Auditing & Assurance Chapter 11

Attorney letter response.

- Attorney - Auditors - Near date of auditors' report

Management letter.

- Auditors - Client - After audit

Engagement letter.

- Auditors - Client - Before engagement

Communication with individuals charged with governance.

- Auditors - Individuals charged with governance - After audit

Internal control deficiency communication.

- Auditors - Individuals charged with governance - Prior to audit report

Acceptance letter

- Client - Auditors - Before engagement

Written representations.

- Client - Auditors - Date of auditors' report

Which of the following is typically not included in the inquiry letter sent to the client's attorneys?

A disclaimer regarding the likelihood of settlement of pending litigation

If the date of an entity's financial statements is December 31, the date of the auditor's report is February 20, and the audit report release date is February 22, which of the following is considered a subsequent event?

A significant acquisition that was announced on February 1 and will be finalized on October 1.

To whom should written representations be addressed?

Auditors

The primary reason auditors request responses to attorney letters is to provide auditors

Corroboration of the information furnished by management about litigation, claims, and assessments.

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate?

Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements.

Which of the following is an audit procedure that auditors most likely would perform concerning litigation, claims, and assessments?

Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.

Which of the following best describes the auditors' responsibility with respect to management's estimates?

Evaluating the reasonableness of management's estimates

Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern?

Failure to meet forecasted earnings per share

If auditors are appointed on January 3, 2014, the date of the financial statements is December 31, 2014, the date of the auditors' report is February 7, 2015, and the audit report release date is March 3, 2015, what is the appropriate date of the written representations?

February 7, 2015

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Interest expense

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?

Investigate changes in long-term debt occurring after year end.

Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?

Investigate changes in shareholders' equity occurring after the date of the financial statements.

The Orange Corporation was audited for the year ended December 31. The audit was completed on January 25; prior to the release of the report, auditors learned of a two-for-one stock split on February 1. If dual dating is used, what are the proper dates for the auditors' reports?

January 25 and February 1

Which of the following subsequent events would represent an event that provides information about conditions that arose following the date of the financial statements?

Loss of inventory as a result of a flood

Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity?

Management's opinion as to the effectiveness of its internal control over financial reporting

Which of the following is ordinarily performed last in the audit examination?

Obtaining signed written representations.

Which of the following substantive procedures would not ordinarily be used by auditors in evaluating the potential existence of subsequent events?

Performing cutoff testing near year end

Which of the following reporting options is available if the client refuses to provide auditors with written representations?

Qualified opinion or disclaimer of opinion

Which of the following events or activities may occur following the audit report release date?

Subsequently discovered facts

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until

The audit report release date.

Why is it the client's decision to record adjustments to the financial statements?

The financial statements are the responsibility of the client's management.

Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses?

These accounts may represent attempts of earnings management.

Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork?

To ensure that the overall scope of the audit was appropriate

What is the primary purpose of obtaining written representations?

To impress upon management its primary responsibility for the financial statements

A lawsuit that was in progress as of year-end was settled shortly thereafter

Type 1

Additional evidence about conditions that existed at the balance sheet date

Type 1

During the audit, a customer with a large A/R balance at year-end declares bankruptcy

Type 1

A flood damages a significant portion of the operating facility after year-end

Type 2

Conditions that have come into existence after the balance sheet date

Type 2

An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the:

audit work meets the quality standards of the firm.

Type 1 subsequent events require the financial statements to be _______ if needed.

adjusted

Type 2 subsequent events come into existence _____ the balance sheet date.

after

The primary objective of analytical procedures used near the end of an audit is to

assist auditors in evaluating the overall financial statement presentation.

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the

audit report release date.

Before the impact of adjusting entries proposed by auditors are included in the client's financial statements, the adjustments must be approved by the

client's management.

The primary source of information auditors use to obtain information about litigation, claims, and assessments is the

client's management.

Roll-forward work normally occurs between the ____ and the ____.

date of interim work; date of the auditors' report

Subsequent events occur between the ____ and the ____.

date of the financial statements; date of the auditors' report

The CPA's opinion on the ______ of the financial statements may be changed by subsequent events.

fairness

Many subsequent events may involve the settling of ________.

litigation

Subsequent events need to be disclosed in the financial statements; otherwise, the financial statements would be _______.

misleading

An important method used by auditors to learn of material contingencies is

obtaining responses to an attorney letter.

Near the end of an audit, the application of analytical procedures is

required by auditing standards.

If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date), this is known as a(n)

subsequently discovered fact.

A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on

the fair presentation of the financial statements in conformity with GAAP.

Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously-expressed opinion. Auditors need not try to perform the omitted procedure if

the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.