Audit Exam 3
Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000. The factual misstatement in this situation is:
$0.
An auditor believes that a client's warranty liability is between $100,000 and $130,000, with each amount in that interval equally likely. The financial statements show a liability of $90,000.
$10,000 judgmental misstatement.
Management estimates the company's allowance for doubtful accounts as $200,000, and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000, with all points in that interval equally likely. The judgmental misstatement in this situation is:
$30,000.
Examples of when OTHER Matter Situations might occur
-Client has NOT disclosed issues: -Frameworks other than GAAP -Other information that is presented with financials that we haven't audited -Comparative statements and we didn't audit PY -What is the use of the audit report
Substantial doubt about the client's ability to continue as a going concern exist. This substantial doubt is not properly disclosed (material) in the financial statement notes. The auditor will not issue a disclaimer of opinion. when this is Material and Pervasive you would use a
An adverse opinion.
The financial statements contain a departure from generally accepted accounting principles. when this is Material and Pervasive you would use a
An adverse opinion.
The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in:
An emphasis-of-matter paragraph to the auditors' report.
What is a An adverse opinion (modified)
An opinion that states that the financial statements are not presented fairly in conformity with generally accepted accounting principles.
What is a A disclaimer of opinion
An opinion which means that due to a significant scope limitation, the auditors were unable to form an opinion or did not form an opinion on the financial statements.
An overstatement of repairs and maintenance expense may be due to:
An understatement of property, plant, and equipment.
The auditors wish to emphasize in the report a subsequent event described in the notes to the financial statements. when this is Material and Pervasive you would use a
An unmodified opinion with an additional paragraph (e.g., emphasis of a matter paragraph).
what type of opinion would you issue when., Auditors determine that the possible effects on the financial statements of the inability to obtain sufficient evidence (i.e. a scope limitation) could be both material and pervasive
Disclaimer of Opinion
The audit procedure of analyzing the repairs and maintenance accounts is primarily designed to provide evidence that all:
Expenditures for fixed assets have been capitalized.
When repainting the primary bottle machine should you capitalize or expense the transaction?
Expense
When there is Repairs of the primary bottling machine., these repairs bring operating speed of the machine back to where it was prior to the repair., should you capitalize or expense the transaction?
Expense
When., Replanting grass around the plant to replace grass that had died due to frost damage should you capitalize or expense the transaction?
Expense
Which of the following is a term used in public company audit reports?
Explanatory paragraph.
An auditor's decision concerning whether or not to "dual-date" the audit report is based upon the auditor's willingness to:
Extend auditing procedures.
The aggregated misstatement in the financial statements is made up of:
Factual Misstatements Projected Misstatements Judgmental Misstatements
Specific misstatement in one of a client's 2,000 accounts receivable is referred to as a(n):
Factual misstatement.
True or False A USA nonpublic company audit report indicates that the audit was performed in accordance with "generally accepted accounting principles."
False
True or False A public company's financial statements should be prepared following standards of the Public Company Accounting Oversight Board.
False
True or False A qualified opinion for a departure from GAAP ordinarily indicates that a portion of the financial statements do not follow GAAP and disclaims an opinion on the other parts of the financial statements.
False
True or False A qualified opinion that is issued because of a departure from generally accepted accounting principles should contain a separate section explaining the departure and its effects.
False
True or False A scope limitation will generally result in a disclaimer of opinion, regardless of whether sufficient appropriate audit evidence is gathered using alternative procedures.
False
True or False All information included in a financial report prepared and submitted by the auditors should be audited.
False
True or False Disclosure checklists are used to test the completeness of audit working papers.
False
True or False Dual-dating of an audit report extends the auditors' liability for disclosure through the later date for all areas of the financial statements.
False
True or False Dual-dating of an audit report occurs when the auditors are not able to complete an audit engagement as of a particular date and should return to complete the audit work on a later date.
False
True or False The audit procedure of confirmation by direct communication is just as important for accounts payable as it is for accounts receivable.
False
Auditors perform interim work at various times throughout the year. The auditors' subsequent events work should be extended to the date of:
the auditors' report.
True or False The auditors should generally issue a qualified opinion if circumstances involved make it impossible for them to observe the physical inventory or to confirm accounts receivable, even when sufficient appropriate audit evidence has been gathered using alternate procedures.
False
True or False The auditors' approach to the audit of property, plant, and equipment is influenced by the large number of transactions that occur.
False
True or False The primary purpose of internal control over plant and equipment is to safeguard the assets from theft.
False
True or False The representations letter from management should be dated and signed on the balance sheet date.
False
True or False The unique nature of modified opinions makes them desirable to most clients.
False
True or False To express an opinion on financial statements, the auditor obtains limited assurance about whether the financial statements as a whole are free from all misstatements, whether due to fraud or error.
False
True or False When a client MATTERIALY departs from GAAP in the financial statements the auditor should add an emphasis-of-matter section to the audit report indicating such omission and issue an unmodified opinion.
False
True or false Auditors generally consider the evidence regarding accounts payable in the client's possession as less reliable than that for accounts receivable.
False
True or false Confirmation of accounts payable is a required auditing procedure.
False
True or false On a monthly basis, companies typically send statements to vendors detailing their accounts payable to the vendors.
False
True or false The primary objective of the auditors' examination of accounts payable is to determine whether payments are made on a timely basis.
False
True or false When the scope of the audit is restricted by the client, the auditors should issue an adverse opinion.
False
To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a policy requiring a periodic:
Inspection of equipment and reconciliation with accounting records.
International Financial Reporting Standards (IFRS) is Developed by
International Accounting Standards Board (IASB)
Critical audit matters are most likely to include those matters that:
Involve challenging, subjective or complex auditor judgment.
An approach that quantifies a misstatement as based on its cumulative uncorrected total on the current year balance sheet is called the:
Iron curtain approach.
A Basis for Opinion section in the audit of the financial statements of a public company:
Is included in all public company audit reports.
When financial statements of a nonpublic company are affected by a material departure from generally accepted accounting principles, the auditors should:
Issue an "except for" qualification or an adverse opinion.
When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should:
Issue an unmodified opinion with no reference to this omission.
Which statement is correct with respect to accounts payable confirmations?
They are more frequently used in situations in which some vendors don't send monthly statements.
Which of the following is correct concerning key audit matters?
They are not included in audit reports with adverse opinions.
True or False CPAs have no responsibility to perform audit procedures after the date of their report but should still investigate events that are brought to their attention and might have affected their report.
True
True or False Critical audit matters are included in most public company audit reports.
True
True or False If financial statements contain a pervasively material departure from generally accepted accounting principles, the auditors usually should issue an adverse opinion.
True
True or False If financial statements of a public company fail to disclose a material fact, the auditors may disclose the information in an additional paragraph added to the report and, depending upon materiality, issue either a qualified opinion or adverse opinion on the statements.
True
True or False In the audit of financial statements, the auditors are particularly concerned with possible understatement of liabilities and the possible overstatement of revenues.
True
True or False Partners in CPA firms usually have the responsibility for signing the firm's name on the audit report.
True
True or False Subsequent events that provide additional evidence as to conditions that existed at the balance sheet date may result in adjusting journal entries.
True
True or False Subsequent events, which provide additional evidence regarding conditions existing at the balance sheet date, may result in adjustment of the financial statements.
True
True or False Substantial doubt about a nonpublic client's ability to remain a going concern ordinarily results in a report with an unmodified opinion with an emphasis-of-matter paragraph or a disclaimer of opinion when the doubt is properly disclosed in the financial statements.
True
True or False The auditors perform an analysis of professional fees in part to determine that they have considered obtaining a lawyer's letter from all attorneys that are handling litigation for the client.
True
True or False When a second partner review of an audit engagement is to be performed, it should occur prior to issuance of the audit report.
True
True or False When there is substantial doubt about a company's ability to remain a going concern, with the matter properly disclosed in the financial statements, the report issued is unmodified with an additional section (paragraph)
True
True or false Accounts payable confirmation requests often ask the vendor to indicate the amount of the payable from the client.
True
True or false An audit report for a issuer refers to PCAOB standards rather than generally accepted auditing standards.
True
True or false An audit report on the financial statements of a nonpublic company includes sections on the auditors' opinion, the basis for that opinion, auditor responsibilities and management responsibilities.
True
True or false Auditors often confirm vendors' accounts with zero balances at year-end
True
True or false Review of a client's cash payments subsequent to the balance sheet date is an important test of the completeness of recorded payables.
True
True or false The international audit report may be signed using the name of the auditor, the firm, or both.
True
Describe the two general types of subsequent events.
Type 1-events that provide additional evidence about conditions that existed at the balance sheet date and affect the estimates included in the statements. Type 2-events that provide evidence about conditions that arose subsequent to the balance sheet date and require disclosure in the financial statements.
Which of the following is a type of auditors' opinion?
Unmodified
Which of the following is the type of audit opinion most clients prefer?
Unmodified
what type of opinion would you issue when., Bowles Company is engaged in a hazardous trade and has obtained insurance coverage related to the hazard. Although the likelihood is remote, a material portion of the company's assets could be destroyed by a serious accident.
Unmodified
Auditors have obtained sufficiently appropriate evidence to conclude that the financial statements are not materially misstated., what type of opinion is this?
Unmodified Opinion
If there is a Departure from GAAP that is Immaterial Then it would have what type of opinion.
Unmodified Opinion
This report may be issued only when the auditors have obtained sufficient appropriate audit evidence to conclude the financial statements are not misstated and there is no need to alter the report
Unmodified opinion—standard report.
To emphasize a matter appropriately presented in the financial statements (not Material) (e.g., a change in accounting principles)
Unmodified opinion—with an emphasis of matter paragraph.
Only in a group audit will there be
Unmodified with alterations
When the matter is properly disclosed in the financial statements of a nonpublic company, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions?
Unmodified with an Additional Paragraph
Auditors have doubt about a company's ability to continue as a going concern
Unqualified Opinion with an Emphasis-of-Matter Paragraph
One reason why the independent auditors perform analytical procedures on the client's operations is to identify
Unusual transactions.
Which of the following is not a procedure normally performed while completing the audit of a public company?
Update internal control questionnaire.
List three controls over Property, Plant & Equipment:
Use of a plant and equipment capital budget Maintenance of a subsidiary ledger A system of authorizations
List and describe four major controls applicable to plant and equipment.
Use of a plant budget to forecast and control acquisitions and retirements. Maintaining subsidiary ledger of property. Establishing a system of authorizations for acquisitions. A written statement of company policy distinguishing between capital and revenue expenditures.
The term "we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion" in an audit report is:
Used in a disclaimer of opinion.
The term "except for" in an audit report is:
Used in a qualified opinion.
Which of the following is the most important control procedure over acquisitions of property, plant, and equipment?
Using a budget to forecast and control acquisitions and retirements.
In Property, Plant, and Equipment., when you Recalculate depreciation expense using a straight line calculation for all items to ensure recognition is calculated properly. you are testing for
Valuation
The auditor recalculated an accrued liability on the client's financials what is the assertion?
Valuation
The auditor recalculated depreciation expense for the current period. uses witch assertion
Valuation
A client has disposed of several pieces of manufacturing equipment at a significant gain. This raises questions as to which assertion in regard to property, plant, and equipment?
Valuation and allocation
Type 1 subsequent events involve events that existed _____ the balance sheet date.
before
The date of the management representation letter should coincide with the:
date of the auditor's report.
When the auditors are unable to determine the overall fairness of the financial statements, the most likely type of audit opinion is:
disclaimer
An Unmodified opinion—with an other matter paragraph is used To
emphasize a matter other than those presented or disclosed in the financial statements (e.g., other information in documents containing audited financial statements).
Form 8-K reports to the SEC are
events or changes
Type 1 subsequent events come into existence due to new ______becoming available.not attempted
evidence
A normal audit procedure is to analyze the current year repairs and maintenance accounts to provide evidence in support of the audit proposition that:
expenditures for fixed assets have been capitalized.
type 2 subsequent events occur after the balance sheet date but ____ the completion of fieldwork.
prior to
Form 10-Q reports to the SEC are
quarterly report
Forms S-1 through S-11 reports to the SEC are
registration statements, "IPO"
The form typically used to confirm accounts payable
Requires the vendor to indicate the amount of the payable.
Most of the audit work on accounts payable is typically performed:
After the balance sheet date.
Describe the information that the auditors wish to obtain about the litigation being handled by a lawyer.
A description of the litigation situation and the accounting period to which it relates; The estimated amount of loss; and The probability of occurrence of the loss.
An audit client has refused to allow the auditors to perform an auditing procedure and there are no other effective alternate procedures available. The circumstance would normally result in the issuance of:
A disclaimer of opinion.
Which of the following subsequent events might require an adjustment to the client's financial statements?
A major customer declares bankruptcy causing a material receivable to be uncollectible.
What is a A qualified opinion (modified)
A opinion that states that the financial statements are presented fairly in conformity with generally accepted accounting principles "except for" the effects of some matter.
Substantial doubt about the client's ability to continue as a going concern exist. This substantial doubt is not properly disclosed in the financial statement notes. The auditor will not issue a disclaimer of opinion. when this is Material you would use a
A qualified opinion.
The financial statements contain a departure from generally accepted accounting principles. when this is Material and you would use a
A qualified opinion.
When an adverse opinion is expressed on the financial statements of a nonpublic company, the Adverse Opinion section should include a direct reference to:
A separate Basis for Adverse Opinion section (paragraph).
A client has a calendar year-end. Listed below are four events that occurred after December 31. Which one of these subsequent events is most likely to result in adjustment of the December 31 financial statements?
A substantial portion of the company's inventory was written off as obsolete on January 31.
Explain the difference between an Accounts Receivable confirmation and an AP confirmation - give me all information you can remember about both confirmations:
Accounts Receivable Existence, Internal evidence, & will Generally require confirmation Accounts payable Completeness, External evidence, will not generally require confirmation
Audit of which of the following accounts is most likely to reveal evidence relating to recorded retirements of equipment?
Accumulated depreciation.
The auditor recalculated the PP&E rollforward schedule. uses witch assertion
Accuracy
January 7, 20X4: The mineral content of a shipment of ore en route to Hollis Manufacturing Corporation on December 31, 20X3, was determined to be 72 percent. The shipment was recorded at year-end at an estimated content of 50 percent by a debit to Raw Materials Inventory and a credit to Accounts Payable in the amount of $82,400. The final liability to the vendor is based on the actual mineral content of the shipment. this should be a
Adjustment
On January 18, 20X4, a major customer filed for bankruptcy. The customer's financial condition had been degenerating over recent years. this should be a
Adjustment
A material misstatement is considered pervasive
Adverse Opinion
If Auditor believes departure causes financial statements taken as a whole to be misleading This will lead to a
Adverse Opinion
If Financial statements do not present fairly the financial position, results of operations, and cash flows of client in conformity with GAAP This will lead to A
Adverse Opinion
If there is a Departure from GAAP that is Material and pervasive Then it would have what type of opinion.
Adverse Opinion
If there is a Material and pervasive departures from GAAP This will lead to a
Adverse Opinion
What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated?
Adverse Opinion
what type of opinion would you issue when., The client has elected to not follow GAAP that is material
Adverse Opinion
A scope restriction is least likely to result in a(an):
Adverse opinion.
An audit opinion that states that the financial statements are not fairly presented is referred to as a(n)
Adverse.
An auditor has concluded that the financial statements are not fairly presented in that they are pervasively misstated. The most appropriate type of audit opinion is:
Adverse.
The financial statements reflect a change from one generally accounting principles to another generally accepted accounting principle. The auditor considers the new principle preferable to the previous one. when this is Material and Pervasive you would use a
An unmodified opinion with an additional paragraph (e.g., emphasis of a matter paragraph).
The company changed the lives of some of its fixed assets-the auditor finds the new lives reasonable. when this is Material and Pervasive you would use a
An unmodified opinion, standard form.
Which of the following is used to obtain evidence that the client's equipment accounts are not understated?
Analyzing repairs and maintenance expense accounts.
Accrued liabilities generally differ from accounts payable in that accrued liabilities:
Are often based on estimates.
The primary objective of analytical procedures used near the end of an audit is to:
Assist the auditor when forming overall conclusions about the financial statements.
If, after issuing an audit report, the auditors find that they have failed to perform certain significant audit procedures they should first:
Attempt to determine whether their report is still being relied upon by third parties.
What two documents must be dates on the same day at completion of an audit:
Audit Report & Management Representation Letter.
When the auditors discover that an audit client has committed an illegal act they will ordinarily report it to the:
Audit committee of the company being audited.
Requirements for a going concern
Auditor not required to perform procedures specifically designed to test going-concern assumption but must evaluate the assumption
List two topics that an auditor would communicate to the board of directors or audit committee at the end of the audit:
Auditor responsibility under GAAP An overview of the planned scope and timing of the audit
What is the auditors' responsibility with respect to detecting subsequent events?
Auditors have a responsibility to search for material subsequent events to the date of the auditors' report.
The auditors' report should be dated as of the date the
Auditors have accumulated sufficient appropriate evidence.
In a nonpublic company audit report qualified for a departure from GAAP, an additional paragraph describing the matter causing the qualification is described in the
Basis for Qualified Opinion section.
Which of the following statements is correct regarding accounts payable and the auditor's procedures?
Because it can be difficult to discover a transaction that has not been recorded, the audit objective of completeness drives many of the substantive procedures applied to these balances.
Where are additional paragraphs placed for basis of modifications paragraphs such as., Qualified, Adverse, Disclaimer
Before opinion paragraph
Are accounts receivable requests, accounts payable requests, or both mailed by the auditors (as opposed to client personnel)?
Both forms of confirmation requests should be mailed by the auditors to ensure that such requests are not tampered with by client personnel.
Which of the following procedures would most likely be performed while evaluating findings at the conclusion of an audit?
Calculate an estimate the total of uncorrected misstatements in the financial statements
When auditing the statement of cash flows, which of the following would an auditor not expect to be a source of receipts and payments?
Capitalization.
When there is a modification of packaging equipment to increase its operating speed by approximately 40% should you capitalize or expense the transaction?
Capitalize
When there is a rearrangement of equipment to increase the efficiency of operations in the future would you capitalize or expense the transaction?
Capitalize
When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited?
Cash.
Which of the following is the most efficient audit procedure for the detection of unrecorded liabilities?
Compare cash disbursements in the subsequent period with the accounts payable trial balance at year-end.
Which of the following procedures would an auditor generally perform regarding subsequent events?
Compare the latest available interim financial statements with the statements being audited.
In Accounts Payable., when you Agree the total "Amount Due" balance on AP Ledger to the Trial Balance., you are testing for
Completeness
In Accounts Payable., when you For each cash disbursement, verify that the balance is noted on the AP Listing by agreeing each balance to AP Ledger., you are testing for
Completeness
In Property, Plant, and Equipment., Agree the total "accumulated depreciation" balance on the disposal detail to the ending accumulated depreciation balance on the Rollforward., you are testing for
Completeness
In Property, Plant, and Equipment., Obtain a copy of the P,P&E Rollforward and agree ending balances to the current year trial balance. you are testing for
Completeness
Ordinarily, the most significant assertion relating to accounts payable is:
Completeness
The assertion most directly addressed when performing the search for unrecorded liabilities is: (A/P)
Completeness
The auditor verified that payables paid in a subsequent year that related to costs incurred in the current fiscal year were properly recorded. what is the assertion?
Completeness
When auditing an entity's reported amount for property, plant, and equipment, which assertion will be supported with evidence obtained by the auditor during an examination of the repairs and maintenance expense account?
Completeness
Which assertion do confirmation results most directly address—existence or completeness?
Confirmations most directly address existence in that they are sent to recorded accounts. They less directly address completeness since accounts may exist of which the auditor may be completely unaware, and therefore, not confirm.
Which of the following is not a procedure that is designed to provide evidence about the existence of loss contingencies?
Confirming accounts payable.
January 15, 20X4: Following a series of personal disagreements between Ray Hollis, the president, and his brother-in-law, the treasurer, the latter resigned, effective immediately, under an agreement whereby the corporation would purchase his 10 percent stock ownership at book value as of December 31, 20X3. Payment is to be made in two equal amounts in cash on April 1 and October 1, 20X4. In December, the treasurer had obtained a divorce from his wife, who is Ray Hollis's sister. this should be a
Consider Disclosure
January 16, 20X4: As a result of reduced sales, production was curtailed in mid-January and some workers were laid off. this should be a
Consider Disclosure
On January 28, 20X4, a famous analyst who followed the industry provided a negative report on his expectations concerning the short and intermediate term for the industry. this should be a
Consider Disclosure
A nonpublic company audit report is least likely to include a section on
Critical audit matters.
Which of the following is most likely to be considered a Type 1 subsequent event?
Customer checks deposited prior to year-end but determined to be uncollectible after year-end.
In Accounts Payable., when you Vouch the cash disbursements to the vendor invoice to confirm the payable has been recorded within the proper period.., you are testing for
Cutoff
The auditor agreed cash disbursements to the vendor invoice to confirm the payable has been recorded in the proper period what is the assertion?
Cutoff
The search for unrecorded liabilities for a public company includes procedures usually performed through the:
Date of the auditors' report.
Describe the principal purpose of internal controls relating to plant and equipment.
Describe the principal purpose of internal controls relating to plant and equipment.to obtain maximum efficiency from the dollars invested in plant assets.
The confirmation of accounts payable is most closely associated with:
Detection risk.
Subsequent to the issuance of the auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:
Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
If the Auditor has no opinion, it would be considered
Disclaimer of Opinion
If the auditor were unable to form an opinion as to fairness of financial statements, it would be considered
Disclaimer of Opinion
Which of the following best describes the auditors' approach to the audit of accrued liabilities?
Test computations.
Slade Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are actively traded in the market. Management insists that all investments be carried at original costs, and the CPA firm is satisfied that the original costs are accurate. The CPA firm believes that the client will never ultimately realize a substantial portion of the investments because the market value is much lower than the cost; the client has fully disclosed the facts in notes to the financial statements.
Either qualified or adverse
what type of opinion would you issue when., Draves Company owns substantial properties that have appreciated significantly in value since the date of purchase. The properties were appraised and are reported in the balance sheet at the appraised values (which materially exceed costs making it material) with related disclosures. The CPAs believe that the appraised values reported in the balance sheet reasonably estimate the assets' current values.
Either qualified or adverse
During the audit of Eagle Company, the CPA firm has encountered a significant scope limitation relating to inventory record availability and is unable to obtain sufficient appropriate audit evidence in that area.
Either qualified or disclaimer
Which of the following best describes the independent auditors' approach of depreciation expense on the income statement?
Establish the basis for depreciable assets and verify the depreciation expense.
Which of the following is not one of the auditors' objectives in auditing depreciation?
Establishing the cash outflows due to depreciation.
Which of the following is a customary audit procedure for the verification of the legal ownership of real property?
Examination of deeds and title guaranty policies on hand.
Which of the following is the best evidence of continuous ownership of property?
Examination of the client's property tax bills.
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?
Examine selected cash disbursements in the period subsequent to year-end.
Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?
Examine shipping documents for matching sales invoices.
In Property, Plant, and Equipment., For each disposal, vouch the disposal to the wire payment confirmation you are testing for
Existence
In Property, Plant, and Equipment., Vouch the selected additions to the vendor invoice and payment (check register) to confirm proper existence and recording (use provided tick mark) you are testing for
Existence
In testing plant and equipment balances, an auditor may select recorded additions in the analysis of plant and equipment and inspect the actual asset(s) involved. Which management assertion is this procedure most directly related to?
Existence
The auditor vouched additions to a supporting invoice. uses witch assertion
Existence
An auditor accepted an engagement to audit the 20X8 financial statements of EFG Corporation and began the fieldwork on September 30, 20X8. EFG gave the auditor the 20X8 financial statements on January 17, 20X9. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The client's representation letter normally would be dated:
February 10, 20X9.
Where are additional paragraphs placed for Emphasis of matter and other matter paragraphs
Following opinion paragraph
An audit report for a public client indicates that the financial statements were prepared in conformity with:
Generally accepted accounting principles (United States).
Unmodified Opinions that have an emphasis paragraph can include one of the following
Going Concern., When G.A.A.P. Is not consistent., and if there is any auditor discretionary circumstances.
List two questions you would ask the firm to access inherent risk over Property, Plant & Equipment:
I would ask about Depreciation I would ask about their impairment of assets
To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:
Individual who signs the checks.
The auditor's primary means of obtaining corroboration of management's information concerning litigation is a:
Letter of audit inquiry to the client's lawyer.
The auditors' primary means of obtaining corroboration of management's information concerning litigation is a:
Letter of audit inquiry to the client's lawyer.
Which of the following is least likely to result in an adverse opinion?
Limitation in the scope of the audit.
When an audit report is dual-dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditors' report, the auditors' responsibility for events occurring subsequent to the date of the audit report is:
Limited to the specific event referred to.
A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n):
Loss contingency.
Which of the following is explicitly stated in the section on management's responsibility in a nonpublic company unmodified audit report?
Management is responsible for the maintenance of internal control relevant to the preparation and fair presentation of financial statements.
Hall accepted an engagement to audit the year 1 financial statements of Green Company. Green completed the preparation of the year 1 financial statements on February 13, year 2, and Hall began the audit work on February 17, year 2. Hall completed the audit work on March 24, year 2, and completed the report on March 28, year 2. The client's representation letter normally would be dated:
March 24, year 2.
Which of the following is a control procedure that is usually applied to accounts payable?
Matching invoices with receiving documents before disbursements are authorized.
If there is a Departure from GAAP that is material Then it would have what type of opinion. (Modified or UnModified)
Modified Opinion
The review of audit working papers by the audit partner is normally completed:
Near the completion of the audit.
Critical audit matters are included in a public company audit report with a(n):
Neither., Adverse Opinion., or Disclaimer of Opinion
An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:
Observation and inquiry.
Which of the following is a procedure normally performed while completing the audit of a public company?
Obtain a lawyer's letter.
Which of the following auditing procedures is ordinarily performed last?
Obtaining a management representation letter.
In a public company audit report qualified for a departure from GAAP, an additional paragraph describing the matter causing the qualification is described in the
Opinion section.
The first section of a nonpublic company audit report is the:
Opinion section.
The first section of a public company audit report is the:
Opinion section.
Auditors may choose not to confirm accounts payable because:
Other reliable external evidence to support the balances is likely to be available.
When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs:
Tests of controls and limited tests of current year property and equipment transactions.
Which of the following is the best evidence of real estate ownership at the balance sheet date?
Paid real estate tax bills.
Which of the following is not a procedure that auditors typically perform to search for significant events during the period after year-end but prior to the audit report date?
Perform analytical procedures in the period subsequent to the balance sheet date.
Which of the following procedures is most likely to be included near completion of an audit?
Performing analytical procedures.
Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to the accumulated depreciation accounts?
Plant assets were retired during the year.
Which of the following procedures relating to the audit of accounts payable would the auditors be most likely to delegate entirely to the client's employees?
Prepare a schedule of accounts payable.
Analytical procedures are required as a part of the
Procedures performed near the end of the audit.
Inquiry about matters dealt with at meetings for which minutes are not available is a
Procedures to Identify Subsequent Events
Inquiry of management., Obtain lawyer's letter., & Obtain representations from management are all
Procedures to Identify Subsequent Events
when you Review latest available financial statements and minutes of the board and selected committees., this would be considered
Procedures to Identify Subsequent Events
The auditors used statistical sampling for the audit of inventory and calculated an estimated total audited value of $1,100,000; the client's book value for inventory is $1,200,000. This misstatement is properly classified as a:
Projected misstatement.
An auditor would be least likely to use confirmations in connection with the examination of:
Property, plant, and equipment.
For which of the following accounts is it most likely that much of the audit work can be performed in advance of the balance sheet date?
Property, plant, and equipment.
Which of the following is the most likely type of audit opinion when a limitation on the scope of the audit is significant?
Qualified
Which of the following is the most likely type of audit opinion when a material departure from GAAP exists, but not so material as to overshadow an overall opinion?
Qualified
what type of opinion would you issue when., London Company has material investments in stocks of subsidiary companies. Stocks of the subsidiary companies are not actively traded in the market, and the CPA firm's engagement does not extend to any subsidiary company. The CPA firm is able to determine that all investments are carried at original cost but has no real idea of market value. Although the difference between cost and market could be material, it could not have a pervasive effect on the overall financial statements.
Qualified
Which of the following is a type of auditors' opinion?
Qualified.
For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the:
Receiving report and the purchase order.
A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?
Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
Which of the following is not a control that should be established for purchases of equipment?
Requiring that the department that ordered the equipment is the same that requested the equipment.
List three audit procedures that are used by the auditors to search for subsequent events.
Review minutes of directors' and stockholders' meetings. Obtain a letter from the client's attorney. Obtain a letter of representations from management
Describe three other procedures that are used by auditors to discover existing loss contingencies.
Review the minutes of directors' meetings. Review correspondence with financial institutions. Obtain a representations letter from the client.
What are two completion steps that are performed by an auditor during the completion phase of an audit.
Review the minutes of meetings Obtain the representation letterfrommanagement
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.
An approach that quantifies a misstatement based on its effects on the current year income statement only is called the:
Rollover approach.
Which of the following procedures is least likely to be completed before the balance sheet date?
Search for unrecorded liabilities.
An effective procedure for identifying unrecorded retirements of equipment is to:
Select items of equipment in the accounting records and then locate them in the plant.
When confirming accounts payable, the approach is most likely to be one of:
Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts.
Which of the following events occurring on January 5, 20X2, is most likely to result in an adjusting entry to the 20X1 financial statements?
Settlement of litigation.
A client has changed the salvage values of a number of its fixed assets. The auditors of the public company believe that the revised salvage values are realistic. The appropriate report on the financial statements is:
Standard unqualified.
An audit report for a public client indicates that the audit was performed in accordance with:
Standards of the Public Company Accounting Oversight Board (United States).
The auditors' search for unrecorded liabilities is completed:
Subsequent to the balance sheet date.
Which of the following is not explicitly included in an audit report with an unqualified opinion for a nonpublic company?
That all material instances of fraud have been identified.
The auditors' report for a nonpublic company should indicate:
That the auditors evaluate the appropriateness of accounting policies used.
Ordinarily, a public company audit report must be addressed to:
The Board of Directors., & Shareholders
Auditors must communicate internal control "significant deficiencies" to:
The audit committee.
The statement that best expresses the auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit is that:
The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.
Management's written representations should be in the form of a letter addressed to:
The auditor.
Describe the audit circumstances in which the auditors are likely to decide to confirm accounts payable.
The auditors are likely to decide to confirm accounts payable when the extent of the evidence available in the client's possession is not sufficient.
Which of the following best describes the auditors' typical observation of plant and equipment?
The auditors observe major additions to plant and equipment made during the year.
Describe the types of accounts payable the auditors are likely to select for confirmation.
The auditors select accounts that are more likely to be in error, such as accounts with a high degree of activity. Accounts with zero balances may also be selected.
If audited financial statements include a balance sheet and an income statement, but do not include a statement of cash flows:
The auditors should issue a qualified report for the departure from generally accepted accounting principles.
In the event of an unresolvable difference of opinion between the client company and the CPA firm as to the valuation of an asset in the financial statements:
The final decision rests with the client's management and the auditors can express their disapproval in the audit report if they deem it appropriate to do so.
An adverse opinion is most likely to be included in an audit report when
The financial statements depart from GAAP are material.
Which of the following is correct concerning a public company audit report with a disclaimer of opinion?
The paragraph describing the reason for the disclaimer will follow the opinion paragraph and will not include a title.
Which of the following is not included in an integrated audit report on the financial statements of a public company?
The report states that the audit was performed in accordance with AICPA standards.
The auditors may conclude that depreciation charges are relatively accurate when:
There is little activity in plant assets accounts and the amount of depreciation is similar to the prior year. There are few gains or losses on disposals of assets retired.
Explain the difference between a Type 1 and Type 2 event, when does the event occur.
They both occur between the beginning of the current year's audit work., & the date of the audit report. With Type 1 happening before the balance sheet date often in the interim period., and type 2 happening after the balance sheet date as a subsequent event.
Which of the following is not correct relating to representation letters?
They often serve as a substitute for the application of other procedures.
Auditors should perform audit procedures relating to subsequent events:
Through the date of the audit report.
following components of the standard auditors' report in the correct order.
Title., Opinion., basis for opinion., responsibilities of management for the financial statements., Auditor's responsibilities for the audit of the financial statements
What is the audit objective AND assertion with auditing Accounts Payable?
To ensure the liabilities are not understated. Completeness.
True Or False A major control procedure related to plant and equipment is a budget for acquisitions and disposition.
True
True Or False Even when internal control is weak, a significant portion of the audit work on property, plant, and equipment may be performed at an interim date.
True
True Or False Physical inventories of plant and equipment assets frequently reveal missing assets
True
True Or False The auditors should accumulate known, projected, and other estimated misstatements in the financial statements to determine whether an unmodified opinion should be issued on the financial statements.
True
True Or False The auditors typically vouch major additions to plant and equipment recorded during the period under audit.
True
True Or False The financial statements should not be adjusted for subsequent events that provide important evidence about conditions that did not exist at the balance sheet date but arose subsequent to that date.
True
True Or False The plant and equipment budget is an important control for plant and equipment.
True
True or False A PCAOB public company audit report indicates that the audit was performed in accordance with PCAOB standards.
True
True or False A loss on an account receivable because of a major customer declaring bankruptcy subsequent to the balance sheet date might or might not require adjustment of the financial statements, depending upon the cause of the customer's bankruptcy.
True
True or False A scope limitation affecting a material portion of the financial statements during an audit will result in either a qualified or disclaimer of opinion, depending upon the pervasiveness of the misstatement.
True
True or False Amounts included in the statement of cash flows are audited in conjunction with the audit of balance sheet and income statement accounts.
True
True or False An adverse opinion is an opinion that the financial statements are not presented fairly in accordance with generally accepted accounting principles.
True
True or False Analytical procedures are often used for verification of income statement accounts.
True
True or False Audit reports should be dated as the date on which sufficient appropriate audit evidence has been collected.
True
True or False Auditors may discover unrecorded liabilities by reconciling vendors' statements with the accounts payable trial balance.
True
To obtain assurance that the client's equipment acquisitions during the year are not overstated?
Vouching purchases of plant and equipment.
When the auditors express an opinion on financial statements, their responsibilities extend to:
Whether the results of their client's operations are fairly presented in the financial statements.
A material departure from generally accepted accounting principles will result in auditor consideration of
Whether to issue an adverse opinion rather than a qualified opinion.
Auditors in many cases do not confirm accounts payable because:
a purchase from a vendor is involved, there is often sufficient appropriate audit evidence from other reliable sources readily available.
Type 1 subsequent events require ______ of the financial statements.
adjustment
Type 2 subsequent events come into existence _____ the balance sheet date.
after
a Disclaimer of Opinion is NOT
an alternative to adverse opinion
Form 10-K reports to the SEC are
annual report
To achieve effective internal control over fixed-asset additions, a company should establish procedures that require:
authorization and approval of major fixed-asset additions.
The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the:
management of the company.
Conditions for a going concern
•Negative cash flows from operations •Defaults on loan agreements •Adverse financial ratios •Work stoppages •Legal proceedings
Misstatements become pervasive when any one of the following applies
•Not confined to specific accounts. •If confined, they represent a substantial proportion of the financial statements. •In relation to disclosures, they are fundamental to users' understanding of the financial statements.