Auditing and assurance services
If the final analytical procedures indicate material misstatements, exist the auditor should ______.
gather additional audit evidence
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
An existing condition or set of circumstances involving uncertainty about a possible loss that will ultimately be resolved when some future event occurs or fails to occur is a(n)
contingent liability
Pending or threated litigation is an example of a
contingent liability
The primary purpose of a legal letter is to ______.
corroborate information provided by management about litigation, claims and assessments
According to auditing standards, analytical procedures are required during the ______ stages of an audit.
planning, final review
When a contingent liability exists, the likelihood that the future event will result in a loss is assessed using the categories ______.
probable, remote, reasonably possible
Contingent liabilities include ______.
product warranties, income tax disputes
A Type II subsequent event: ______.
provides evidence about conditions that did not exist at the balance sheet date, is usually accounted for by disclosure in the notes to the financial statements
A Type I subsequent event ______.
quires adjustment of the numbers in the financial statements
Misunderstandings between management and the auditor are reduced by the ______.
representation letter
The FASB recently issued an Accounting Standards Update ______.
requiring an entity's management to evaluate the entity's ability to continue as a going concern
The representation letter is addressed to ______.
the auditor
There should be a review by an audit team member who is senior to the person in charge of preparing the
working papers
The objectives of communication with the audit committee is 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
if the auditor has evaluated management's plans to mitigate going concern issues and concludes that substantial doubt exists, the auditor will ______.
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
Working papers prepared by the audit manager are reviewed by the ______.
engagement partner
Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this includes the ______.
entity's board of directors, entity's audit committee
Most firms have a policy that publicly traded companies and privately held companies whose financial statements are expected to be widely distributed will ______.
eqr
A letter of audit inquiry sent to the entity's attorneys is often referred to as a
legal letter
When evaluating management's plans regarding going concern issues, the auditor should ______
obtain evidence about plan elements, examine assumptions used in developing the plan
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 ______.
obtain management's plan to mitigate the going concern problem
The FASB standard relating to going concern issues requires a "look-forward" period of ______.
1 year from the financial statement issuance date
The PCAOB requires that firms archive their public company audit files for retention within ______
45 days following the time the auditor grants permission to use the auditor's report in connection with the financial statements
Which of the following parties is most likely involved in the decision to issue a going concern opinion?
Engagement senior manager, Accounting firm's head office, Engagement partner
What is meant by saying a going concern opinion can be a "self-fulling prophecy"?
It can interfere with the entity's ability to obtain capital through issuances of debt or equity.
Which of the following statements is correct?
It is expected that all known misstatements will be corrected.
Which of the following categories is a particularly important issue for going concern assessment because it could impact the ability to meet cash requirements?
Other financial difficulties
Which of the following are characteristics of a contingent liability?
Ultimate resolution when some future event occurs or fails to occur, An existing condition or set of circumstances., uncertanty about the amount of loss
Which of the following are evaluated during a working paper review?
Were the objectives of the procedure achieved?, Was the work performed?, Was the work documented?
Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this refers to the
audit comittee
Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this refers to the ___ in particular.
audit comittee
Management's refusal to provide a representation letter is ordinarily sufficient to cause an auditor to ______.
disclaim an opinion, withdraw from the engagement
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.
discliam
When facts are encountered that may affect the auditor's previously issued report, the auditor should ______.
inquire how management intends to address the issue, determine whether the facts are reliable, discuss the matter with those charged with governance
If a misstatement accumulates to a material amount over two or more periods, the entire accumulated misstatement must be corrected under the
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.
iron curtain
Final analytical procedures provide a "smell test". Which of the following explains the meaning of this phrase?
Do the financial statement amounts make sense?
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.
adverse
To consider the overall reasonableness of the financial statement amounts, the auditor performs final
analytical procedures
The auditor is determining whether there is enough to support each relevant assertion when evaluating the sufficiency of the
audit evidence
The PCAOB requires that audit documentation be retained for 7 years from the date of the ______.
auditor's report
The Sarbanes-Oxley Act of 2002 requires the ______ to certify the appropriateness of the financial statements and related disclosures.
cfo, ceo
Inquiry of entity personnel during the audit of the revenue and purchasing processes and a review of the minutes of the board of directors meetings is usually done to identify long-term
commitments
All financial statements, including related notes, have been prepared and all significant audit documentation have reviewed and approved by the ______.
date of the auditor's report
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.
f
True or false: Refusal by an entity's attorney to furnish information in a legal letter is a limitation on the scope of the audit, but not sufficient to preclude an unqualified opinion.
f
The sufficiency of the audit evidence and the effects of detected misstatements in the financial statements are the primary concerns of the
final evaluation
An auditor perform analytical procedures to help evaluate overall financial statement presentation during the ______ stage of the audit.
final review
Refusal by an entity's attorney to furnish information in a legal letter is ______.
limit scope
Accounting Standards Update Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern requires ______.
management 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
The auditor ____ require all proposed adjustments to be booked.
may or may not
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 ______.
only if it is probable that the plans can be effectively implemented
The engagement quality reviewer is a(n) ______.
partner not associated with the details of the engagement
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 audit procedures for subsequent events
Most firms have a policy requiring an engagement ____be performed for publicly traded companies and for privately held companies whose financial statements are expected to be widely distributed.
quality review
The Sarbanes-Oxley Act of 2002 requires the CEO and the CFO to certify the appropriateness of the financial statements and related disclosures for ______.
quarterly filings with the SEC, annual filings with the SEC
Audit procedures occurring after the balance sheet date that may detect subsequent events include ______.
reading any available interim financial statements that are available after year end, asking legal counsel about any developments related to litigation, claims and assessments
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 events
When significant changes are made to the planned audit approach at any point during the audit, the final documentation should indicate ______.
the original plan, rationale for the change in plan, modifications to the plan
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
Reviewers evaluate whether the work was performed and documented and whether the objectives of the procedure were achieved when reviewing the
working papers
The date of the representation letter is generally the date of the ______.
auditors report
An existing condition or set of circumstances involving uncertainty about a possible loss that will ultimately be resolved when some future event occurs or fails to occur is a
contingent liability
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
The final evaluation of audit evidence from the financial statement audit is primarily concerned with _______.
effects of detected misstatements in the financial statements, sufficiency of the audit evidence
The engagement quality control reviewer ______.
evaluates significant judgments made by the engagement team, reads the financial statements, considers the appropriateness of the audit report
True or false: In a going concern evaluation, "substantial doubt" means is it reasonably possible that the entity will be unable to continue for a reasonable period of time.
f
When an auditor reviews the minutes of the board of directors meetings and makes inquiries of entity personnel during the audit of the revenue and purchasing processes, (sh)he is most likely trying to
identify lt commitments
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.
iron curtain
The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. Regarding the period between February 8, 2019 and March 2, 2019, the auditor ______
is not responsible for making any inquiries or conducting any audit procedures
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
Any misstatements detected during the audit process ______.
must be considered in terms of the materiality of their effects on the financial statements
Auditing standards identify four conditions and events which may indicate going concern issues including ______.
negative financial trends
Poor results from operations and adverse financial ratios are the basis of ______.
negative financial trends
The date of the auditor's report is ______.
no earlier than the date on which the auditor has obtained sufficient appropriate evidence, the date on which all significant audit documentation must have been reviewed and approved, the date on which management must have explicitly taken responsibility for the financial statements
Contingent liabilities judged to be remote are ______.
not disclosed in the footnotes, not accrued
The engagement partner generally reviews working papers ______.
related to critical audit areas, prepared by the manager
Audit procedures likely to identify conditions and events that indicate going concern problems include ______.
risk assessment, uiry of legal counsel, eview of subsequent events
The "carryover effects" of uncorrected prior year misstatements are ignored when misstatements are evaluated using the
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
True or false: The entity's balance sheet date is December 31, 2016, the date of the auditor's report is February 8, 2017, and the financial statements are issued on March 2, 2017. The auditor is not responsible for making any inquiries or conducting any audit procedures in the period between February 8, 2017 and March 2, 2017.
t
True or false: When the auditor is evaluating the effects of detected misstatements in the financial statements, the auditor must consider both quantitative and qualitative aspects of the account and transaction involved.
t