosed a departure from GAAP a scope limitation lack of auditor independence

a departure from GAAP a scope limitation lack of auditor independence

In order to be considered a Type I subsequent event, the condition must have ______ existed at the balance sheet date Multiple choice question. already not

already

Refusal by an entity's attorney to furnish information in a legal letter is ______. Multiple choice question. acceptable if the attorney has probable cause to refuse against the law and prohibited by the SEC a limitation on the scope of the audit

a limitation on the scope of the audit

The procedures applied are more extensive when ______. Multiple choice question. the element, account, or item is being considered as part of an audit of overall financial statements a separate engagement is performed on an element, account, or item a special purpose framework is used to account for an element, account, or item

a separate engagement is performed on an element, account, or item

When the two opinions over internal control and over the financial statements are presented separately, ______. Multiple select question. each report must include an explanatory paragraph referring to the opinion expressed in the other report each report must contain the same type of opinion either unqualified, qualified, or adverse the reports must have the same date each engagement must use the same audit staff and refer to this consistency within the report

each report must include an explanatory paragraph referring to the opinion expressed in the other report the reports must have the same date

The objectives of communication with the audit committee is to ______. Multiple select question. establish an understanding of the terms of the audit engagement with the committee communicate the auditor's responsibilities communicate an overview of the overall audit strategy and timing provide information to the audit committee that is relevant to the audit

establish an understanding of the terms of the audit engagement with the committee communicate the auditor's responsibilities communicate an overview of the overall audit strategy and timing

Generally, the materiality in an audit of an element, account, or item is set in relation to the ______. Multiple choice question. financial statements taken as a whole individual element, account or item related elements, accounts, or items

individual element, account or item

Before reissuing a report on the financial statements of prior periods which will be presented for comparative purposes, a predecessor auditor should ______. Multiple select question. indicate to the successor auditor whether any material items were discovered in the prior year read the current-period financial statements provide a letter of representations to the current-year, successor auditor compare the prior-period financial statements on which the predecessor reported with the current-year statements on which the successor will report

read the current-period financial statements compare the prior-period financial statements on which the predecessor reported with the current-year statements on which the successor will report

When an entity issues comparative financial statements, _____ Multiple choice question. two separate audit reports must be issued and dated the audit report must be dual dated to encompass the ending of both audits the audit report is the date of the most recently completed audit

the audit report is the date of the most recently completed audit

An auditor may use a disclaimer of opinion when ______. Multiple select question. there is a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP the financial statements do not present fairly due to a GAAP departure that materially affects the financial statements overall there is a lack of independence there is insufficient appropriate evidence to form an opinion

there is a lack of independence there is insufficient appropriate evidence to form an opinion

When an insurance company reports in compliance with the rules of a state insurance commission, the financial statements have been prepared under a(n) basis. (Enter only one word per blank.)

Blank 1: regulatory

The "carryover effects" of uncorrected prior year misstatements are ignored when misstatements are evaluated using the approach. (Enter only one word per blank.)

Blank 1: rollover

The nature and magnitude of the potential effects of the financial statement area that the auditor was unable to examine and its significance to the overall financial statements should be considered in the assessment of a(n) . (Enter only one word per blank.)

Blank 1: scope Blank 2: limitation

When the audit has been performed in accordance with applicable auditing standards, the auditor has gathered sufficient evidence, and the auditor believes that the financial statements conform to GAAP a(n) financial statement audit report is issued. (Enter only one word per blank.)

Blank 1: standard Blank 2: unqualified

When would an auditor be most likely to issue an unqualified opinion and add a discussion of the change in an explanatory paragraph? Multiple choice question. When an entity makes a change in accounting principle and the auditor concurs with the change. When there is a client-imposed scope limitation. When there is a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements.

When an entity makes a change in accounting principle and the auditor concurs with the change.

An auditor issues a qualified opinion when there is ______. Multiple select question. a lack of independence a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP insufficient appropriate evidence a GAAP departure that materially affects the financial statements overall such that the statements are not fairly presented a scope limitation

a specific departure from GAAP but overall the financial statements present fairly in conformity with GAAP a scope limitation

If a subsequent event related to internal control reveals information about a material weakness that existed as of the end of the reporting period, the auditor should issue a(n) ______ opinion on the effectiveness of internal control over financial reporting. Multiple choice question. qualified unqualified adverse disclaimer of

adverse

Audit procedures occurring after the balance sheet date that are performed SPECIFICALLY to detect subsequent events include ______. Multiple select question. testing proper sales and purchases cutoff asking legal counsel about any developments related to litigation, claims and assessments reading any available interim financial statements that are available after year end reviewing selected audit documentation related to judgments and evaluating conclusions reached

asking legal counsel about any developments related to litigation, claims and assessments reading any available interim financial statements that are available after year end

If oversight by the audit committee is ineffective, the auditor must communicate significant deficiencies and material weaknesses to the ______. Multiple choice question. entity's legal counsel board of directors SEC auditing firm's home office

board of directors

When an auditor using wording in his or her report such as "February 19, 2019 except for Note 4 which is as of March 3, 2019" the audit report is said to be . (Enter only one word per blank.)

Blank 1: dual Blank 2: dated, date, or dating

An auditor may choose to draw attention to significant transactions with related parties or unusually important subsequent events by adding a(n) paragraph to the auditor's report. (Enter only one word per blank.)

Blank 1: emphasis

Under ASB standards, when an auditor makes reference in the audit report to an issue that has been appropriately presented or disclosed in the financial statements, the auditor is using a(n) -of- paragraph. (Enter only one word per blank.)

Blank 1: emphasis Blank 2: matter

Whenever the audit opinion is qualified, the opinion paragraph will include the words . (Enter only one word per blank.)

Blank 1: except Blank 2: for

The sufficiency of the audit evidence and the effects of detected misstatements in the financial statements are the primary concerns of the of audit evidence. (Enter only one word per blank.)

Blank 1: final Blank 2: evaluation or review

When the auditor concludes there is substantial doubt about the entity's ability to continue as a going concern and management has adequately disclosed the financial problems, the auditor will typically express a(n) opinion. (Enter only one word per blank.)

Blank 1: unqualified or unmodified

An auditor includes an explanatory paragraph that describes the event and its effects if a subsequent event related to internal control reveals ______. Multiple choice question. information about a material weakness that existed as of the end of the reporting date information that there were changes in internal control between the end of the reporting period and the date of the auditor's report adverse information about an internal control condition that did not exist as of the end of the reporting period

adverse information about an internal control condition that did not exist as of the end of the reporting period

Regarding responsibility for reporting changes in internal controls that might adversely affect financial reporting between the end of the reporting period and the date of the auditor report, auditors are ______. Multiple choice question. always responsible for reporting these types of changes in internal controls only responsible for reporting changes in internal control about material weaknesses that existed at the end of the reporting period never responsible for reporting these types of changes in internal controls only responsible for reporting changes in internal control relating to events that did not exist at the end of the reporting period

always responsible for reporting these types of changes in internal controls

The auditor is required to read the other information and consider whether such information is consistent with the information in the audited financial statements when ______. Multiple choice question. an entity publishes documents that contain other information in addition to the audited financial statements prior-period financial statements have been audited and the predecessor's report will be included with the current-year statements prior-period financial statements have been audited but the predecessor's report will not be included

an entity publishes documents that contain other information in addition to the audited financial statements

If a misstatement is considered material to the financial statements, the registrant's financial statements need to be adjusted so that any remaining misstatement is considered immaterial under ______ approach. Multiple choice question. both the "iron curtain" and "rollover" the "rollover" but not the "iron curtain the "iron curtain" but not the "rollover"

both the "iron curtain" and "rollover"

When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. Multiple choice question. consult with his or her attorney request that management take responsibility for the mistake withdraw the audit opinion contact individual users of the financial statements who are relying on the auditor's report

consult with his or her attorney

If the other auditor's report is not a standard unqualified audit report, the principal auditor must ______. Multiple select question. not issue an unqualified audit opinion always refer to the departure in his or her audit report determine the nature of the departure and its significance explain how material departures affect the overall audit opinion

determine the nature of the departure and its significance explain how material departures affect the overall audit opinion

When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. Multiple select question. determine whether the facts are reliable notify the SEC that the audit report cannot be relied upon determine whether the facts existed at the balance sheet date discuss the matter with those charged with governance inquire how management intends to address the issue

determine whether the facts are reliable discuss the matter with those charged with governance inquire how management intends to address the issue

The auditor should request that the entity issue an immediate revision to the financial statements when the auditor ______. Multiple choice question. determines that previously issued financial statements are in error and the audit report is affected discovers an event or transaction after the balance sheet date that may materially affect the financial statements has made recommendations based on observations during the audit including suggested improvements in organizational structure has sent an audit inquiry to the entity's attorneys in order to obtain or corroborate information about litigation and claims

determines that previously issued financial statements are in error and the audit report is affected

If an auditor is unable to determine the effects of a subsequent event on the effectiveness of the company's internal controls, the auditor should ______ opinion with respect to the entity's ICFR. Multiple choice question. issue a qualified issue an adverse disclaim any issue an unqualified

disclaim any

When there is a lack of auditor independence the auditor ______. Multiple choice question. issues a qualified opinion that identifies the specific areas where independence is lacking issues an unqualified opinion with explanation disclaims an opinion issues an adverse opinion

disclaims an opinion

An auditor issued a qualified opinion on prior-period financial statements due to lack of conformity with GAAP. The entity has fixed the issue in the current year and appropriately restated the prior-period financial statements. If the restated prior period statements are presented with the current statements as comparatives, the auditor should ______. Multiple select question. include an explanatory paragraph immediately before the opinion paragraph not mention that the updated audit opinion is different than the original opinion disclose that the previously issued financial statements have been corrected and restated express an unmodified opinion on the restated financial statements

disclose that the previously issued financial statements have been corrected and restated express an unmodified opinion on the restated financial statements

The PCAOB requires that the auditor retains all ______. Multiple select question. correspondence between members of the engagement team documents inconsistent with the final conclusion for significant matters documents that "form the basis of the audit or review"

documents inconsistent with the final conclusion for significant matters documents that "form the basis of the audit or review"

When misstatements that occurred in prior years were left uncorrected because they were deemed immaterial, the SEC requires that current year misstatements be ______. Multiple select question. considered material misstatements evaluated using the "iron curtain" approach evaluated using the "rollover" approach corrected immediately

evaluated using the "iron curtain" approach evaluated using the "rollover" approach

The engagement quality control reviewer ______. Multiple select question. ensures all audit documentation is archived evaluates significant judgments made by the engagement team prepares working papers considers the appropriateness of the audit report reads the financial statements

evaluates significant judgments made by the engagement team considers the appropriateness of the audit report reads the financial statements

An auditor is reviewing tax returns and the minutes of the board of directors meetings. The auditor is most likely trying to ______. Multiple choice question. identify contingent liabilities determine if title has passed for the purchase of goods measure the amount of a note payable ascertain if notes payable should be classified as short-term or long-term

identify contingent liabilities

When an auditor reviews the minutes of the board of directors meetings and makes inquiries of entity personnel during the audit of the revenue and purchasing processes, (sh)he is most likely trying to ______. Multiple choice question. identify Type I subsequent events identify long-term commitments identify Type II subsequent events determine if there are any unasserted claims

identify long-term commitments

Gains and losses on derivatives and hedging instruments are reported ______. Multiple select question. in Other Comprehensive Income as an adjustment to the beginning balance of Retained Earnings as part of net income on the income statement in a footnote to the financial statements

in Other Comprehensive Income in a footnote to the financial statements

The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. Regarding the period between February 8, 2019 and March 2, 2019, the auditor ______. Multiple choice question. actively conducts audit procedures related to the current-year audit is not responsible for making any inquiries or conducting any audit procedures should not make any adjustments or disclosured for items discovered during this time

is not responsible for making any inquiries or conducting any audit procedures

The amount of loss associated with a contingent liability is accrued by a charge to income when it ______. Multiple choice question. can be estimated and it is either remote or reasonably probable can be estimated and it is either possible or reasonably probable is reasonably possible and can be probably estimated is probable and can be reasonably estimated

is probable and can be reasonably estimated

The auditor's report does not refer to the work of other auditors when the principal auditor ______. Multiple select question. shares responsibility for the audit report with other auditors is satisfied as to the professional reputation and independence of the other auditor accepts full responsibility for the work done and conclusions drawn by other auditors

is satisfied as to the professional reputation and independence of the other auditor accepts full responsibility for the work done and conclusions drawn by other auditors

A PCAOB report ______. Multiple choice question. indicates the audit was conducted in accordance with generally accepted auditing standards is titled "Report of Independent Registered Public Accounting Firm" recommends but does not mandate the disclosure of CAMs

is titled "Report of Independent Registered Public Accounting Firm"

If the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern even after considering management's plans, the auditor will normally ______. Multiple choice question. disclaim an opinion on the financial statements issue a modified audit report describing the going concern issue withdraw from the engagement and notify legal counsel issue a qualified opinion

issue a modified audit report describing the going concern issue

If an entity makes a change in accounting principle and the auditor concurs with the change, the auditor will ______. Multiple choice question. issue a qualified opinion and add a discussion of the change in an explanatory paragraph qualify the report and indicate that the financial statements present fairly except for the effects of the change in accounting principle issue an unqualified opinion and add a discussion of the change in an explanatory paragraph

issue an unqualified opinion and add a discussion of the change in an explanatory paragraph

If an auditor is not independent, the auditor ______. Multiple select question. issues a two sentence report must withdraw from the engagement or disclaim an opinion must describe any audit procedures performed must state the reason(s) for the lack of independence

issues a two sentence report must withdraw from the engagement or disclaim an opinion

A change in accounting principle that does not have a material effect in the current year but which is expected to have a material effect in future years is ______. Multiple choice question. considered a departure from GAAP that is not confined to specific elements, accounts, or items of the financial statements not mentioned in the auditor's report described in an explanatory paragraph in the auditor's report

not mentioned in the auditor's report

The auditor has determined that previously issued financial statements are in error, and the audit report is affected. If the entity refuses to cooperate and make the necessary disclosures, the auditor's next step is to notify the board of directors and ______. Multiple choice question. refund the fee paid to the auditor by the entity and return all working papers to the entity contact legal counsel and begin proceedings against the entity to compel management to cooperate notify each person known to the auditor to be relying on the financial statements that the auditor's report can no longer be relied upon

notify each person known to the auditor to be relying on the financial statements that the auditor's report can no longer be relied upon

The engagement quality reviewer is a(n) ______. Multiple choice question. partner not associated with the details of the engagement independent outside party hired by the auditor to ensure quality control senior-in-charge who has previous experience auditing the entity

partner not associated with the details of the engagement

In the CAM section of the audit report, a paragraph or table must ______. Multiple select question. refer to financial statement accounts and disclosures related to the CAM name the audit partner who assessed CAM explain how each matter was determined to be a CAM describe how each CAM was addressed in the audit

refer to financial statement accounts and disclosures related to the CAM explain how each matter was determined to be a CAM describe how each CAM was addressed in the audit

When an auditor is engaged to report only on specific parts of financial statements, the scope paragraph of the audit report ______. Multiple choice question. references the financial statements as a whole limits the distribution of the report to the parties who are part of the contract references the specific account being audited states management's responsibilities with respect to the specific account

references the specific account being audited

In order to be identified as a CAM, a matter must _______. Multiple select question. be one that has or will be communicated to the chief executive officer relate to accounts or disclosures that are material to the financial statements have involved especially challenging, subjective or complex auditor judgment

relate to accounts or disclosures that are material to the financial statements have involved especially challenging, subjective or complex auditor judgment

An auditor issues a standard unqualified audit report when ______. Multiple select question. the audit has been performed in accordance with applicable auditing standards the auditor has received payment for services rendered in order to issue the audit report sufficient evidence has been gathered by the auditor the auditor believes the financial statements conform to GAAP in all material respects

the audit has been performed in accordance with applicable auditing standards sufficient evidence has been gathered by the auditor the auditor believes the financial statements conform to GAAP in all material respects

When a circumstance such as a fire restricts the scope of the engagement, ______. Multiple select question. the auditor should disclaim an opinion the auditor must issue a qualified opinion with explanatory paragraph the auditor can issue a standard unqualified opinion alternative procedures can be used to gather sufficient appropriate evidence

the auditor can issue a standard unqualified opinion alternative procedures can be used to gather sufficient appropriate evidence

If prior-period financial statements have been audited but the predecessor's report will not be included, the successor auditor indicates in an explanatory paragraph immediately following the opinion paragraph ______. Multiple select question. that users or the current audit report must refer to the report issued by the predecessor auditor for more information the date, and the type of report issued by the predecessor auditor the assumption of responsibility for the prior period statements that the prior period financial statements were audited by other auditors

the date, and the type of report issued by the predecessor auditor that the prior period financial statements were audited by other auditors

Pending or threated litigation is an example of a(n) . (Enter only one word per blank.)

Blank 1: contingent Blank 2: liability

The PCAOB requires that firms archive their public company audit files for retention within ______. Multiple choice question. 60 days following the balance sheet date 45 days following the time the auditor grants permission to use the auditor's report in connection with the financial statements 45 days following the time the auditor completes field work and prepares the audit report 60 days following the engagement quality review

45 days following the time the auditor grants permission to use the auditor's report in connection with the financial statements

The auditor is determining whether there is enough to support each relevant assertion when evaluating the sufficiency of the . (Enter only one word per blank.)

Blank 1: audit Blank 2: evidence

Commitments entered into to obtain a favorable or predictable pricing agreement or to secure the availability of raw materials are known as - hedges. (Enter only one word per blank.)

Blank 1: cash Blank 2: flow

Inquiry of entity personnel during the audit of the revenue and purchasing processes and a review of the minutes of the board of directors meetings is usually done to identify long-term . (Enter only one word per blank.)

Blank 1: commitments

The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. The formal subsequent-events period is: Multiple choice question. December 31, 2018 to March 2, 2019 January 1, 2018 to December 31, 2018 December 31, 2018 to February 8, 2019 February 8, 2019 to March 2, 2019

December 31, 2018 to February 8, 2019

Final analytical procedures provide a "smell test". Which of the following explains the meaning of this phrase? Multiple choice question. Were any errors made by the entity during the period under audit? Where should audit effort and attention be focused? Are internal controls operating effectively? Do the financial statement amounts make sense?

Do the financial statement amounts make sense?

True or false: Refusal by an entity's attorney to furnish information in a legal letter is a limitation on the scope of the audit, but not sufficient to preclude an unqualified opinion. True false question. True False

False

True or false: When the auditor is evaluating the effects of detected misstatements in the financial statements, the auditor must consider both quantitative and qualitative aspects of the account and transaction involved. True false question. True False

True

An auditor may obtain a legal letter when trying to address ______. Multiple choice question. conversions of bonds to common stock during the period contingent liabilities current portion of long-term debt unearned revenues

contingent liabilities

The entity's balance sheet date is December 31, 2018, the date the auditor obtained sufficient evidence for the report is February 8, 2019, and the financial statements are issued on March 2, 2019. On February 27, 2019, the entity entered into an agreement to purchase a competitor. If the audit report is dated February 27, 2019, the auditor is ______. Multiple choice question. accepting responsibility for identifying any material matters that occur up to February 27, 2019 limiting responsibility for all events to February 8, 2019 limiting responsibility for events occurring after February 8, 2019 to the subsequent event (competitor purchase)

accepting responsibility for identifying any material matters that occur up to February 27, 2019

When misstatements that occurred in prior years were left uncorrected because they were deemed immaterial, the SEC requires that current year misstatements be evaluated using ______ approach. Multiple choice question. either the "iron curtain" or "rollover" only the "rollover" both the "iron curtain" and "rollover" only the "iron curtain"

both the "iron curtain" and "rollover"

During the subsequent period, AS 22021 states the public company auditor should ______. Multiple select question. exclude any independent auditor reports (other than the primary auditor's) of significant deficiencies or material weaknesses from consideration exclude information about the effectiveness of ICFR obtained through other engagements from consideration inquire about and examine relevant internal audit reports inquire about and examine regulatory agency reports on ICFR

inquire about and examine relevant internal audit reports inquire about and examine regulatory agency reports on ICFR

Specific steps taken by auditors to identify contingent liabilities include ______. Multiple select question. inspecting mortgage notes to ascertain the current portion of long-term debt inquiring of and discussing with management policies for identifying contingent liabilities obtaining written representations from management obtaining a legal letter

inquiring of and discussing with management policies for identifying contingent liabilities obtaining written representations from management obtaining a legal letter

A Type II subsequent event: ______. Multiple select question. provides evidence about conditions that existed at the balance sheet date requires adjustment of the numbers in the financial statements is usually accounted for by disclosure in the notes to the financial statements provides evidence about conditions that did not exist at the balance sheet date

is usually accounted for by disclosure in the notes to the financial statements provides evidence about conditions that did not exist at the balance sheet date

Accounting Standards Update Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern requires ______. Multiple select question. management to first evaluate the entity's ability to continue in existence as a going concern auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures auditors to first evaluate the entity's ability to continue in existence as a going concern managers to make an independent assessment to evaluate the adequacy of the auditor's going concerns disclosures

management to first evaluate the entity's ability to continue in existence as a going concern auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures

Any misstatements detected during the audit process ______. Multiple choice question. require the auditor to compare the likely misstatement to the aggregated misstatement and reject the account balance that are not corrected require the auditor to issue an adverse opinion that exceed the planned level of detection risk are considered material and must be corrected by management must be considered in terms of the materiality of their effects on the financial statements

must be considered in terms of the materiality of their effects on the financial statements

Regarding changes in internal control between the end of the reporting period and the date of the auditor's report that might adversely affect financial reporting, the auditor ______. Multiple choice question. must make inquires of management about these types of changes has no responsibility regarding these types of changes since they occur after the balance sheet date must make inquiries of outside legal counsel about these types of changes

must make inquires of management about these types of changes

The auditor assesses the entity's ability to continue as a going concern ______. Multiple select question. after the archival period for working papers throughout the testing phases of the engagement near the end of the engagement during the planning of the engagement

near the end of the engagement during the planning of the engagement

An auditor has read the minutes of board of directors meetings, inquired of legal counsel regarding litigation, read the interim financial statements, and made inquiries of management. The auditor is most likely ______. Multiple choice question. performing the analytical procedures required during the final review stage of the audit performing audit procedures for subsequent events determining whether to issue a qualified or unqualified opinion determining whether to dual-date the audit report

performing audit procedures for subsequent events

In general, an attorney is required to disclose an unasserted claim when it is ______ outcome. Multiple choice question. probable, regardless of the expected probable or possible, regardless of the expected either probable or possible and there is a reasonable possibility of an unfavorable probable and there is a reasonable possibility of an unfavorable

probable and there is a reasonable possibility of an unfavorable

In general, an attorney is only required to disclose an unasserted claim when it is ______ that the claim will be asserted and there is a ______ that the outcome will be unfavorable. Multiple choice question. possible reasonable probability probable, reasonable possibility possible, reasonable possibility probable, reasonable probability

probable, reasonable possibility

When significant changes are made to the planned audit approach at any point during the audit, the final documentation should indicate ______. Multiple select question. the archival and retention periods for the documentation any subsequent proceedings or litigation rationale for the change in plan the original plan modifications to the plan

rationale for the change in plan the original plan modifications to the plan

When a contingent liability exists, the likelihood that the future event will result in a loss is assessed using the categories ______. Multiple select question. remote reasonably possible probable reasonably probable

remote reasonably possible probable

Misunderstandings between management and the auditor are reduced by the ______. Multiple choice question. legal letter minutes of board of directors meetings representation letter audit opinion

representation letter

A Type I subsequent event ______. Multiple choice question. requires adjustment of the numbers in the financial statements provides evidence about conditions that did not exist at the balance sheet date is usually accounted for by disclosure in the notes to the financial statements

requires adjustment of the numbers in the financial statements

The FASB recently issued an Accounting Standards Update ______. Multiple choice question. creating a departure from the standard role of auditors which is to evaluate and report on managements' assertions which relieves the auditor of addressing going concern issues requiring an entity's management to evaluate the entity's ability to continue as a going concern

requiring an entity's management to evaluate the entity's ability to continue as a going concern

To identify contingent liabilities an auditor might ______. Multiple select question. review accounts and note payable review tax returns and IRS reports read the minutes of board of directors meetings review contracts, loan agreements and leases

review tax returns and IRS reports read the minutes of board of directors meetings review contracts, loan agreements and leases

If a misstatement is considered material to the financial statements the financial statements need to be adjusted ______. Multiple select question. under the iron curtain, but not under the rollover approach under the rollover, but not the iron curtain approach so that any remaining misstatement would be considered immaterial under both the iron curtain and rollover approaches

so that any remaining misstatement would be considered immaterial under both the iron curtain and rollover approaches

The date of the auditor's report is ______. Multiple select question. the date after which all subsequent events are considered Type II subsequent events the date on which management must have explicitly taken responsibility for the financial statements no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date before which all subsequent events are considered Type I subsequent events the date on which all significant audit documentation must have been reviewed and approved

the date on which management must have explicitly taken responsibility for the financial statements no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date on which all significant audit documentation must have been reviewed and approved

In evaluating misstatements related to accounting estimates, if the auditor believes the estimated amount in the financial statements is unreasonable, the difference between the estimated amount and the closest reasonable estimate should be ______. Multiple choice question. disclosured in a footnote ignored accounted for as a correction of an error treated as a misstatement

treated as a misstatement

Most firms have a policy that publicly traded companies and privately held companies whose financial statements are expected to be widely distributed will ______. Multiple choice question. evaluate the conclusions reached by the auditor undergo an engagement quality review correct all projected errors review all of the auditor's working papers

undergo an engagement quality review