Exam 4 Connect

Auditors should perform audit procedures relating to subsequent events: a. Through year-end. b. Through issuance of the audit report. c. Through the date of the audit report. d. For a reasonable period after year-end.

c. Through the date of the audit report.

"Auditors have obtained sufficiently appropriate evidence to conclude that the financial statements are not materially misstated" a. Unqualified opinion with emphasis-of-matter paragraph" b. Disclaimer of Opinion c. Unmodified opinion d. Adverse Opinion

c. Unmodified opinion

The term "except for" in an audit report is: a. Used in an adverse opinion. b. No longer considered appropriate. c. Used in a qualified opinion. d. Used for an unmodified opinion when an Emphasis of Matter section is added.

c. Used in a qualified opinion.

A material departure from generally accepted accounting principles will result in auditor consideration of: a. Whether to issue an adverse opinion rather than a disclaimer of opinion. b. Whether to issue a disclaimer of opinion rather than a qualified opinion. c. Whether to issue an adverse opinion rather than a qualified opinion. d. Nothing, because none of these opinions is applicable to this type of exception.

c. Whether to issue an adverse opinion rather than a qualified opinion.

"A material misstatement is considered pervasive" a. Unqualified opinion with emphasis-of-matter paragraph" b. Disclaimer of Opinion c. Unmodified opinion d. Adverse Opinion

d. Adverse Opinion

"The client has elected to not follow GAAP" a. Unqualified opinion with emphasis-of-matter paragraph" b. Disclaimer of Opinion c. Unmodified opinion d. Adverse Opinion

d. Adverse Opinion

Which of the following procedures would an auditor generally perform regarding subsequent events? a. Inspect inventory items that were ordered before the year end but arrived after the year end. b. Test internal control activities that were previously reported to management as inadequate. c. Review the client's cutoff bank statements for several months after the year end. d. Compare the latest available interim financial statements with the statements being audited

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

"Auditors have doubt about a company's ability to continue as a going concern" a. Unqualified opinion with emphasis-of-matter paragraph" b. Disclaimer of Opinion c. Unmodified opinion d. Adverse Opinion

a. Unqualified opinion with emphasis-of-matter paragraph"

For a continuing audit client, when a complete set of financial statements is presented on a comparative basis for two years, the auditors' opinion would refer to: a. Only the current year under audit. b. Either one or both years at the option of the auditors. c. Each of the two years plus the preceding year. d. Each of the years in the two-year period.

d. Each of the years in the two-year period.

"As discussed in Note XX to the financial statements, the Company is a defendant in a lawsuit" a. Going concern opinion b. Auditor Discretionary Circumstances c. Principles not consistently applied

b. Auditor Discretionary Circumstances

Which of the following assertions is of principal concern to the auditors in the examination of accounts payable? a. Existence. b. Completeness. c. Valuation. d. Authorization.

b. Completeness.

"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" a. Unqualified opinion with emphasis-of-matter paragraph" b. Disclaimer of Opinion c. Unmodified opinion d. Adverse Opinion

b. Disclaimer of Opinion

"Invoiced dated 1/20 for cleaning services for the month of December; not included in AP as of 12/31" a. Properly included in AP b. Improperly excluded from AP c. Properly excluded from AP d. Improperly included in AP

b. Improperly excluded from AP

Critical audit matters are most likely to include those matters that: a. Are communicated to the Public Company Accounting Oversight Board. b. Involve challenging, subjective or complex auditor judgment. c. Are material weaknesses in internal control. d. Involve significant risks.

b. Involve challenging, subjective or complex auditor judgment.

A possible loss, stemming from past events that will be resolved as to existence and amounts, is referred to as a(n): a. Analytical process. b. Loss contingency. c. Probable loss. d. Unasserted claim.

b. Loss contingency.

A refusal by a lawyer to furnish information related to litigation included in the letter of inquiry is likely to result in: a. Confirmation of related lawsuits with the claimants. b. Qualification of the audit report. c. An assessment that loss of the litigation is probable. d. An adverse opinion.

b. Qualification of the audit report.

An audit report for a public client indicates that the audit was performed in accordance with: a. Generally accepted auditing standards (United States). b. Standards of the Public Company Accounting Oversight Board (United States). c. Generally accepted accounting principles (United States). d. Generally accepted accounting principles (Public Company Accounting Oversight Board).

b. Standards of the Public Company Accounting Oversight Board (United States).

"A flood damages a significant portion of the operation facility after year end" a. Type 1 b. Type 2

b. Type 2

"Conditions that have come into existence after the balance sheet date" a. Type 1 b. Type 2

b. Type 2

The search for unrecorded liabilities for a public company includes procedures usually performed through the: a. Day the audit report is issued. b. End of the client's year. c. Date of the auditors' report. d. Date the report is filed with the SEC.

c. Date of the auditors' report.

An audit report for a public client indicates that the financial statements were prepared in conformity with: a. Generally accepted auditing standards (United States). b. Standards of the Public Company Accounting Oversight Board (United States). c. Generally accepted accounting principles (United States). d. Generally accepted accounting principles (Public Company Accounting Oversight Board).

c. Generally accepted accounting principles (United States).

The review of audit working papers by the audit partner is normally completed: a. Prior to year-end. b. Immediately as each working paper is completed. c. Near the completion of the audit. d. After issuance of the audit report, but prior to required subsequent event review procedures.

c. Near the completion of the audit.

"As discussed in Note XX to the financial statements, the company adopted SFAS XXX as of Dec 31 20XX. Our opinion is not modified with respect to this standard" a. Going concern opinion b. Auditor Discretionary Circumstances c. Principles not consistently applied

c. Principles not consistently applied

"Invoice dated 1/5 for January security protection; not included in AP as of 12/31" a. Properly included in AP b. Improperly excluded from AP c. Properly excluded from AP d. Improperly included in AP

c. Properly excluded from AP

The auditors' search for unrecorded liabilities is completed: a. During an interim period. b. At the balance sheet date. c. Subsequent to the balance sheet date. d. At any time during the examination.

c. Subsequent to the balance sheet date

Describe three ways in which the auditors establish the completeness of accounts payable

1. Be alert during reconciliations, confirmations and analytical procedures for unrecorded liabilities 2. Compare cash payments after year-end to a/p trial balance 3. Examine cash disbursements over specific dollar amounts during subsequent period

List three audit procedures that are used by the auditors to search for subsequent events

1. Cut-off tests 2. Inquiry of management 3. B. O. D. meetings minutes. 4. Lawyer's letter 5. Written management representation

What is the auditors' responsibility with respect to detecting subsequent events?

If auditor becomes aware of information that affects FS, and should have been known when report issued, must get client to restate FS, and inform 3rd parties. If client refuses , auditor must inform others that FS and opinion cannot be relied on

Describe the reason that the auditors are concerned with the completeness of accounts payable.

Possibility of understatement or omission of liabilities 1. Exaggerates the financial strength of company 2. Conceals fraud as effectively as overstatement of assets 3. Accompanied by understatement of expenses and overstatement of net income

Describe the two general types of subsequent events.

Type I - events that occurred as of year end, but brought to light before field work completed. Result in audit adjustment. Type II - events that occur after year end, but before field work completed. No audit adjustment, but footnote disclosure if material

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. A disclaimer of opinion. b. An adverse opinion. c. A standard unmodified opinion with a Qualified Scope section. d. An unmodified report with an Emphasis of Matter section.

a. A disclaimer of 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: a. An emphasis-of-matter paragraph to the auditors' report. b. A footnote to the financial statements. c. The body of the financial statements. d. The "summary of significant accounting policies" section of the financial statements.

a. An emphasis-of-matter paragraph to the auditors' report

Ordinarily, the most significant assertion relating to accounts payable is: a. Completeness. b. Existence. c. Presentation. d. Valuation.

a. Completeness.

The assertion most directly addressed when performing the search for unrecorded liabilities is: a. Completeness. b. Existence. c. Presentation. d. Rights.

a. Completeness.

The Rotter Company, a nonpublic company, changed accounting principles in 20X4 from those followed in 20X3. The auditor believes that the new principles are not in conformity with GAAP, and therefore that the 20X4 financial statements are misleading due to pervasive misstatements. The change (including its dollar effect) has been described in the notes to the 20X4 statements. Under these circumstances, in reporting on the 20X4 financial statements, the auditor should: a. Express an adverse opinion with a Basis for Adverse Opinion section disclosing the reason (the accounting change) for the opinion. b. Express an unmodified opinion with an Emphasis of Matter section and disclose the accounting change from 20X3 and its effect on the financial statements. c. Disclaim an opinion and explain all of the reasons therefore. d. Express an adverse opinion regarding the 20X4 financial statements, without a Basis for Adverse Opinion section since the reason will be included in the notes to the statements.

a. Express an adverse opinion with a Basis for Adverse Opinion section disclosing the reason (the accounting change) for the opinion

"The accompanying consolidated financial statements have been prepared assuming the company will continue as a going concern, but there is substantial doubt about its ability to continue as going concern" a. Going concern opinion b. Auditor Discretionary Circumstances c. Principles not consistently applied

a. Going concern opinion

The auditors include an Emphasis of Matter section (paragraph) in a nonpublic company audit report with an unmodified opinion in order to emphasize that the entity being reported upon is a subsidiary of another business enterprise. The inclusion of this paragraph: a. Is appropriate and would not negate the unmodified opinion. b. Is considered a qualification of the opinion. c. Is a violation of generally accepted reporting standards if this information is disclosed in notes to the financial statements. d. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."

a. Is appropriate and would not negate the unmodified opinion.

"Invoice dated 12/20 for maintenance services and unpaid as of year-end; listed in AP at 12/31" a. Properly included in AP b. Improperly excluded from AP c. Properly excluded from AP d. Improperly included in AP

a. Properly included in AP

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period. b. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. c. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. d. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.

Auditors must communicate internal control "significant deficiencies" to: a. The audit committee. b. The shareholders. c. The SEC. d. The Federal Trade Commission.

a. The audit committee.

"A lawsuit that was in progress as of year-end was settled shortly thereafter" a. Type 1 b. Type 2

a. Type 1

"Additional evidence about conditions that existed at the balance sheet date" a. Type 1 b. Type 2

a. Type 1

"During the audit a customer with a large A/R balance at year-end declares bankruptcy a. Type 1 b. Type 2

a. Type 1

An independent auditor has concluded that substantial doubt remains about a nonpublic client's ability to continue as a going concern, but the client's financial statements have properly disclosed all of its solvency problems. The auditor would probably issue a(an): a. Unmodified opinion with. an appropriate "Going Concern" section b. "Except for" qualified opinion. c. Unmodified opinion with no additional section. d. Adverse opinion.

a. Unmodified opinion with. an appropriate "Going Concern" section

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? a. Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. b. Examine unusual relationships between monthly accounts payable balances and recorded purchases. c. Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. d. Examine selected cash disbursements in the period subsequent to year-end.

d. Examine selected cash disbursements in the period subsequent to year-end.

"Invoice received 12/30 for January temporary workers; included in AP as of 12/31" a. Properly included in AP b. Improperly excluded from AP c. Properly excluded from AP d. Improperly included in AP

d. Improperly included in AP

Which of the following manipulations would understate accounts payable on the financial statements? a. Overstatement of purchases. b. Closing the cash disbursements journal prior to year-end. c. Leaving the cash receipts journal open after year-end. d. Omission of expenses.

d. Omission of expenses.

Which of the following procedures is most likely to be included near completion of an audit? a. Obtaining an understanding of internal control. b. Confirmation of receivables. c. Observation of inventory. d. Performing analytical procedures.

d. Performing analytical procedures.

In searching for unrecorded liabilities, an auditor most likely would examine the: a. Cutoff bank statement for deposits recorded in the books, but not by the bank. b. Details of accounts receivable confirmations that are classified as "exceptions". c. Files of purchase requisitions for items ordered just before the year end. d. Receiving reports for items received before year end, but not yet recorded.

d. Receiving reports for items received before year end, but not yet recorded.

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: a. Used in an adverse opinion. b. No longer considered appropriate. c. Used in a qualified opinion. d. Used in a disclaimer of opinion.

d. Used in a disclaimer of opinion.