Chapter 11 - Smartbook

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

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

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.

attorney letter

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

dual date

Subsequent events provide evidence of conditions that ______.

existed at or arose following the date of the financial statements

For public entities, the communication of all significant internal control deficiencies must be made to the client in writing ______.

prior to the audit report release date

The auditor's report on the entity's financial statements covers all events that occur up to the ______.

date of the auditor's report

A contingent liability that requires special consideration by auditors is ______.

the outcome of litigation

statements regarding auditor evaluation of the materiality of misstatements

- The rollover method only considers current-period income effects. - Auditors may evaluate misstatements using either the rollover or iron curtain method. - Adjustments are not required but may be recommended. - Adjustments must be proposed if either methods indicate material misstatement.

Management letters ______.

- can make the client aware of other business services offered - are delivered to and discussed with the client

Engagement quality review ______.

- is required by GAAS - reviews whether audit evidence was sufficient to support the audit opinion - is also known as concurring-partner review - Someone not involved in the audit must conduct the review

Auditors are required to ______.

- obtain information from management regarding plans to mitigate the effects of going concern uncertainties - consider evidence that provides substantial doubt about the client's ability to continue as a going concern - The audit report does not need to be modified if substantial doubt does not exist.

Audit documentation review ______.

- provides an evaluation of the firm's audit practices - allows the firm to adhere to the performance principle - can be a component of staff training and evaluation - ensures the audit is conducted in accordance with GAAS

Written representations ______.

- support other evidence obtained during the audit - are written on client letterhead and addressed to the auditor - events are covered up to the date of the audit report

When subsequently discovered facts are discovered prior to the audit report release date ______.

auditors generally dual date the audit report

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

completion date

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.

iron curtain

Auditors should discuss pending litigation with the client's ______.

management and attorneys

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

management letter

Written representations are also known as _________ or __________ representations.

management or client representation

For nonpublic entities, the communication of all significant internal control deficiencies must be made to the client in writing ______.

no later than 60 days after the audit report release date

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

omitted

When omitted procedures are discovered ______.

revised reports may or may not be required

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

roll forward

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

roll-forward

When auditors use the ______ method to evaluate the materiality of uncorrected mistakes, only current-period income effect(s) are considered.

rollover

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

subsequent

Attorney letters should be sent ______.

to all attorneys who worked for a client during the period under audit