CH 16 - homework

In estimating the total likely misstatement in the financial statements, the auditors should combine _______________ misstatements, projected misstatements, and judgmental misstatements

Factual (known)

A ____________ is a list of all specific disclosures required by financial accounting standards

disclosure checklist

Material fluctuations revealed by analytical procedures should be investigated to determine whether they are indicative of material _____________ in the financial statements

misstatements

When paper paychecks are issued, the company's ______________ should distribute them to the employees of the company

paymaster

FSs that give effect to a subsequent event as though the event had occurred at the BS date are known as ___________ FSs

pro forma

If the auditors conclude that the total misstatement in the FSs is material, they should request mgmt to adjust the FSs or issue a _______________ opinion

qualified or adverse

The primary purpose of the ______________ is to have the client's key officers acknowledge that they are primarily responsible for the fairness of the FSs

representation letter

2/14 - "Was a matter in Nov, the plaintiff alleged discrimination related to termination in past March. Reasonably possible the case will be settled for $35k"

a. Disclosure in the notes relating to nature of litigation, including loss amount b. Legal response appropriately dated

2/26 - "Was a matter in Dec, the plaintiff alleged discrimination related to termination in Nov. The company intents to defend the case, but we are unable to evaluate likelihood of potential loss"

a. Disclosure in the notes relating to nature of litigation, no amount disclosed b. Update audit report date

3/16 - "Was a matter in March, the plaintiff alleged discrimination related to termination in Nov. The company intends to defend the case, but we are unable to evaluate potential loss - plaintiff demands $50,000"

a. Disclosure in the notes relating to nature of litigation, no amount disclosed b. Update audit report date

PART 2: year end = 12/31, audit report date = 2/15 - Responses to audit inquiries from external legal counsel

a. Financial Statement effect b. Audit response

2/14 - "Since 12/31 I have not been engaged with XYZ co in any litigation, claims, nor am I aware of any loss contingencies. No amounts are due to the office"

a. No impact on financial statements b. Legal response is appropriately dated

2/14 - "Was a matter in Nov, the plaintiff alleged discrimination related to termination on past March. The case is tentatively settled for $35k"

a. Potential litigation settlement accrued in FS b. Legal response appropriately dated

The auditors should obtain a letter from the client's attorney describing ________________________

claims, litigation, and assessments

An event occurring after the date of the BS, but prior to the completion of the audit is called a _______________

subsequent event

1/21 - "Since 12/31 I have not been engaged with XYZ co in any litigation, claims, nor am I aware of any loss contingencies. There were fees outstanding of $3,000 due to this office"

a. Verify amount due attorney is recorded in FS amounts b. Update legal response

Revenue and expense accounts are audited in conjunction with related ___________ accounts

balance sheet