Quiz 13

Which of the following procedures would an auditor most likelyperform in obtaining evidence about subsequent events? a) Compare the latest available interim financial information with the financial statements being reported upon. b) Inquire about payroll checks that were recorded before the year-end but cashed after the year-end. c) Apply analytical procedures to the details of the balance sheet accounts that were tested at interim dates. d) Examine changes in the quoted market prices of investments purchased since the year-end.

a) Compare the latest available interim financial information with the financial statements being reported upon.

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was: a) Limited to the specific event referenced. b) Limited to include only events occurring up to the date of the last subsequent event referenced. c) Extended to include all events occurring since the original report date. d) Extended to subsequent events occurring through the later date.

a) Limited to the specific event referenced.

An auditor believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likelywould consider, as a mitigating factor, the entity's plans to: a) Issue stock options to key executives. b) Extend the due dates of existing loans payable. c) Accelerate expenditures for research and development projects. d) Operate at increased levels of production.

b) Extend the due dates of existing loans payable.

A purpose of a management representation letter is to reduce: a) The scope of an auditor's procedures concerning related party transactions and subsequent events. b) The possibility of a misunderstanding concerning management's responsibility for the financial statements. c) Audit risk to an aggregate level of misstatement that could be considered material. d) An auditor's responsibility to detect material misstatements only to the extent that the letter is relied on.

b) The possibility of a misunderstanding concerning management's responsibility for the financial statements.

The date of the management representation letter should coincide with the date of the: a) Balance sheet. b) Latest related party transaction. c) Auditor's report. d) Latest interim financial information.

c) Auditor's report.

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern? a) Research and development projects are postponed. b) Stock dividends replace annual cash dividends. c) Cash flows from operating activities are negative. d) Significant related party transactions are pervasive.

c) Cash flows from operating activities are negative.

In auditing contingent liabilities, which of the following procedures would an auditor most likely perform? a) Apply analytical procedures to accounts payable. b) Confirm the details of outstanding purchase orders. c) Read the minutes of the board of directors' meetings. d) Perform tests of controls on the cash disbursement activities.

c) Read the minutes of the board of directors' meetings.

Which of the following is the auditor's primary means of obtaining corroboration of information furnished by management concerning litigation, claims, and assessments? a) A review of contracts, leases, loan agreements, and similar documents. b) A letter of representation supplied by management. c) The minutes of stockholders and directors meetings. d) A letter of audit inquiry to the client's lawyer.

d) A letter of audit inquiry to the client's lawyer.

In auditing related party transactions, an auditor ordinarily places primary emphasis on: a) Verifying the valuation of the related party transactions. b) The probability that related party transactions will recur. c) Confirming the existence of the related parties. d) The adequacy of the disclosure of the related party transactions.

d) The adequacy of the disclosure of the related party transactions.