ACCT 409 Chapter 11 Smart Book

governance

The persons responsible for overseeing the client's financial reporting process, including the internal control over financial reporting, are called individuals charged with _____.

C

When auditors use the ______ method to evaluate the materiality of uncorrected mistakes, only current-period income effect(s) are considered. a. cost/benefit b. iron curtain c. rollover

unasserted claim

When no formal lawsuit or other action has been filed or threatened, but circumstances could result in an action in the future, a(n) ____ _____ exists

A (c. this is only required if the original report must be revised)

When omitted procedures are discovered ______. a. revised reports may or may not be required b. they must be performed whether or not they were important in supporting the audit opinion c. the original audit report must be withdrawn

attorney letter

When auditors assess the risk of material misstatement from pending litigation, they will request the client send a(n) _____ ______ to all lawyers who worked for the client during the period under audit

False (either a qualified opinion or a disclaimer of opinion must be issued)

True or false: If management refuses to provide written representations, the auditor must withdraw from the engagement.

A

1. After the audit report release date, the auditor ______. a. May have to take steps to ensure the report is not relied on b. Has no responsibility for new information c. Should no longer be communicating with the client about the audit

roll forward

1. If relevant internal controls are effective, auditors may use ______ - ______ procedures to move interim conclusions to the year-end date. FIB

subsequent

Events occurring between the financial statement date and the date of the auditor's report are referred to as ____ events.

uncorrected misstatement

A proposed adjustment to the financial statements that the client decides not to make is called a(n) ______ ______.

roll forward

Examining material account transactions that occur between the interim testing date and the date of the financial statements is a common _____ - _____ procedure.

B

1. Interim testing occurs between the beginning of the year and ______. a. The audit completion date b. The date of the financial statements c. Any date prior to the end of the year d. The date of the auditor's report

A

1. Interim testing occurs between the beginning of the year and ______. a. The date of the financial statements b. The date of the auditor's report c. Any date prior to the end of the year d. The audit completion date

C

1. The auditor's report on the entity's financial statements covers all events that occur up to the ______. a. Completion of interim testing b. Date of the financial statements c. Date of the auditor's report d. Audit report release date

False (After the release date the auditor has some communications with the client and, in some cases, ma have to take steps to ensure the audit report is not relied on)

1. True or false: The auditor has no responsibilities related to the audit after the audit report release date.

B

1. Which of the following statements is correct? a. The auditor has no responsibility for significant developments that occur after the date of the audit report b. Significant events occurring between the date of the audit report and the audit report release date may result in a dual dates report c. Significant events occurring between the date of the audit report and the release date increase auditor responsibility for all new developments

B

A contingent liability that requires special consideration by auditors is ______. a. pending tax payments due to late filing of tax returns b. the outcome of litigation c. a guarantee of debt on behalf of another party d. potential warranty payments for goods and services sold

B

A proposed adjustment to the financial statements that the client decides not to make is called a(n) ______ misstatement. a. cost/benefit b. uncorrected c. immaterial

C

An attorney letter ______. a. cannot be used during the audit due to client-attorney privilege b. must be sent directly from the auditor to ensure the information can be relied on c. must be sent directly from the client

analytical

An overall review of the reasonableness of accounting estimates is similar in nature and purpose to the role of_____ procedures conducted near the end of the audit

D

Attorney letters should be ______. a. requested and mailed by the auditor with responses sent back to the auditor b. requested and mailed by the client with responses sent back to the client c. requested and mailed by the client with responses sent directly to the auditor d. requested by the client and mailed by the auditor with responses sent directly to the auditor

B

Attorneys should encourage clients to disclose unasserted claims to auditors ______. a. when the assertion of a claim is at least possible b. when the assertion of a claim is at least probable c. even if the likelihood of an assertion of a claim is remote

A, B, and D (C. GAAS)

Audit documentation review ______. Select all that apply: a. provides an evaluation of the firm's audit practices b. can be a component of staff training and evaluation c. ensures the audit is conducted in accordance with GAAP d. allows the firm to adhere tot he performance principle

interim testing

Audit work performed between the beginning of the year and the date of the financial statements is referred to as ______ _______.

A, C, and D (B. only uncorrected misstatements that are not considered trivial)

Auditor communications to individuals charged with governance include ______. Select all that apply: a. significant difficulties encountered during the audit b. all misstatements identified during the audit c. representations requested from management d. overview of audit scope and timing

B, C, and D (A. significant issues that were discussed with management)

Auditor communications to individuals charged with governance include ______. Select all that apply: a. significant issues arising from the audit that were not discussed with management b. any disagreements with management c. auditors' responsibility under GAAS d. judgment about the quality of critical accounting policies and estimates

proposed

Auditor recommendations for adjustments to the financial statements are considered to be ____ to indicate management's responsibility for the financial statements

B and D

Auditors are required to ______. Select all that apply: a. design and perform procedures for the purpose of identifying conditions that indicate going-concern uncertainties b. consider evidence that provides substantial doubt about the client's ability to continue as a going concern c. modify the audit report if any evidence comes to their attention regarding going concern uncertainties d. obtain information from management regarding plans to mitigate the effects of going concern uncertainties

B

Auditors are required to communicate ______ to the client's audit committee. a. only misstatements that management disagree with b. all misstatement detected during the audit c. only misstatements that have a material effect on the financial statements

D

Auditors are responsible for ______ accounting estimates. a. corroborating b. verifying the amount of c. auditing d. considering the reasonableness of

earnings management

Auditors must be alert for adjustments made to meet analysts' profit expectations which is known as _____ ______.

B

Auditors should discuss pending litigation with the client's ______. a. attorneys only b. management and attorneys c. management only d. board of directors

A

Auditors should ensure that ______ have been properly disclosed. a. both favorable and unfavorable contingencies b. only contingencies that can be reasonably estimates c. only unfavorable contingencies

B, C, and D (A. someone not involved in the audit must conduct the review)

Engagement quality review ______. Select all that apply: a. must be conducted by the partner in charge of the audit b. is required by GAAS c. reviews whether audit evidence was sufficient to support the audit opinion d. is also known as concurring-partner review

subsequently discovered

Facts that become known to auditors after the the date of the audit report that may have caused a report revision are known as _____ _____ facts.

C

For nonpublic entities, the communication of all significant internal control deficiencies must be made to the client in writing ______. a. prior to the audit report release date b. prior to the date of the audit report c. no later than 60 days after the audit report release date d. prior to the receipt of client representations

C

For public entities, the communication of all significant internal control deficiencies must be made to the client in writing ______. a. no later than 60 days after the audit report release date b. prior to the receipt of client representations c. prior to the audit report release date d. prior tot he date of the audit report

C

In most public organizations, the phrase "individuals charged with governance" typically refers to ______. a. client management and the full board of directors b. the full board of directors c. the audit committee of the board of directors

A and B

Management letters ______. Select all that apply a. can make the client aware of other business services offered b. are delivered to and discussed with the client c. are required by generally accepted auditing standards

A and D

Management's refusal to provide written representations ______. Select all that apply: a. constitutes a scope limitation b. requires the auditors to withdraw from the engagement c. results in the need for other substantive procedures d. should cause auditor skepticism

management letter

Near the end of the audit, recommendations to the client are summarized in a document commonly referred to as the _____ ______.

contingent

Potential warranty payments, tax disputes with the IRS and debt guarantees on behalf of another party are all examples of ____ liabilities.

B, C, and D (a. management, not internal audit)

Professional standards procedures specifically performed to identify the existence of material subsequent events include ______. Select all that apply: a. obtaining an understanding of procedures internal auditing used to identify event b. reviewing interim financial statements c. obtaining written representations as to the existence of events d. reading applicable meeting minutes held after the financial statement date

subsequent

Reading minutes of meetings held after the date of the financial statements and reviewing the entity's latest interim financial statements are two procedures that can be performed specially to identify the existence of material _____ events.

earnings management

Reclassifying items that should be deferred or contra-assets or liabilities to miscellaneous or other revenues and expenses, especially at the end of a quarter or year is referred to as _____ ______.

A

Responsibility for adjusting the financial statements for auditor proposed adjustments rests with the ______. a. client b. SEC c. auditor

dual date

Significant events occurring between the date of the audit report and the audit report release date may result in a(n) ______ ______ report.

C

Subsequent events provide evidence of conditions that ______. a. existed at the date of the financial statements only b. arose following the date of the financial statements only c. existed at or arose following the date of the financial statements

B

Subsequently discovered facts become known to the auditor after the ______. a. audit report release date b. date of the auditor's report c. date of the financial statements but before the date of the auditor's report

C and D

The attorney's response to an attorney letter ______. Select all that apply: a. should only focus on the ending ligation, claims or assessment discussed in the letter b. must be approved by the client due to attorney-client privileges c. should note any issues where the attorney's view is different from the client's view d. should be provided directly to the auditor

A

The auditors have gathered sufficient, appropriate evidence on which to base their report at the ______. a. date of the auditor's report b. audit report release date c. completion of interim testing d. date of the financial statements

completion date

The date of the auditor's report is also referred to as the audit _____ _____.

omitted

The situation where auditors failed to perform necessary audit procedures prior to the audit report release date is referred to as ____ procedures

False (Auditors are required to consider whether any evidence provides "substantial doubt" about going concern)

True or false: Auditors are expected to design and perform procedures solely for the purpose of identifying conditions that indicate going-concern uncertainties.

False (all misstatements must be communicated)

True or false: Auditors are only required to communicate misstatements detected during the audit to the audit committee if they have a material effect on the financial statements.

A

When auditors use the ______ method to evaluate the materiality of uncorrected mistakes, the aggregate effect of the misstatements on the entity's balance sheet are considered. a. iron curtain b. rollover c. cost/benefit

A (B. this is an option but not required; C. this is only true if the auditor chooses to change the date on the audit report)

When subsequently discovered facts are discovered prior to the audit report release date ______. a. auditors generally dual date the audit report b. the auditor must revise the audit report c. the auditor becomes responsible for all events that occurred up to the date the facts were discovered

dual date

When subsequently discovered facts are discovered prior to the audit report release, auditors normally choose to ____ _____ the report.

A and C

When subsequently discovered facts that would result in either the revision of the auditor's report or the financial statements are discovered after the audit report release date and individuals are continuing to rely on the statements, ______. Select all that apply: a. management must notify appropriate individuals that the financial statements should not be relied on b. the auditor must immediately notify regulatory agencies that the auditor's report cannot be relied on c. revised financial statements should be issued as soon as practicable

B

When subsequently discovered facts that would result in either the revision of the auditor's report or the financial statements are discovered after the audit report release date and individuals are continuing to rely on the statements, the ______ should notify the individuals that the statements should not be relied on. a. auditor b. client

A and B (D. Events are covered up to the date of the audit report)

Written representations ______. Select all that apply: a. are written on client letterhead and addressed to the auditor b. support other evidence obtained during the audit c. may be a substitute for substantive procedures d. cover events up to the financial statement date

A and C

Written representations are ______. Select all that apply: a. required before the audit can be completed b. signed by a member of the Board of Directors c. also known as client representations d. dates as of the date of the financial statement date