Audit SB 16

If the auditors determine the (known and likely) ______ misstatements are material to the financial statements, they will conclude that the risk of material misstatement is too high to issue an unqualified opinion on the financial statements.

Blank 1: aggregated

The relationship between the ______ (known and likely) misstatements and materiality is often documented in a working paper.

Blank 1: aggregated

True or false: Auditors use management review controls to help detect and correct misstatements that are not prevented or detected by other controls.

True

The distribution of pay through paychecks should be performed by ______.

a person with no other functions related to payroll

If, after issuing the audit report, the auditors determine they omitted significant audit procedures, the auditors should ______.

attempt to perform the omitted procedures as needed assess the importance of the omitted procedures consider consulting legal counsel

AICPA AU 240 and AICPA AU 250 require that the ______ be informed about fraudulent or illegal acts that the auditors become aware of, unless those acts are clearly inconsequential.

audit committee

Auditors should review the minutes of meetings of stockholders and directors, including meeting held through the date of the ______.

audit report

A loss contingency that is reasonably possible and can be reasonably estimated should ______.

be disclosed in a note to the financial statements

The SEC Staff Accounting Bulletin No. 108 requires that in considering the effects of prior year uncorrected misstatements, the auditor must review the ______.

both the rollover and iron curtain for materiality

General risk contingencies ______.

need not be presented in the financial statements

The interest revenue account is often verified by the auditors in conjunction with the audit of ______.

notes receivable

An auditor determines that rebates of insurance premiums were recorded to the miscellaneous revenue account. The auditor should propose an adjusting journal entry to classify the amount as ______.

unexpired insurance

Correspondence sent by auditors to a client's legal counsel requesting a description and evaluation of pending or threatened litigation, unasserted claims, and other loss contingencies is called a ______.

letter of inquiry

Examining subsequent cash disbursements is done to detect ______ that existed at year-end but were omitted in the client's financial statements.

liabilities

Auditors usually perform ______ substantive procedures on the statement of cash flows.

limited

The role of the payroll department should include ______.

printing pay checks

Analytical procedures related to selling, general, and administrative expenses include developing an expectation of the account balance and comparing the ______ with the expected account balance.

prior year balance

Audit procedures to detect and evaluate loss contingencies include reviewing reports and correspondence from ______ agencies to identify potential assessments or fines.

regulatory

Closely related to contingent liabilities are obligations termed _____ , which include agreements to purchase inventory or sell merchandise at specified prices.

Blank 1: commitments

The sales account is often verified by the auditors in conjunction with the audit of ______.

accounts receivable

The product warranty account is often verified by the auditors in conjunction with the audit of ______.

accrued liabilities

The cost of goods sold account is often verified by the auditors in conjunction with the audit of ______.

inventories

A subsequent event is an event occurring ______ the balance sheet date, and ______ to completion of the audit and issuance of the audit report.

after; prior

The representation letter should be signed by the client's principal officers as of the date of the ______.

audit report

An auditor determines that proceeds from sales of plant assets were recorded to the miscellaneous revenue account. The auditor should propose an adjusting journal entry to classify the amount as ______.

gain or loss on assets

Which of the following are required for a matter to be considered an unasserted claim? Multiple select question. It is probable that a loss will result. Legal counsel has devoted substantial attention to it. It is probable that a claim will be asserted.

Legal counsel has devoted substantial attention to it. It is probable that a claim will be asserted.

The FASB rejected ______ as a desirable characteristic of accounting information, suggesting that it is inconsistent with ______.

conservatism; neutrality

Procedures at the end of the audit include ______. Multiple select question. performing final tests of controls obtaining the representation letter performing procedures to identify gain contingencies searching for unrecorded liabilities

obtaining the representation letter searching for unrecorded liabilities

Auditors should obtain a summary of compensation of ______ for the year and compare to contracts, minutes of directors' meetings, or other authorization.

officers

The output of the payroll department includes ______. payroll journal signed payroll checks payroll distribution schedule individual employee statements of earnings

payroll journal payroll distribution schedule individual employee statements of earnings

Further audit procedures for payroll include ______. Multiple select question. examining contract and supporting records to test commission earnings analytical procedures to test the reasonableness of payroll expense reviewing all employee records to ensure proper payment Issuing standard confirmations to employees to confirm salaries

examining contract and supporting records to test commission earnings analytical procedures to test the reasonableness of payroll expense

Shortly after year end a client's major customer declared bankruptcy. As a result, a large account receivable outstanding at year end is now uncollectible. This subsequent event should ______.

result in an adjustment to the financial statements if caused by a condition outstanding at year end

Shortly after the balance sheet date, a company decided to sell additional capital stock. This subsequent event requires ______.

disclosure in the notes of the financial statements

The most important control over payroll is the ______.

division of payroll work among several departments

Auditors often develop an expectation of account balances for selling, general, and administrative expense accounts, and investigate balances that are significantly ______ than the expectations.

different

A subsequent event that involves conditions coming into existence after the balance sheet date requires ______.

disclosure in the financial statements

For auditors to issue an unmodified opinion, the estimate of the total misstatements has to be ______ less than a material amount.

significantly

A report by management discussing this year's operating results, financial summaries, employment data, and the names of officers and directors are all examples of ____ _____.

Blank 1: other Blank 2: information

Financial and nonfinancial information that is included in a document that contains audited financial statements but does not include required supplementary information is called _____ _____.

Blank 1: other Blank 2: information

The date auditors grant the client permission to use the audit report is called the ____ ____ date.

Blank 1: report Blank 2: release

AICPA AU 240 requires auditors to evaluate whether _____ ____ performed as substantive procedures or in the overall review stage indicate a previously unrecognized risk of material misstatement due to fraud.

Blank 1: analytical Blank 2: procedures

A client is aware of an unasserted claim that was not disclosed to the auditors. The auditors have sent a letter of inquiry to the client's attorney. The attorney ______.

is not required to describe the claim in the reply to the auditor should consider resignation if the client refuses to discuss the matter with the auditors

Conservatism in the valuation of assets means that when two (or more) reasonable alternative values are indicated, the accountant will choose the ______ amount.

lower

Auditors should obtain an understanding of ______ procedures to ensure that subsequent events are identified.

management's

AICPA AU 265 requires that the auditors communicate to the ____ ____ any significant deficiencies in internal control.

Blank 1: audit Blank 2: committee

Certain organizations are mandated by a designated accounting standard setter to present _____ _____ information as unaudited schedules accompanying the financial statements.

Blank 1: required Blank 2: supplementary

Most loss contingencies may also appropriately be called ______ _____ .

Blank 1: contingent Blank 2: liabilities or liability

Auditors consider the relevance of the assertions addressed, the level of aggregation of the data, the consistency of performance, the predictability of management expectations, and the criteria used to determine when items are investigated when evaluating management _____ _____.

Blank 1: review Blank 2: controls or control

A guarantee of collectibility is given when accounts receivable are sold ____ _____ .

Blank 1: with Blank 2: recourse

After the issuance of its audit report, a CPA firm encountered facts indicating the client's financial statements were materially misstated and, upon investigation, determined the facts were significant and existed at the date of the audit. The auditors should ______.

advise the client to make appropriate disclosure to anyone relying upon the audit report

Which of the following subsequent events requires disclosure in the notes to the financial statements?

A fire occurring after the balance sheet date that destroyed many plant assets.

Which of the following subsequent events requires an adjustment to the financial statement amounts?

A litigation settled after the balance sheet date resulting in a material liability.

True or false: Because of the potential risks, few companies outsource the payroll function.

False

A common characteristic of commitments is the contractual obligation to enter into transactions ______.

in the future

If a CPA firm discovers a material misstatement in audited financial statements after the auditors' report has been issued, and the client will not notify affected parties, the auditor should notify ______.

the client's board of directors regulatory agencies having jurisdiction over the client each person known to be relying on the audited financial statements

For the auditors to issue an unmodified opinion ______.

they must conclude there is a low risk of material misstatement

Which of the statements regarding required supplementary information (RSI) are correct?

Auditors are required to compare RSI for consistency to the basic financial statements and other knowledge obtained during the audit. Auditors are required to obtain written representations from management regarding this information

An approach to making materiality judgments that quantifies the total likely misstatement as of the current year-end based on the effects of reflecting all misstatements existing in the balance sheet at the end of the current year, irrespective of whether the misstatements occurred in the current year or previous year is called the ______ approach.

iron curtain

To identify subsequent events, auditors should perform inquiry of ______ about whether subsequent events have occurred.

management

The primary purpose of the _____ letter is to have the client's principal officers acknowledge that they are primarily responsible for the fairness of the financial statements.

Blank 1: representation

Outsourcing the payroll function ______.

is often cost beneficial provides the expertise that some companies lack

The review of the work of the audit staff is primarily accomplished through a review of the ______.

working papers

True or false: An unqualified opinion cannot be issued if there is a change in accounting principle or when other auditors are involved in an audit.

False

The auditors' report should ______.

be dated at the last day of fieldwork or later

The review of the audit working papers at or near the completion of fieldwork is generally done by ______.

the partner in charge of the engagement

A $20,000 overstatement of prepaid rent is an example of a known or _____ misstatement.

Blank 1: factual

A possible loss stemming from past events that will be resolved by some future event is called a loss _______ .

Blank 1: contingency

Auditors should review ______ the of meetings of stockholders and directors, including important subcommittees of directors, such as the audit committee and the investment committee.

Blank 1: minutes

Information presented outside the basic financial statements, excluding required supplementary information, that is not considered necessary for the financial statements to be fairly presented in accordance with the applicable financial reporting framework is called ______ information.

supplementary

An auditor determines that proceeds from the sale of scrap were recorded to the miscellaneous revenue account. The auditor should propose an adjusting journal entry to classify the amount as:

a reduction to cost of goods sold.

A subsequent event requiring footnote disclosure occurs after the audit report date but before the report release date. If the auditors only want to extend their responsibility for disclosure to the specific item being footnoted, they must ____ - ___ their report.

Blank 1: dual Blank 2: date

Differences between management and the auditors concerning accounting estimates, or the selection or application of accounting policies the auditors consider inappropriate give rise to ______ misstatements.

Blank 1: judgmental

Correspondence sent by auditors to a client's legal counsel requesting a description and evaluation of pending or threatened litigation, unasserted claims, and other loss contingencies is known as a(n) ____ of _____ .

Blank 1: letter Blank 2: inquiry

In FASB ASC 450-20, "Loss Contingencies," the Financial Accounting Standards Board states that contingent liabilities should be reflected in the accounting recorded when information available prior to the issuance of the financial statements indicates that a loss is _____, and that the amount of the loss can be _____ estimated.

Blank 1: probable Blank 2: reasonably

After all procedures have been performed, and the auditors have obtained ______ assurance that the financial statements follow GAAP, the audit has been performed in accordance with GAAS, including no significant ______ ______ , an unqualified opinion will ordinarily be issued.

Blank 1: reasonable Blank 2: scope Blank 3: limitations or limitation

An event occurring after the date of the balance sheet but prior to completion of the audit and issuance of the audit report is called a(n) _____ event.

Blank 1: subsequent

If the client has sold or assigned any receivables, the auditor must ______.

confirm by direct communication with the purchaser or assignee

AICPA AU 725 provides guidance on supplementary information regarding ______.

comparing information with accounting records inquiry of management obtaining written representations from management

A very large customer's check included in cash receipts of the last day of the year proves to be uncollectible and is charged back to the client's account by the bank. This subsequent event requires ______.

an adjustment to the financial statements

After issuing the audit report, a CPA firm determines the auditors omitted significant audit procedures. They believe the omitted procedures impair their ability to support their previously issued opinion that is still being relied on by third parties. The CPA firm should ______.

attempt to perform the omitted procedures

Shortly after year end a client's customer suffered a major fire which resulted in the customer filing for bankruptcy. As a result, a large account outstanding at year end is now uncollectible. This subsequent event should ______.

be disclosed in a note to the financial statement

Audit procedures to detect and evaluate loss contingencies include obtaining a representation letter from the ______ indicating that all liabilities known to officers are recorded or disclosed.

client

When auditing the statement of cash flows, the auditors should determine that the concept of ______ analyzed in the statement agrees with the amount shown on the balance sheet.

cash and cash equivalents

Risks of loss from numerous factors that all businesses face are called ____ _____ contingencies.

general risk