Auditing Chpt 11

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity? Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern. Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern.

Navarre, CPA has just issued his report on Big Blue's financial statements. Following the audit report release date, he learned of an event that occurred after the date of the auditors' report. What is Navarre's most appropriate response?

Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event.Correct

Which of the following would ordinarily not be performed in the auditors' examination of litigation, claims, and assessments?

Confirm litigation, claims, and assessments with parties bringing suit or action against the client.

Which of the following is an audit procedure that auditors most likely would perform concerning litigation, claims, and assessments? Request the client's attorney to evaluate whether the client's pending litigation claims, and assessments indicate a going concern problem. Confirm directly with the client's attorney that all litigation, claims, and assessments have been recorded or disclosed in the financial statements. Examine the legal documents in the client's attorney's possession concerning litigation, claims, and assessments to which the attorney has devoted substantive attention. Discuss with management its policies and procedures adopted for evaluating and accounting for 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 parties provides a review of audit documentation for the primary purpose of ensuring that the quality of the work and reporting is consistent with the quality standards of the public accounting firm? Engagement partner. Engagement quality reviewer. Audit supervisor. Audit manager.

Engagement quality reviewer.

Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements Failure to meet forecasted earnings per share Negative cash flow from operations for each of the last three years Legal proceedings that may have a significant negative impact on the entity Violation of debt covenants

Failure to meet forecasted earnings per share

Auditors' initial source of information about litigation, claims, and assessments is the client's attorney.

False

Subsequently discovered facts are matters identified by auditors after the date of the financial statements but prior to the date of the auditors' report.

False

The attorney letter is ordinarily requested directly from the attorney by auditors.

False

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

False

While useful, analytical procedures are not required near the end of the audit as a final review of financial statements.

False

Written representations should be dated as of the date of the financial statements.

False

subsequently discovered facts

Information that becomes known to auditors after the date of their report that, had it been known at that time, may have caused the auditors to revise their report

attorney letter

A communication prepared by the client but sent by the auditors to the client's attorneys that details all pending litigation, claims, and assessments against the client and that requests the attorneys to comment on these matters directly to the client's auditors.

Which of the following is typically not included in the inquiry letter sent to the client's attorneys? A listing of pending or threatened litigation, claims, or assessments A disclaimer regarding the likelihood of settlement of pending litigation An evaluation of the likelihood of an unfavorable outcome An estimate of the range of potential loss

A disclaimer regarding the likelihood of settlement of pending litigation

unasserted claim

A representation that no formal lawsuit or assertion has been filed or threatened on behalf of others against the audit client but that circumstances such as a catastrophe, accident, or other physical occurrence could result in a suit or assertion being filed in the future.

written representation

A written assertion provided by management to auditors related to the entity's financial statements, the information provided to the auditors, and management's internal control over financial reporting to confirm certain matters and support other evidence obtained during the audit

Assume that Krenzel Company is subject to a class action lawsuit from its customers resulting from the failure of one of its projects. The suit was filed on November 10, 2014 and properly disclosed in Krenzel's December 31, 2014 financial statements. Krenzel's auditors completed their engagement and their report (along with Krenzel's financial statements) were released on February 5, 2015. How would a settlement of this lawsuit on January 17, 2015 be properly reflected in Krenzel's financial statements?

Krenzel would adjust its disclosure of the lawsuit to reflect the effects of this settlement.

Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously-issued financial statements? An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. A subsidiary is sold that accounts for 25% of the entity's consolidated net income. A contingency is resolved that had been disclosed in the audited financial statements. New information is discovered concerning undisclosed lease transactions during the period under audit.

New information is discovered concerning undisclosed lease transactions during the period under audit.

Which of the following forms of communication ordinarily do not take place following completion of the audit examination?

Attorney letter.

To whom should written representations be addressed? Auditors Board of directors Client Stockholders

Auditors

For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit? Obtaining evidence about assertions related to account balances or classes of transactions Identifying unusual or unexpected account balances or relationships among account balances that were not previously identified during the audit Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances Evaluating the adequacy of evidence gathered in response to unexpected account balances

Obtaining evidence about assertions related to account balances or classes of transactions

Which of the following substantive procedures would not ordinarily be used by auditors in evaluating the potential existence of subsequent events? Performing cut-off testing near year end Inquiring of officers and other client executives Reviewing the latest interim financial statements Obtaining written representations

Performing cut-off testing near year end

analytical procedures

Procedures that allow auditors to evaluate financial information by studying relationships among both financial and nonfinancial data. When used near the end of the audit, analytical procedures allow auditors to assess the conclusions reached during the audit and evaluate the overall financial statement presentation.

Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events? Confirming a sample of material accounts receivable established after year-end Inquiring as to whether any unusual adjustments were made just before year-end Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements Comparing the financial statements being reported on with those of the prior period

Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements

Which of the following is not ordinarily associated with the time period following the audit report release date?

Roll-forward work.

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

Significant events occurring between the date of the audit report and the release date may result in a dual dated report.

Which of the following events or activities may occur following the audit report release date? Subsequently discovered facts Roll-forward work Subsequent events Interim testing

Subsequently discovered facts

audit report release date

The date on which auditors allow the client to use their reports in conjunction with the financial statements; also the date on which the client's financial statements are issued.

date of the auditor's report (audit completion date)

The date on which auditors have gathered sufficient appropriate evidence on which to base their opinions on the financial statements and internal control over financial reporting.

individual(s) charged with governance

The person(s) responsible for overseeing the client's financial reporting process, including the internal control over financial reporting; individuals charged with governance may include the client's management and full board of directors, but typically refers to public entities' audit committee of the board of directors.

roll-forward procedures

The procedure(s) performed by auditors to extend the conclusions from an interim date to the date of the financial statements

What is the primary purpose of obtaining written representations? To allow auditors to communicate important internal control deficiencies to management To allow auditors to communicate important suggestions for improvement to management To provide auditors with substantive evidence of important assertions To impress upon management its primary responsibility for the financial statements

To impress upon management its primary responsibility for the financial statements

Auditors' communications with the individuals charged with governance of the client can be provided either during the audit or at the conclusion of the audit.

True

Interim testing is ordinarily done prior to the date of the financial statements.

True

One purpose of obtaining written representations is for management to acknowledge their responsibility for the fairness of the financial statements.

True

Reviewing the latest interim financial statements is one method of identifying subsequent events.

True

Subsequent events may provide additional information about a condition that existed at the date of the financial statements.

True

The existence of "miscellaneous" revenue or expense accounts may signal the practice of earnings management.

True

A form of communication used by auditors to ensure that all significant matters have been disclosed to auditors during the engagement is a(n):

Written representations.

contingency

an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the: audit report release date. date of the auditors' report. subsequent year's date of the financial statements. date of the financial statements.

audit report release date.

An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the: audit plan procedures are "signed off." audit work meets the quality standards of the firm. "to-do lists" are reviewed and cleared. tick-mark notations are cleared.

audit work meets the quality standards of the firm.

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

contingent liabilities

Roll-forward work normally occurs between the ____ and the ____. date of the financial statements; audit report release date date of interim work; date of the auditors' report beginning of the year under audit; date of the financial statements beginning of the year under audit; audit report release date

date of interim work; date of the auditors' report

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

date of the auditor's report

Subsequent events occur between the ____ and the ____. date of the financial statements; audit report release date date of the auditors' report; audit report release date audit report release date; beginning of subsequent year's audit date of the financial statements; date of the auditors' report

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

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

earnings management.

subsequent events

events occurring between the date of the financial statements and the date of the auditor's report

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

interim testing

An important method used by auditors to learn of material contingencies is obtaining responses to an attorney letter. inquiring and discussing them with management. confirming accounts receivable with the client's customers. examining documents in the client's possession concerning contingencies.

obtaining responses to an attorney letter.

Near the end of an audit, the application of analytical procedures is required by auditing standards. not useful, since detailed substantive procedures have already been performed. not mentioned by auditing standards. recommended by auditing standards.

required by auditing standards.

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

roll-forward

Management letters are not a means of reporting recommendations to the client. developing rapport with the client. satisfying professional requirements to communicate matters related to the client's internal control. assisting the client in improving its operations.

satisfying professional requirements to communicate matters related to the client's internal control.

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 some financial statement users are currently relying on the auditors' reports. the risk of adverse publicity or litigation is low. the auditors' opinion was qualified because of a departure from generally accepted accounting principles. the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

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

date of the financial statements

the year-end date of the latest period covered by the client's financial statements

Long and Short, CPAs, were auditing Island Corporation for the year ended December 31, 2017. On January 11, 2018, a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in their warehouse on January 8, 2018. As a result, a material accounts receivable from the customer was determined to be uncollectible. Long and Short, CPAs, would expect the client to file a lawsuit against the customer in hopes of collecting some of the money owed to the client. treat the loss as a subsequent event and provide a footnote about the loss in the 2017 financial statements. treat the loss as a subsequent event and adjust the 2017 financial statements to record the loss on uncollectible accounts. record the loss on uncollectible accounts as a routine transaction in the year 2018.

treat the loss as a subsequent event and provide a footnote about the loss in the 2017 financial statements.