Module 5 - F,G

Which of the following statements ordinarily is not included among the written client representations made by the chief executive officer and the chief financial officer?

"Sufficient appropriate audit evidence has been made available to the auditor to permit the issuance of an unmodified opinion."

Which of the following matters most likely would be included in a management representation letter?

A confirmation that the entity has complied with contractual agreements

Which of the following is a subsequent event that occurs after the balance sheet date but before the audit report date, and should be adjusted to the financial statements in a financial statement audit?

A lawsuit pending is settled.

In a review engagement with comparative financial statements, the accountant must obtain representations from management for which of the following?

All financial statements and periods covered by the accountant's review report

When a client undertakes to disclose newly discovered facts and their impact on the financial statements to persons known to be currently using or likely to use the financial statements, which of the following methods should be used?

All of the answer choices could be used, given the particular circumstances.

What period of time should written representations cover in a financial statement audit?

All periods covered by the auditor's report

In a review engagement, how should the review accountant initially respond if the reviewed financial statements have been made available to third parties and a subsequently discovered fact becomes known?

Assess whether management takes appropriate steps to ensure financial statement users are made informed, as necessary

If the client refuses to disclose the newly discovered facts and their impact on the financial statements to persons known to be currently using or likely to use the financial statements prompting the accountant to notify third party users, which of the following guidelines should be used for such disclosure? The disclosure should include a description of the nature of the subsequently acquired information and its effect on the financial statements. The information disclosed should be as precise and factual as possible.

Both I and II

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

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

Which of the following procedures should an auditor generally perform regarding subsequent events?

Compare the latest available interim financial statements with the financial statements being audited

After issuing an auditor's report, an auditor becomes aware of facts that existed at the report date that would have affected the report had the auditor known of the facts at the time. What is the first thing the auditor should do?

Determine whether there are persons currently relying on, or likely to rely on, the financial statements and whether those persons would attach importance to the information

After the balance sheet date, an auditor's client suffers a material loss from a decline in value of marketable securities. Which of the following actions should the auditor advise the client to take?

Disclose the material loss in the financial statements to assure that the financial statements are not misleading

Zero Corp. suffered a loss that would have a material effect on its financial statements on an uncollectible trade account receivable due to a customer's bankruptcy. This occurred suddenly due to a natural disaster 10 days after Zero's balance sheet date, but one month before the issuance of the financial statements and the auditor's report. Under these circumstances: the financial statements should be adjusted. the event requires financial statement disclosure, but no adjustment. the auditor's report should be modified for a lack of consistency.

II only

Which of the following is a false statement regarding subsequent discovery of facts existing at the date of the accountant's compilation or review report?

If the engagement was a compilation, the accountant must modify his or her report for a lack of independence.

Of which of the following matters is a management representation letter required to contain specific representations?

Information concerning fraud by the CFO

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Inquire about the current status of transactions that were recorded on the basis of preliminary data.

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

Inquire of management whether there have been significant changes in working capital since the year-end.

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Inquiring as to whether any unusual adjustments were made after year-end

To which of the following matters would materiality limits not apply when obtaining written client representations?

Instances of fraud involving management

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Investigate changes in capital stock recorded after year-end

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

Investigate changes in long-term debt occurring after year-end

Which of the following is not an appropriate auditor response if management refuses to provide a written management representation letter?

Issue an unmodified opinion, with an other-matter paragraph discussing the lack of management representations

Key Co. plans to present comparative financial statements for the years ended December 31, 20X1 and 20X2, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 20X3. Key's current management team was not present until January 1, 20X2. What period of time should be covered by Key's management representation letter?

January 1, 20X1, through May 1, 20X3

Which of the following events requires adjustment to the financial statements for the year ended December 31, year 1?

Loss on an accounts receivable as the result of a customer suffering a deteriorating financial condition that led to bankruptcy filing in January, year 2

Which of the following items would most likely require an adjustment to the financial statements for the year ended December 31, Year 1?

Loss on an uncollectible trade receivable recorded in Year 1 from a customer that declared bankruptcy in Year 2

Before reissuing a company's prior-year review report, an accountant becomes aware of information that may have a material effect on the prior year's financial statements. Which of the following actions would be most appropriate for the accountant to take?

Make inquiries to determine how the information will affect the prior-year financial statements.

Which of the following statements would an auditor most likely require management to indicate in a written representation letter obtained for an audit?

Management acknowledges its responsibilities for the design and implementation of programs and controls to detect fraud.

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Management has made available to you all financial records and related data.

Which of the following management roles would typically be acknowledged in a management representation letter?

Management has the responsibility for the design of controls to detect fraud.

There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements. What is the most likely source of this statement?

Management representation letter

What is the most likely source of the following statement? "There has been no fraud involving management or employees who have significant roles in internal control."

Management representation letter

For which of the following matters should an auditor obtain written management representations?

Management's compliance with contractual agreements that may affect the financial statements

Which of the following events that occurred after a client's calendar-year end, but before the audit report date, would require disclosure in the notes to the financial statements, but no adjustment in the financial statements?

New convertible bonds are issued to expand the company's product line.

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

New information is discovered concerning undisclosed lease transactions of the audited period.

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

New information is discovered concerning undisclosed related party transactions of the prior year.

Which of the following events occurring after the issuance of the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

New information regarding significant unrecorded transactions from the year under audit is discovered.

Which of the following expressions most likely would be included in a management representation letter?

No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements.

An accountant is asked to issue a review report on the balance sheet, but not on other related statements. The scope of the inquiry and analytical procedures has not been restricted, but the client failed to provide a representation letter. Which of the following should the accountant issue under these circumstances?

None of the answer choices are correct.

Which of the following procedures is an accountant required to perform when reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS)?

Obtain a management representation letter

Which of the following procedures should an accountant perform during an engagement to review the financial statements of a nonissuer?

Obtaining a representation letter from members of management

Which of the following engagements performed under the Statements on Standards for Accounting and Review Services (SSARS) require(s) a written management representation letter to be obtained?

Reviews

On February 17, year 2, a company had a fire that destroyed a plant. The building and equipment had a net carrying amount of $640000 as of December 31, year 1. The company anticipates that insurance proceeds of $415000 will be received. The audit of the financial statements dated December 31, year 1, was completed February 25, year 2. How should the fire be reported in the financial statements for the year ended December 31, year 1?

The December 31, year 1, financial statements should disclose the effect of the fire with no financial statement adjustment.

Which of the following statements is false with respect to management representation letters on a review engagement?

The accountant acknowledges his or her responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows.

In an engagement performed in accordance with the Statements on Standards for Attestation Engagements (SSAEs), which of the following is true related to subsequent events?

The accountant should inquire as to whether the responsible party is aware of any subsequent events through the report date.

Which of the following statements is incorrect regarding notification of third parties if the client refuses to disclose newly discovered facts and their impact on the financial statements?

The accountant's disclosure should include a brief description of the client's conduct or motive with regard to its refusal to notify third parties.

Subsequent to the issuance of the audit report for the final year of a 3-year contract, a fact is discovered that may have affected the final year's report. Which of the following actions is the auditor required to take?

The auditor is required to determine whether the information is reliable and whether the facts existed at the date of the report.

An auditor withdrew from further association with a nonissuer entity after issuing an audit report on it. Subsequently, the auditor discovered facts that, if known to the auditor at the date of the auditor's report, could have caused the auditor to revise the report. Which of the following statements about this circumstance is correct?

The auditor should discuss the matter with management and, if it is determined that the financial statements need revision, ask how management intends to address the matter in the financial statements.

To which of the following matters would materiality limits not apply in obtaining written representations?

The availability of minutes of stockholders' and directors' meetings

Which of the following factors should an auditor consider most important upon subsequent discovery of facts that existed at the date of the audit report and would have affected the report?

The client's willingness to issue revised financial statements or other disclosures to persons known to be relying on the financial statement

Which of the following matters would an auditor most likely include in a management representation letter?

The completeness and availability of minutes of stockholders' and directors' meetings

Which of the following factors would least likely affect the quantity and content of an auditor's working papers?

The content of the representation letter

Which of the following statements is correct regarding a management representation letter?

The date of the representation letter should be the same as the audit report.

Under which of the following circumstances would an accountant most likely conclude that it is necessary to withdraw from an engagement to review a nonissuer's financial statements?

The entity declines to provide the accountant with a signed representation letter.

An auditor is reporting on comparative financial statements for three years. Which of the following statements is correct regarding written representations from management?

The representation letter needs to address all of the years being covered in the report.

Which of the following statements would not normally be included in a representation letter for a review of interim financial information?

We understand that a review consists principally of performing analytical procedures and making inquiries about the interim financial information.

"There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency." The foregoing passage is most likely from:

a management representation letter.

In obtaining written representations from management, materiality limits ordinarily would apply to representations related to:

amounts concerning related party transactions.

Management makes representations to the auditor through the audit process. Such representations:

are audit evidence, whether written or verbal.

The date of the management representation letter should coincide with the date of the:

auditor's report.

Management should address written representations about a firm's annual audit to the:

auditor.

An accountant is reporting on comparative financial statements that include year 1 and year 2 as part of a review engagement for a nonissuer. Current management was not in place until halfway through year 2. At the completion of the year 2 review, the accountant should obtain representations from management that cover:

both year 1 and year 2 from current management.

When searching for unrecorded liabilities at year-end, an auditor most likely would examine:

cash disbursements recorded in the period subsequent to year-end.

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations:

complement, but do not replace, substantive tests designed to support the assertion.

During an audit of a nonissuer, if the terms of a related party transaction are found to be materially inconsistent with the explanations provided by management, an auditor should:

consider the reliability of management's explanations and representations on other significant matters.

Subsequent to the issuance of an auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:

determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

Because of the pervasive effects of laws and regulations on the financial statements of governmental units, an auditor may consider obtaining written management representations acknowledging that management has:

identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.

After issuing an auditor's report, an auditor has no obligation to make continuing inquiries concerning audited financial statements unless:

information that existed at the report date and may affect the report comes to the auditor's attention.

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless:

information, which existed at the report date and may affect the report, comes to the auditor's attention.

Before issuing an unmodified report on a compliance audit, an auditor becomes aware of an instance of material noncompliance occurring after the period covered by the audit. The least appropriate response by the auditor would be to:

issue a qualified compliance report describing the subsequent noncompliance.

"There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices." The foregoing passage is most likely from a:

management representation letter.

During the annual audit of Ajax Corp., an issuer (publicly held) company, Jones, CPA, a continuing auditor, determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts involved were immaterial to the financial statements. Jones should reconsider the intended degree of reliance to be placed on the:

management representation letter.

An auditor most likely would issue a disclaimer of opinion because of:

management's refusal to furnish written representations.

If the client refuses to disclose the newly discovered facts and their impact on the financial statements to persons known to be currently using or likely to use the financial statements, all of the following steps should be taken by the accountant except:

notification to the Better Business Bureau.

On February 25, a CPA issued an auditor's report expressing an unmodified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that on February 11 the entity incurred a material loss on an uncollectible trade receivable as a result of the deteriorating financial condition of the entity's principal customer that led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to:

notify each member of the entity's board of directors about management's refusal to adjust the financial statements.

A CPA has been requested by a former audit client to reissue the auditor's report for the prior period. Before reissuing the report, the CPA should:

obtain a letter of representation from the former client's management.

An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year-end but arose after year-end. These events may be important to the auditor because they may:

require disclosure to keep the financial statements from being misleading.

The procedure, "The accountant should request written representation from members of management who have appropriate responsibilities for the financial statements...," is:

required for a review only.

Renfroe CPA is the predecessor auditor. The former client requests Renfroe CPA to reissue the report on prior-period financial statements, along with current-period financial statements for comparative purposes. As the predecessor auditor, Renfroe CPA:

should obtain an updated representation letter from former client management to ensure that no matters have occurred that would impact the previously released report.

If the client refuses to cooperate in disclosing the facts related to a subsequent discovery, the auditor should notify all the following except for:

the IRS.

In a review engagement, the review accountant is responsible for performing review procedures (including identifying subsequent events) through the date of:

the accountant's review report.

A subsequent event in a financial statement audit occurs after the balance sheet date but before:

the auditor's report date.

A purpose of a management representation letter is to reduce:

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

If a service auditor is unable to obtain a written assertion from the service organization's management regarding its system and the suitability of the design and operating effectiveness of controls, it would be most appropriate for the auditor to:

withdraw from the engagement unless prohibited by law.

If current audited entity management was not present during all periods covered by the auditor's report:

written representations are still required from current management on all periods covered by the auditor's report.