Chapter 16

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

As a result of analytical procedures, the independent auditors determine that the gross profit percentage has declined from 30 percent in the preceding year to 20 percent in the current year. The auditors should :

Consider the possibility of a misstatement in the financial statements.

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

The search for the unrecorded liabilities for a public company includes procedures usually performed through the

Date of the auditors report

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

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, 20X(. The auditor completed the audit on February 10, 20X9, and delivered the report on February 16, 20X9. The clients representation letter normally would be dated

February 10, 20X9

The aggregated misstatement in the financial statements is made up of

Known misstatements - Yes Projected misstatements - yes other misstatements - yes

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 the best way for the auditors to determine that every name on a companies payroll is that of a bonafide employee presently on the job?

Make a surprise observation of the company's regular distribution of paychecks on a test basis.

Which of the following procedures is most likely to be included in the final review stage of an audit

Perform analytical procedures

Which of the following is least likely to be considered a substantive procedure relating to payroll?

Test whether employee time reports are approved by supervisors

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