ACC 269 Ch. 17 SmartBook
If a misstatement is considered material to the financial statements, the financial statements must be adjusted so that any remaining misstatement would be considered immaterial under either the ______ ______ or ______ approach.
iron curtain rollover
The entity's balance sheet date is December 31, 2021, the date of the auditor's report is February 8, 2022, and the financial statements are issued on March 2, 2022. Regarding the period between February 8, 2022 and March 2, 2022, the auditor ______. actively conducts audit procedures related to the current-year audit should not make any adjustments or disclosures for items discovered during this time is not responsible for making any inquiries or conducting any audit procedures
is not responsible for making any inquiries or conducting any audit procedures
The PCAOB requires that firms archive their public company audit files for retention not more than ______. 45 days after the report release date 45 days after the completion of the field work 60 days after the engagement quality review 60 days after the balance sheet date
45 days after the report release date
True or false: Refusal by an entity's attorney to furnish information in a letter of audit inquiry is a limitation on the scope of the audit, but not sufficient to preclude an unqualified opinion.
False
True or false: The auditor's treatment of subsequent events relating to internal control is not dependent on whether the change in internal control reveals information about a material weakness that existed as of the end of the reporting period or whether the event creates or reveals information about a new condition that did not exist as of the end of the reporting period.
False Reason: Correct. The auditor treats subsequent events related to internal control in a manner similar to those that relate to financial statement account balances—Type I and Type II.
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.
False Reason: Correct. It is treated as a misstatement.
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. II I
I
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. II I
II
Which of the following statements is correct? The auditor generally requires all proposed adjustments be booked. Immaterial misstatements are not communicated to the entity. It is expected that all known misstatements will be corrected. It is expected that only material misstatements will be corrected.
It is expected that all known misstatements will be corrected.
True or false: The auditor is not responsible for making any inquiries or conducting any audit procedures in the period between the date of the auditor's report and issuance of the financial statements.
True Reason: The auditor is not responsible for making inquiries or conducting audit procedures after the date of the audit report. However, subsequent events may come to the auditor's attention during this period. When the subsequent event is Type I, the financial statements should be adjusted. Depending on the event and its circumstances, additional disclosure may need to be made in the footnotes. When the subsequent event is Type II, a footnote describing the event should be included with the financial statements.
At the balance sheet date, an entity was unaware that an uncollectible account receivable was the result of deterioration in a customer's financial condition prior to year-end. The customer declares bankruptcy after the balance sheet date but prior to the issuance of the financial statements. This is ______ subsequent event. not a a Type I a Type II
a Type I
Refusal by an entity's attorney to furnish information in a letter of audit inquiry is ______. a limitation on the scope of the audit against the law and prohibited by the SEC acceptable if the attorney has probable cause to refuse
a limitation on the scope of the audit
Select all that apply The letter of audit inquiry routinely requests that the attorney ______. comment on unasserted claims where their views differ from management identify short-term obligations expected to be refinanced indicate if their response is limited in any way provide the amount that should be accrued for a loss related to general business risks
comment on unasserted claims where their views differ from management indicate if their response is limited in any way
The entity's balance sheet date is December 31, 2021, the date the auditor obtained sufficient evidence for the report is February 8, 2022, and the financial statements are issued on March 2, 2022. On February 27, 2022, the entity entered into an agreement to purchase a competitor. If the audit report is dated February 27, 2022, the auditor is ______. limiting responsibility for all events to February 8, 2022 limiting responsibility for events occurring after February 8, 2022 to the subsequent event (competitor purchase) accepting responsibility for identifying any material matters that occur up to February 27, 2022
accepting responsibility for identifying any material matters that occur up to February 27, 2022
The entity's balance sheet date is December 31, 2021, the date the auditor obtained sufficient evidence for the report is February 8, 2022, and the financial statements are issued on March 2, 2022. On February 27, 2022, the entity entered into an agreement to purchase a competitor. If the audit report is dated February 27, 2022, the auditor is ______. limiting responsibility for events occurring after February 8, 2022 to the subsequent event (competitor purchase) accepting responsibility for identifying any material matters that occur up to February 27, 2022 limiting responsibility for all events to February 8, 2022
accepting responsibility for identifying any material matters that occur up to February 27, 2022
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. disclaimer of unqualified qualified adverse
adverse
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 ______. only responsible for reporting changes in internal control relating to events that did not exist at the end of the reporting period never responsible for reporting these types of changes in internal controls 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
always responsible for reporting these types of changes in internal controls
Select all that apply The letter of audit inquiry should request the attorneys provide information including ______. a description and evaluation of any ongoing litigation an indication of the attorney's response is limited in any way the amount or range of potential loss for any pending or threated litigation a list of pending or threatened litigation
an indication of the attorney's response is limited in any way the amount or range of potential loss for any pending or threated litigation a list of pending or threatened litigation
Select all that apply Audit procedures occurring after the balance sheet date that are performed specifically to detect subsequent events include ______. testing proper sales and purchases cutoff asking legal counsel about any developments related to litigation, claims, and assessments reviewing selected audit documentation related to judgments and evaluating conclusions reached reading any available interim financial statements that are available after year-end
asking legal counsel about any developments related to litigation, claims, and assessments reading any available interim financial statements that are available after year-end
Auditing standards require auditors to communicate certain matters to "those charged with governance." For publicly traded companies, this refers to the ______ ______ in particular.
audit committee
The PCAOB requires that audit documentation be retained for 7 years from the date of the ______. balance sheet engagement quality review release of the financial statements auditor's report
auditor's report
Select all that apply Accounting Standards Update Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern requires ______. auditors 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 management 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
auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures management to first evaluate the entity's ability to continue in existence as a going concern
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. both the "iron curtain" and "rollover" the "iron curtain" but not the "rollover" the "rollover" but not the "iron curtain
both the "iron curtain" and "rollover"
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. 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"
Select all that apply The letter of audit inquiry routinely requests that the attorney ______. comment on unasserted claims where their views differ from management indicate if their response is limited in any way identify short-term obligations expected to be refinanced provide the amount that should be accrued for a loss related to general business risks
comment on unasserted claims where their views differ from management indicate if their response is limited in any way
Select all that apply The objectives of communication with the audit committee are to ______. communicate an overview of the overall audit strategy and timing communicate the auditor's responsibilities establish an understanding of the terms of the audit engagement with the committee provide information to the audit committee that is relevant to the audit
communicate an overview of the overall audit strategy and timing communicate the auditor's responsibilities establish an understanding of the terms of the audit engagement with the committee
When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. consult with their attorney request that management take responsibility for the mistake contact individual users of the financial statements who are relying on the auditor's report withdraw the audit opinion
consult with their attorney
When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. contact individual users of the financial statements who are relying on the auditor's report request that management take responsibility for the mistake withdraw the audit opinion consult with their attorney
consult with their attorney Reason: Correct. There may be legal implications involved.
Select all that apply 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 ______. contact appropriate regulatory agencies contact the SEC notify persons relying on the statements and audit report 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
Select all that apply 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 ______. contact the SEC contact appropriate regulatory agencies notify legal council that the auditor's report must no longer be associated with the financial statements notify persons relying on the statements and audit report
contact the SEC contact appropriate regulatory agencies notify persons relying on the statements and audit report
All financial statements, including related notes, have been prepared and all significant audit documentation have been reviewed and approved by the ______. balance sheet date date of issuance of the financial statements subsequent-events date date of the auditor's report
date of the auditor's report
All financial statements, including related notes, have been prepared and all significant audit documentation have been reviewed and approved by the ______. date of the auditor's report balance sheet date date of issuance of the financial statements subsequent-events date
date of the auditor's report
The auditor should request that the entity issue an immediate revision to the financial statements when the auditor ______. determines that previously issued financial statements are in error and the audit report is affected has sent an audit inquiry to the entity's attorneys in order to obtain or corroborate information about litigation and claims has made recommendations based on observations during the audit including suggested improvements in organizational structure discovers an event or transaction after the balance sheet date that may materially affect the financial statements
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. issue a qualified issue an adverse issue an unqualified disclaim any
disclaim any
Select all that apply Options for the auditor when management refuses to provide a representation letter ordinarily include ______. disclaiming an opinion issuing an qualified opinion withdrawing from the engagement issuing an adverse opinion
disclaiming an opinion withdrawing from the engagement
Select all that apply The PCAOB requires that the auditor retains all ______. documents inconsistent with the final conclusion for significant matters correspondence between members of the engagement team 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"
Select all that apply The PCAOB requires that the auditor retains all ______. documents that "form the basis of the audit or review" documents inconsistent with the final conclusion for significant matters correspondence between members of the engagement team
documents that "form the basis of the audit or review" documents inconsistent with the final conclusion for significant matters
When an auditor uses wording in the report such as "February 19, 2022 except for Note 4 which is as of March 3, 2022," the audit report is said to be ______ ______.
dual dating
Select all that apply The auditor assesses the entity's ability to continue as a going concern ______. during the planning of the engagement 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
Select all that apply 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 the "iron curtain" approach corrected immediately evaluated using the "rollover" approach considered material misstatements
evaluated using the "iron curtain" approach evaluated using the "rollover" approach
Select all that apply When evaluating management's plans regarding going concern issues, the auditor should ______. 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
An auditor performs analytical procedures to help evaluate overall financial statement presentation during the ______ stage of the audit. planning interim field work final review
final review
Select all that apply According to auditing standards, analytical procedures are required during the ______ stages of an audit. final review field work planning interim
final review planning
The FASB standard relating to going concern issues requires a "look-forward" period of one year from the ______. end of the audit field work financial statement issuance date balance sheet date date of the auditor's report
financial statement issuance date
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) ______ ______.
going concern
Select all that apply If the auditor has evaluated management's plans to mitigate going concern issues and concludes that substantial doubt exists, the auditor will ______. 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 include an explanatory paragraph in the audit report 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 consider the adequacy of the disclosures about the entity's ability to continue as a going concern
Select all that apply During the subsequent period, AS 22021 states that the public company auditor should ______. inquire about and examine regulatory agency reports on ICFR exclude information about the effectiveness of ICFR obtained through other engagements from consideration inquire about and examine relevant internal audit reports exclude any independent auditor reports (other than the primary auditor's) of significant deficiencies or material weaknesses from consideration
inquire about and examine regulatory agency reports on ICFR inquire about and examine relevant internal audit reports
Select all that apply When facts are encountered that may affect the auditor's previously issued report, the auditor should ______. determine whether the facts existed at the balance sheet date inquire how management intends to address the issue notify the SEC that the audit report cannot be relied upon determine whether the facts are reliable 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
The most common situation where an auditor becomes aware that previously issued financial statements contain material misstatements is due to ______. acts of sabotage such as corporate espionage intentional or unintentional acts by management acts of God, such as hurricanes and earthquakes
intentional or unintentional acts by management
If a misstatement accumulates to a material amount over two or more periods, the entire accumulated misstatement must be corrected under the ______ ______ approach.
iron curtain
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. rollover iron curtain
iron curtain
Select all that apply A Type II subsequent event ______. 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 requires adjustment of the numbers in the financial statements may be reported using proforma 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 may be reported using proforma financial statements
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 ______. issue a modified audit report describing the going concern issue withdraw from the engagement and notify legal counsel issue an unqualified opinion with an explanatory paragraph disclaim an opinion on the financial statements
issue a modified audit report describing the going concern issue
The auditor obtains the representation letter from ______. the SEC the board of directors legal counsel management
management
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) ______. audit report legal letter representation letter management letter
management letter
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) ______ ______.
management letter
The auditor ______ require all proposed adjustments to be booked. may or may not should always should never
may or may not
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 ______. must make inquires of management about these types of changes must make inquiries of outside legal counsel about these types of changes has no responsibility regarding these types of changes since they occur after the balance sheet date
must make inquires of management about these types of changes
Auditing standards identify four conditions and events that may indicate going concern issues including ______. additional sources of financing are available at above-market rates long-term commitments negative financial trends
negative financial trends
Select all that apply The date of the auditor's report is ______. no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date after which all subsequent events are considered Type II subsequent events the date before which all subsequent events are considered Type I subsequent events the date on which management must have explicitly taken responsibility for the financial statements the date on which all significant audit documentation must have been reviewed and approved
no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date on which management must have explicitly taken responsibility for the financial statements the date on which all significant audit documentation must have been reviewed and approved
After the financial statements and the accompanying audit report have been issued, an auditor has ______ to conduct any audit procedures. no obligation limited responsibility an ethical duty a legal duty
no obligation
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 ______. contact legal counsel to 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 refund the fee paid to the auditor and return all working papers to the entity
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
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 ______. prepare the explanatory paragraph used in the audit report obtain management's plan to mitigate the going concern problem 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
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 ______. as long as the plan is in writing and approved by the board of directors 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
only if it is probable that the plans can be effectively implemented
Select all that apply Auditing standards identify four conditions and events that may indicate going concern issues including ______. other financial difficulties internal problems external matters neutral financial trends
other financial difficulties internal problems external matters
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 ______. 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
Select all that apply 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? 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 a capital stock or bond issuance losses on receivables caused by conditions arising after the balance sheet date
purchase or disposal of a business by the entity a capital stock or bond issuance losses on receivables caused by conditions arising after the balance sheet date
Select all that apply When significant changes are made to the planned audit approach at any point during the audit, the final documentation should indicate ______. rationale for the change in plan the archival and retention periods for the documentation any subsequent proceedings or litigation modifications to the plan the original plan
rationale for the change in plan modifications to the plan the original plan
The possibility of misunderstanding between management and the auditor is reduced by the ______. minutes of board of directors' meetings letter of audit inquiry representation letter audit opinion
representation letter
A Type I subsequent event ______. provides evidence about conditions that did not exist 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
requires adjustment of the numbers in the financial statements
The FASB recently issued an Accounting Standards Update ______. creating a departure from the standard role of auditors, which is to evaluate and report on managements' assertions requiring an entity's management to evaluate the entity's ability to continue as a going concern 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
Select all that apply Audit procedures likely to identify conditions and events that indicate going concern problems include ______. review of subsequent events engagement quality review inquiry of legal counsel risk assessment
review of subsequent events inquiry of legal counsel risk assessment
The "carryover effects" of uncorrected prior year misstatements are ignored when misstatements are evaluated using the ______ approach.
rollover
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. rollover quantifying iron curtain
rollover
Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ______ ______.
subsequent events
Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ______. subsequent commitments subsequent events contingent commitments contingent events
subsequent events
Select all that apply The letter of audit inquiry should request the attorneys provide information including ______. 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 description and evaluation of any ongoing litigation 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 (a description and evaluation of any ongoing litigation Reason: Incorrect. This should be provided for any pending or threatened litigation.)
The representation letter is addressed to ______. the auditor legal counsel the SEC the PCAOB
the auditor
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 ______. 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
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 ______. treated as a misstatement accounted for as a correction of an error ignored disclosed in a footnote
treated as a misstatement
