Chapter 9 Auditing

How many was can you get a qualified opinion?

2- GAAP departure and scope limitation

going concern uncertainty

Unmodified for material and disclaimer for pervasive- opinion, basis for opinion, additional language

engagements performed by cpa's that improve the quality of the information for decision makers

assurance engagements

engagements in which CPA's provide assurance and report on an assertion that is the responsibility of another party

attestation engagements

Accountants are not required to be independent in either a a________.

compilation or a preparation engagement

When accountants are not independent, which of the following reports can they issue:

compilation report on historical financial statements.

When testing a company's cost accounting system, the auditor uses procedures that are primarily designed to determine that _________

costs have been properly assigned to finished goods, work-in-process, and cost of goods sold.

The auditor tests the quantity of materials charged to work-in-process by vouching these quantities to ______

material requisitions.

results in reasonable possibility that a material misstatement would not be prevented or detected on a timely basis

material weakness

Checking the ______ on prenumbered receiving reports is a way to detect omission of the recording of inventory received.

numbering sequence

Statements on Standards for Accounting and Review Services are applicable to engagements involving:

unaudited financial statements of non-issuers.

when there is substantial doubt that a client will continue as a going concern an auditor needs to document _____

Management's plan (or lack thereof) to mitigate the conditions and to continue as a going concern.

Less severe than material weakness but important enough to merit attention to those charged with governance

significant deficiency

The purpose of ______a sample of inventory tags to a client's computerized listing of inventory items is to determine whether the inventory items represented by tags were included on the listing.

tracing

An examination of inventory turnover pertains to the audit objective of identifying slow-moving, excess, defective, and obsolete items included in inventories. This audit objective relates to the ______ assertion.

valuation or allocation

Assertions about _________ concern whether asset, liability, revenue, and expense components have been included in the financial statements at appropriate amounts.

valuation or allocation

A client maintains perpetual inventory records in quantities and in dollars. If the assessed control risk is high, an auditor would probably

request the client to schedule the physical inventory count at the end of the year.

Your client counts inventory three months before the end of the fiscal year because controls over inventory are excellent_______ is not necessary for the roll-forward?

requesting the client to recount inventory at the end of the year

Inspecting agreements to determine whether any inventory is pledged as collateral or subject to any liens probably would provide the most reliable evidence concerning the entity's assertion of _______ related to inventories

rights and obligations

If a non-issuer prepares financial statements that omit substantially all footnote disclosures required by GAAP, the accountants' compilation report:

should indicate that the disclosures are omitted and that this omission might affect users' conclusions.

Comparing interim financial statements with the financial statements being audited would identify potential ______.

subsequent events

The auditing standards regarding_____ refers to knowledge obtained after the date of the auditor's report.

subsequently discovered facts

Written representations are dated as of _____

the date of the auditor's report

Auditors rely on accurate _______ to maintain an accurate inventory balance during the intervening period between the physical count and the balance sheet date.

perpetual records

Scope limitation

Qualified for material or disclaimer for pervasive- opinion, basis for opinion, auditors responsibilities (only modified for disclaimer)

_____ would not ordinarily be included in an accountants' review report on a non-issuer's financial statements

A statement that a review engagement is greater in scope than a compilation.

_________is not included in the standard (unmodified) report on the financial statements

An emphasis-of-matter paragraph commenting on the effect of economic conditions on the entity.

Departure from GAAP has two opinions and they are

Qualified or adverse based on pervasiveness

auditors should ordinarily perform ___________ regarding subsequent events

Comparing the latest available interim financial statements with the financial statements being audited.

Tracing the details of test counts to the final inventory schedule assures the auditor that items in the observed physical inventory are included in the inventory records. This most likely obtains evidence concerning managements balance assertion of __________

Completeness

_______ is the most common reason to depart from standard (unmodified) report. __ is also a reason

Departure from GAAP; scope limitation

GAAP is _____

Explicit

Going concern is ____

Implicit

A major objective of written representations is to______

Impress on management its ultimate responsibility for the financial statements and disclosures.

_______ are only for qualified, adverse or disclaimers of opinion

Modifications to the opinion

________ is ordinarily performed last in the audit examination which would be obtained on the date of the auditors report.

Obtaining signed written representations

_________is ordinarily performed last in the audit examination

Obtaining signed written representations.

When financial statements are presented in comparative form and another firm audited the prior years' financial statements (but the other firm's report is not presented with the financial statements), the auditors' report on the current-year financial statements should:

Refer to the report and type of opinion issued by the other firm on the prior years' financial statements.

Accountants are permitted to express limited assurance in _______

Review report on unaudited financial statements.

_________is an auditor's primary method to corroborate information on litigation, claims, and assessments

Reviewing the response from the client's lawyer to a letter of audit inquiry.

______ needs to be documented when there is substantial doubt that a client will continue as a going

The auditor's conclusion on whether, after evaluating management's plan, substantial doubt exists regarding the company's ability to continue as a going concern and whether any report modifications are needed.

An auditor needs to document ____ when there is substantial doubt that a client will continue as a going concern

The conditions or events that suggest there is a going concern uncertainty.

The auditing standards regarding subsequently discovered facts refers to knowledge obtained after ______

The date of the auditor's report.

If an accountant is not independent with respect to a non-issuer and has been requested to conduct a compilation engagement, the accountant should:

accept the engagement and disclose the lack of independence in the compilation report.

engagements performed by CPA's on historical financial statements that are less in scope than an audit

accoutning review and engagements

From the auditors' point of view, inventory counts are more acceptable prior to the year-end when ______ are maintained.

accurate perpetual inventory records

When auditing inventories, an auditor would LEAST likely verify that ______

all inventory owned by the client is on hand at the time of the count.

The warehouse manager is responsible for maintenance of perpetual inventory records, which is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items due to ______

an improper combination of inventory custody and record-keeping responsibilities

To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement best describes the role of _______ near the end of the audit engagement.

analytical procedures

_______ are used To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.

analytical procedures near the end of the audit engagement

lack of independence

disclaimer for material and pervasive- issue one paragraph standard disclaimer

associate with unaudited financial statements

disclaimer for material and pervasive- one paragraph standard disclaimer

If control risk is high, observation of inventory at year-end would provide the best evidence as to ______ assertion.

existence

Sending a confirmation to the public warehouse asking for verification of inventory held is an efficient method for gathering evidence of the ______of this inventory

existence

Opinion is _____

explicit

When auditor's suspect there is doubt that an entity will continue as a ______, they must obtain and discuss with management their plan to continue as a going concern.

going concern

A term used in the context of misstatements to describe the effects on the financial statements of misstatements or the possible effects on the financial statement of misstatements, that are undetected due to an inability to obtain sufficient appropriate audit evidence.

pervasive

For scope limitations there are two opinions that can be given and that is

qualified and disclaimer

The _____date is the audit completion date and the ____date is the date related to the specific event.

report ; dual

A major objective of _____ is to impress on management its ultimate responsibility for the financial statements and disclosures.

written representations

_______ are all equired by generally accepted auditing standards

Attorney letter, written representations, and an engagement letter

A portion of a client's inventory is in public warehouses. Evidence of the existence of this merchandise can most efficiently be acquired through______

Confirmation.

_______is based on the importance of permitting users to appropriately compare an entity's financial statements across the years, GAAS requires that the auditors report be modified by adding____

Consistency; emphasis of matter paragraph

auditors would most likely perform a substantive procedure of _______to obtain evidence about the occurrence of subsequent events

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

During a review of a non-issuer's financial statements, accountants are required to make certain inquiries of management. ______ is not required by SSARS

Internal control deficiencies.

Departure from GAAP

Qualified for material or Adverse for pervasive- opinion, basis for opinion

The audit team found that the entity has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the auditors would choose between______

Qualified opinion or adverse opinion.

the auditors' responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonissuer is ________

Stated explicitly in the Auditor's Responsibility for the Audit of the Financial Statements Section.

required supplementary information

Unmodified for material and pervasive- additional language

The audit team determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of the following report alternatives?

Unmodified opinion with a reference to going-concern or disclaimer of opinion.

_______ means that the returned inventory is not in the perpetual records; thus, the recorded amount will be smaller than the amount on hand

Unrecorded credit memos

Receiving reports are prenumbered, and the numbering sequence is checked periodically, which most likely addresses the ______ assertion for inventory

completeness

_____ may be engaged by group auditors to audit divisions subsidiaries, or components would be unmodified with explanatory language

component auditors

An audit is ______ in scope than a review and a compilation is ______ in scope than a review.

greater; lesser

_____ conduct audit of material portion of the entity would be unmodified with explanatory language. should verify component auditors' reputation and independence and communicate and coordinate with component auditors

group auditors

Financial statements comprised of more than one division/subsidiary/segment/component. would be unmodified with explanatory language

group financial statements

Consistency is _______

implicit

When a predecessor auditor has examined comparative financial statements and that report is not presented with the successor auditor's report, the successor auditor should:

indicate that comparative year(s) were examined by the predecessor auditor and disclose the type of opinion issued.

______ are not required under generally accepted auditing standards.

Management letters

When auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in ______

An emphasis-of-matter paragraph.

If audit teams are unable to apply an auditing procedure to an account balance or class of transactions, the audit team should first:

Attempt to determine whether alternative auditing procedures are available and can be applied.

A material weakness in ICFR is a situation in which

It is reasonably possible that a material misstatement would not be detected on a timely basis.

An auditor's primary method to corroborate information on litigation, claims, and assessments is reviewing the response from the client's lawyer to a letter of ______

audit inquiry.

Design or operation does not allow misstatements to be prevented or detected in a timely fashion

internal control deficieicny

If the auditors decide to present separate reports on the entity's financial statements and ICFR in the audit of an issuer, __________ should be modified to refer to the other report?

report on financial statements and on ICFR

consistency

unmodified for material and pervasive- additional language

emphasis of a matter

unmodified for material and pervasive- additional language

other infomation

unmodified for material and pervasive- additional language

Audit of group financial statements

unmodified for material and pervasive- opinion, if group auditors assume responsibility

An auditor would vouch inventory on the inventory status report to the vendor's invoice to obtain evidence concerning management's balance assertions about________

valuation

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's balance assertions about ___________

valuation and allocation