ACC 403 Final Prep Chapter 14

T or F: An adversarial audit firm culture helps ensure audit quality by creating an atmosphere in which individual auditors will not give into pressure from clients to overlook detected misstatements.

F

T or F: For privately held companies, the purpose of the engagement quality review is to help assure that the audit and audit documentation are complete and support the audit opinion on the client's financial statements and internal controls.

F

T or F: Strict adherence to a disclosure checklist will reliably result in complete and full disclosures.

F

T or F: The auditor is responsible for designing and maintaining policies and procedures to identify, evaluate, and account for loss contingencies; management is responsible for determining that the auditor has properly identified, accounted for, and disclosed material loss contingencies.

F

T or F: The legal implications of a client's noncompliance with laws and regulations are ultimately a matter for the auditor to resolve before the auditor can issue the audit opinion.

F

T or F: The management letter confirms responses obtained by the auditor earlier in the audit and the continuing appropriateness of those responses.

F

Which of the following is the best description of a management representation letter? a. The letter is signed by both the CEO and CFO, dated as of the audit report date, and prepared by the auditor. b. The letter is prepared by management and signed by the CEO and CFO. It is dated as of the audit report date. c. The letter is signed by the CFO, dated as of the balance sheet date, and prepared by the auditor. d. The letter is prepared and signed by the auditor and witnessed by the CEO and CFO, it is dated as of the balance sheet date.

A

Which of the following statement is true about an auditor's responsibility for subsequent events (events that occur after the balance sheet date)? a. The auditor must adjust the books for subsequent events for which evidence about the conditions existed on the balance sheet date. b. The auditor must report to management all subsequent events that occur between the balance sheet date and the date of the release of the audit report, but will make no changes to the financial statements. c. The auditor has no responsibility for events that occur after the client's balance sheet date. d. The auditor must disclose in the footnotes, but not make adjustments to the books, all subsequent events for which evidence about the conditions existed and could be adequately measured on the balance sheet date.

A

Which of the following statements concerning review analytical procedures is false? a. The auditor's expectations in review analytical procedures should be more precise than those for substantive analytics. b. Ratio analysis, common-size analysis, and analysis of the dollar and percentage changes in each income statement item over the previous year are useful for performing review analytical procedures. c. Review analytical procedures helps auditors assess the overall presentation of the financial statements. d. Auditing standards require the use of review analytical procedures to assist in identifying ending account relationships that are unusual.

A

Which of the following is not a typical communication between the auditor and the audit committee at the end of an audit engagement? a. Discussion of the auditor's responsibility. b. Discussion of the client continuance decision. c. Discussion about auditor independence. d. Discussion about management judgments and accounting estimates.

B

In completing the audit, the auditor communicates with management via the management letter. Which of the following statements is false about management letters? a. The management letter is used to make significant operational or control recommendations to management. b. The management letter is not required but simply a added document to make the audit more reliable. c. The management letter is required for publicly traded companies in the U.S., but not privately held companies. d. Many audit firms consider management's inattention to addressing comments in the letter to be an important risk factor in subsequent-year audits.

C

In completing the audit, the auditor should review the adequacy of the disclosures in the financial statements. When assessing the disclosures, the auditor should have reasonable assurance about which of the following? a. The disclosed events and transactions have occurred and pertain to the entity. b. All the disclosures that should have been included are included. c. The disclosures are understandable to users. d. All of these.

D

In which of the following situations will an auditor evaluate the likelihood of a client being a going concern? a. Only when negative trends within the business are present. b. Only when there are significant internal matters such as the loss of key personnel. c. An auditor will evaluate both the client's industry and the overall health of the economy in deciding whether to assess the likelihood of a client being a going concern. d. Each audit will include an assessment of the client being a going concern

D

The analytical procedures of the financial statements of Koss Corporation that are depicted in Exhibit 14.3 reveal which of the following indicators of the fraud? a. Cash balances had declined to their lowest level since FYE 2004. b. Cost of goods sold as a percentage of sales had risen sharply over the period, with a particularly significant increase from FYE 2008 to 2009. c. Net income as a percentage of sales had decreased sharply over the period, with a particularly significant decrease from FYE 2008 to 2009. d. All of these narrative answers are correct.

D

Which of the following provisions of the Foreign Corrupt Practices Act is known as the anti-bribery provision? a. Grease payments in which an official is paid to expedite the performance of duties that the official would already be bound to perform are impermissible. b. Companies that have securities listed on U.S. markets must design and maintain an adequate system of internal accounting controls. c. Companies that have securities listed on U.S. markets must make and keep financial records that accurately and fairly reflect the company's transactions. d. No U.S. person or company that has securities listed on U.S. markets may make a payment to a foreign official to obtain or retain business.

D

T or F: In its Observations Related to the Implementation of the Auditing Standard on Engagement Quality Review report, the PCAOB noted significant defects in detecting audit deficiencies by the engagement quality review.

T

T or F: Objective criteria for evaluating the quality of the client's accounting policies is not available; assessing the quality, not just the acceptability of the significant accounting policies, is a matter of professional judgment.

T

T or F: Review analytical procedures are performed to provide evidence on whether certain relationships make sense in light of the knowledge obtained and documented during the audit.

T

T or F: The documentation of an engagement quality review should contain sufficient information to enable an experienced auditor, having no previous connection with the engagement, to understand the procedures performed by the engagement quality reviewer to comply with PCAOB's AS 1220 Engagement Quality Review standard.

T

T or F: The going-concern evaluation is based on information obtained from normal audit procedures performed to test management's assertions; no separate procedures are required, unless the auditor believes that there is substantial doubt about the client's ability to continue as a going concern

T