Auditing Eaxm 4 second to last
Which of the following statements is correct?
Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk.
The three sections of the PCAOB report are: Opinion of the Financial Statements; Basis for Opinion; and _____ _____ _____.
Blank 1: Critical Blank 2: Audit Blank 3: Matters
Paragraphs that provide information fundamental to understanding the entity's financial statements are known as _____ -of- _____ paragraphs.
Blank 1: Emphasis Blank 2: Matter
An approximation of a financial statement element, item or account is called a(n) _____ _____.
Blank 1: accounting Blank 2: estimate
Salvage values, security valuations, goodwill impairment and imputed interest rates are all examples of _____ _____.
Blank 1: accounting Blank 2: estimates
Auditors must ensure that a sale made to related parties is the equivalent of a(n) ______ ______ transaction.
Blank 1: arm's Blank 2: length
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.
Blank 1: attorney Blank 2: letter
The classification of a security as trading or _____ _____ _____affects whether changes in value influence net income.
Blank 1: available Blank 2: for Blank 3: sale
The two types of scope limitations are _____ - imposed and _____ - imposed.
Blank 1: client Blank 2: circumstance or circumstances
When auditing long-term liabilities and related accounting, the most important balance sheet assertions are _____ along with _____ and _____.
Blank 1: completeness Blank 2: presentation Blank 3: disclosure
Situations in which an entity does not follow GAAP in preparing its financial statements are referred to as _____ _____ GAAP.
Blank 1: departures or departure Blank 2: from
When group auditors decide to refer to the work and reports of component auditors, it is referred to as a(n) _____ _____ _____.
Blank 1: division Blank 2: of Blank 3: responsibility
When group auditors decide to refer to the work and reports of component auditors, it is referred to as a(n) _____ of _____.
Blank 1: division Blank 2: responsibility
Only high-ranking officers should have access to negotiable certificates and two people should be required to access the documents which is known as ________ __________ or in its strictest form, joint custody.
Blank 1: dual Blank 2: control
When subsequently discovered facts are discovered prior to the audit report release, auditors normally choose to _____ _____ the report.
Blank 1: dual Blank 2: date
Audit work performed between the beginning of the year and the date of the financial statements is referred to as
Blank 1: interim Blank 2: testing
When it it not possible for one person to access a safe, cabinet or drawer, a strict form of dual control, known as ______ ______ has been implemented.
Blank 1: joint Blank 2: custody
Clauses in borrowing agreements intended to keep the borrower's financial position at a level that will ensure repayment are called _____ _____
Blank 1: loan Blank 2: covenants
Written representations are also known as _____ or _____ representations.
Blank 1: management Blank 2: client
Near the end of the audit, recommendations to the client are summarized in a document commonly referred to as the _____ _____.
Blank 1: management Blank 2: letter
AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as _____ opinions.
Blank 1: modified
Examining material account transactions that occur between the interim testing date and the date of the financial statements is a common _____-_____ procedure.
Blank 1: roll Blank 2: forward
If relevant internal controls are effective, auditors may use _____ - _____ procedures to move interim conclusions to the year-end date.
Blank 1: roll Blank 2: forward
When an audit team is unable to obtain sufficient, appropriate evidence, a(n) _____ limitation exists.
Blank 1: scope
A deficiency (or combination of deficiencies) that does not result in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis but is considered important enough to merit attention to those charged with governance is a(n) _____ _____.
Blank 1: significant Blank 2: deficiency
When no material issues are encountered during the audit and the financial statements are prepared in accordance with GAAP a(n) _____ audit report is appropriate.
Blank 1: standard or unmodified
Facts that become known to auditors after the the date of the audit report that may have caused a report revision are known as _____ _____ facts.
Blank 1: subsequently Blank 2: discovered
A proposed adjustment to the financial statements that the client decides not to make is called a(n) _____ _____.
Blank 1: uncorrected Blank 2: misstatement
The four types of audit opinions are a(n) _____ opinion, a(n) _____ opinion, a(n) _____ opinion and a disclaimer of opinion.
Blank 1: unmodified or unqualified Blank 2: qualified or modified Blank 3: adverse
Both prior-year audits and information that has come to the auditor's attention since then (particularly in the most recent audit) is the basis for a(n) _____ report.
Blank 1: updated
Emphasis-of-matter and other-matter paragraphs may be collectively referred to as _____ paragraphs.
Explanatory
True or false: Auditors are expected to design and perform procedures solely for the purpose of identifying conditions that indicate going-concern uncertainties.
False
True or false: Reliance on controls normally reduces the extent of auditors' substantive procedures on finance and investment cycle accounts.
False
True or false: When auditors are engaged to examine and report on supplementary information, the conclusion will express an opinion on the information.
False
Which of the following statements are true?
Investment type can have a huge influence on the effort required by the auditor. There is not a "typical" finance and investment cycle that applies to all companies.
Which of the following statements are correct?
Reliance on controls does not normally reduce the extent of substantive procedures on finance and investment cycle accounts. A lack of controls in the finance and investment cycle can lead to significant extended procedures. Tests of controls in the finance and investment cycle for nonpublic clients may be limited to entity level.
Which of the following statements regarding engaging auditors to examine and report on summary financial statements are correct?
The report must refer to the audit report on the full financial statements. Auditors must have audited the full financial statements to accept.
True or false: Authorization is a critical issue for most of the transactions in the financing and investing cycle.
True
When auditors are faced with a score limitation during an audit, a(n) ______ opinion is not typically issued.
adverse
Loan covenant violations ______.
allow the lender to call the debt may cause managers to misstate other accounts may lead to an audit report modification
When auditors are engaged to examine and report on supplementary information ______.
an other-matters paragraph may be added to the audit report a separate report on the information may be prepared
An overall review of the reasonableness of accounting estimates is similar in nature and purpose to the role of _____ procedures conducted near the end of the audit.
analytical
Auditor communications to individuals charged with governance include ______.
any disagreements with management auditors' responsibility under GAAS judgment about the quality of critical accounting policies and estimates
Common problems in the finance and investment cycle are often the result of failure to ______.
appropriately adjust asset valuations as needed record and disclosure transactions
Record keeping for many types of investments and intangibles ______.
are ripe areas for understatement of expenses involve complex accounting standards require management estimates
The basis for opinion section for issues indicates the ______.
audit provides a reasonable basis of the opinion responsibilities of management and the auditors
When subsequently discovered facts are discovered prior to the audit report release date ______.
auditors generally dual date the audit report
When the market is down, managers are motivated to classify securities as ______ to remove the losses from net income.
available for sale
Auditors should ensure that ______ have been properly disclosed.
both favorable and unfavorable contingencies
Management letters ______.
can make the client aware of other business services offered are delivered to and discussed with the client
Plans for asset purchases and business acquisitions are detailed in a(n) __________ budget.
capital
The authorization for the purchase of large assets will likely reside in the ______.
capital budget
Financial planning starts with the ______.
cash flow forecast
The audit report on the financial statements expresses an opinion on whether the financial statement present, in accordance with GAAP, the entity's ______.
cash flows results of operations financial position
Responsibility for adjusting the financial statements for auditor proposed adjustments rests with the ______.
client
An activity used because a specific standard control activity is not is place is called a(n) ______ control.
compensating
Problems in the finance and investment cycle can occur because ______.
complex transactions make accounting difficult of intentional errors in management estimates transactions are infrequent
Auditors are required to ______.
consider evidence that provides substantial doubt about the client's ability to continue as a going concern obtain information from management regarding plans to mitigate the effects of going concern uncertainties
Auditors are responsible for ______ accounting estimates.
considering the reasonableness of
ASC 718 requires that employee stock-based compensation plans be ______.
credited to paid-in-capital expensed over the compensation period recorded when the award is granted
Subsequently discovered facts become known to the auditor after the ______.
date of the auditor's report
The auditor's report on the entity's financial statements covers all events that occur up to the ______.
date of the auditor's report
The auditors have gathered sufficient, appropriate evidence on which to base their report at the ______.
date of the auditor's report
Complex transactions are ______ the balance sheet.
difficult to audit even if they reach
When auditors find a departure from GAAP during an audit, a(n) ______ opinion is not typically appropriate.
disclaimer of
Off-balance sheet transactions include ______.
endorsements on discounted notes repurchase agreements letters of credit
When auditing employee share option plans, auditors must ______.
ensure Board of Director approval of the plan follow standards for auditing fair value estimates follow standards for auditing accounting estimates
Auditing fair value measurements is similar to auditing accounting _____.
estimates, estimation, or estimations
When considering controls over those who do record keeping in the finance and investment cycle ______.
evidence from prior audits can indicate employee competence levels hiring practices may be considered employee turnover is a significant risk factor
Subsequent events provide evidence of conditions that ______.
existed at or arose following the date of the financial statements
Difficult-to-value assets include ______.
goodwill investments in unique assets financial instruments
Transactions in the finance and investment cycle ______.
have been a leading cause of financial statement restatements can be inherently risky for the auditor must be understood by the client's accountants
Off-balance sheet transactions ______.
have been reduced by new accounting standards often cause financial reporting and disclosure problems include fixed price commitments
Marketable debt security investment classified as ______ are not subject to mark-to-market accounting on the face of financial statements.
held-to-maturity
Regarding the finance and investment cycle, most relevant assertions and the amount of work to be done is _______.
hugely impacted by the type of investment
Material misstatements can incur when ______.
impairment write-offs have been delayed assets are overstated due to impairment
New leasing standards ______.
increase disclosure requirements reduce the risk of off-balance sheet transactions increase risk for lease auditing
A written agreement between bond issuers and bondholders is called a bond _____.
indenture
The amount and terms of bonds payable, mortgages payable, and other formal debt instruments can be verified by reading the bond ____.
indenture
A situation in which the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion is a(n) ______.
internal control deficiency
When the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion a(n) ______ exists.
internal control deficiency
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
The standard auditors' report on the financial statements for nonpublic entities ______.
is also referred to as the ASB report should have a title that stresses auditor independence
Required SEC financial information ______.
is filed using Form 10-K must be filed within 60 to 90 days of the end of the fiscal year includes audited financial statements
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
When group auditors decide to refer to the work and reports of component auditors ______.
it is referred to as a division of responsibility the extent of the component auditors' work must be disclosed
With respect to required supplementary information, audit teams are required to perform ______ procedures.
limited
With the exception of stock-based compensation plans, audits of stockholders' equity are considered to be ______ risk.
low
Record keeping complications for many types of investments and intangibles arise from ______.
maintenance of the accounts over time
Auditors should discuss pending litigation with the client's ______.
management and attorneys
A deficiency (or combination of deficiencies) that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis is a(n) ______.
material weakness
When there is a reasonable possibility that a material misstatement would not be prevented or deducted on a timely basis a(n) ______ exists.
material weakness
When a company chooses to present non-required supplementary information in the annual report, the company ______ engage auditors to examine and report on the information.
may
When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______.
may add additional paragraphs to their report
A departure from GAAP ______.
may be ignored if immaterial
When auditing public entities, auditors ______.
may either prepare separate reports or provide a single, combined report
Non-issuers ______.
may need audited financial statements as a condition for certain activities are not subject to SEC filing or audit requirements
Transactions in the finance and investment cycle ______.
may require third parties to control management include transactions that are difficult to value are often large and complex
Complex transactions that can be used as vehicles to hide fraud include ______.
mergers and acquisitions instruments with both debt and equity characteristics
A letter of inquiry to an attorney ______.
must be sent directly from the client
Transactions in the finance and investment cycle ______.
must be understood by the client's accountants have been a leading cause of financial statement restatements can be inherently risky for the auditor
Issuers ______.
must include footnotes and other required disclosures along with the audited financial statements file their SEC reports using Form 10-K
When component auditors are used in the audit of group financial statements, the group auditors ______.
must obtain information about the independence and reputation of the component auditors may decide to assume full responsibility for the component auditors' work
When an annual report contains other information such as a president's letter or MD & A, the auditor ______.
must read the information and determine if it is consistent with audited financial statements
When annual reports contain MD&A, financial summaries, ratios, or other management commentary, audit teams ______.
must read the information and determine whether it is consistent with audited financial statements or contains material misstatements
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
Auditors typically approach audits of ______ transactions with a substantive approach.
nonroutine
With respect to required supplementary information included with the basic financial statements, auditors are required to ______.
obtain written representations from management compare information with the financial statements for consistency
Transactions in the financing and investment cycle ______.
occur infrequently vary greatly in type are for large dollar amounts
The situation where auditors failed to perform necessary audit procedures prior to the audit report release date is referred to as _____ procedures.
omitted
Auditors may be engaged to examine and report on summary financial statements ______ audited the full financial statements.
only if they have
Audits teams may be engaged to examine and report on condensed financial statements ______ audited the full financial statements.
only if they have
When companies present required supplementary information, auditors are required to expand their report to include an ______.
other-matter paragraph
Auditor communications to individuals charged with governance include ______.
overview of audit scope and timing representations requested from management. significant difficulties encountered during the audit
Difficult-to-value assets include ______.
pension assets and liabilities derivatives intangible assets debt and equity securities
In regards to required supplementary information, audit teams are required to ______.
perform limited procedures with respect to the information obtain written representations from management
When auditing long-term liabilities and related accounting, the most important balance sheet assertions are ______.
presentation and disclosure completeness
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
When auditing fair value measurements the auditor must determine if the valuation principles used are ______.
properly disclosed consistently applied supported by documentation
Auditor recommendations for adjustments to the financial statements are considered to be _____ to indicate management's responsibility for the financial statements.
proposed
Audit documentation review ______.
provides an evaluation of the firm's audit practices can be a component of staff training and evaluation allows the firm to adhere to the performance principle
SEC filing and audit requirements apply to ______.
public entities only
When a scope limitation is material and alternative procedures cannot be performed, a(n) ______.
qualified or disclaimer of opinion must be issued
Common problems in the finance and investment cycle are often the result of failure to ______.
record and disclosure transactions appropriately adjust asset valuations as needed
One that can exert significant influence over another is a(n) _____ party.
related
Attorney letters should be ______.
requested by the client and mailed by the auditor with responses sent directly to the auditor
New leasing standards ______.
require all leases to be accounted for using imputed present value estimates require all leases greater than 12 months to be capitalized
Engagement quality review ______.
reviews whether audit evidence was sufficient to support the audit opinion is required by GAAS is also known as concurring-partner review
When omitted procedures are discovered ______.
revised reports may or may not be required
When auditors use the ______ method to evaluate the materiality of uncorrected mistakes, only current-period income effect(s) are considered.
rollover
Auditors typically approach audits of ______ transactions with a reliance approach.
routine
When evaluating a change in accounting principle, the audit team ______.
should be satisfied the method of accounting for the change is appropriate should be satisfied the new principle is GAAP should be satisfied disclosures related to the change are appropriate
The attorney's response to an attorney letter ______.
should note any issues where the attorney's view is different from the client's view should be provided directly to the auditor
When a scope limitation is immaterial, a(n) ______.
standard report can be issued
When the auditor finds a departure from GAAP, a(n) ______.
standard report may still be appropriate
The Basis for Opinion paragraph on a PCAOB audit report ______.
states the firm is registered with the PCAOB describes the audit indicates the responsibilities of the audit team indicates the responsibilities of management
Events occurring between the financial statement date and the date of the auditor's report are referred to as _____ events.
subsequent
Written representations ______.
support other evidence obtained during the audit are written on client letterhead and addressed to the auditor
GAAP requires that impairments to asset values should normally be ______.
taken as losses when they occur
When other information is presented along with the financial statements, the auditors' report includes an Other Information section that includes ______.
the audit team's responsibility with respect to the information a description of any material misstatements of the other information, if found a statement that management is responsible for the other information
Interim testing occurs between the beginning of the year and ______.
the date of the financial statements
A contingent liability that requires special consideration by auditors is ______.
the outcome of litigation
When auditors issue a report on current-year financial statements ______.
they must consider if prior years' opinions are still appropriate auditor responsibility for comparative financial statements extend to the current audit report date
Attorney letters should be sent ______.
to all attorneys who worked for a client during the period under audit
In order to improve the bottom line, managers are motivated to classify securities as ______ when the market is doing well.
trading
Market valuation is required for securities classified as ______.
trading available for sale
When management decides to change an accounting principle and the auditors do not believe the new adopted principle is preferable to the previously used principle, the audit team should ______.
treat the change as a departure from GAAP and modify the report accordingly
A proposed adjustment to the financial statements that the client decides not to make is called a(n) ______ misstatement.
uncorrected
Assume the same auditors have audited a client for all years for which comparative financial statements are being presented and that an unqualified opinion was appropriate in all years. The auditor will provide a(n) ______ report as part of this audit.
updated
The most recent date of the auditors' report is used and an extension of auditor responsibilities for comparative financial statements occurs when auditors provide ______ reports.
updated
The auditors' conclusion on condensed financial statements ______ express an opinion.
will not
The auditors' conclusion on not required supplementary information ______ express an opinion.
will not
When annual reports contain other information, such as MD&A or financial ratios, and the audit team finds a material inconsistency that the client will not revise, the audit team should consider ______.
withdrawing from the engagement adding an explanatory paragraph to the audit report withholding the use of the audit report