CH 17

If the final analytical procedures indicate material misstatements, exist the auditor should ____. withdraw from the engagement gather additional audit evidence issue a qualified opinion issue a disclaimer of opinion

gather additional audit evidence

An existing condition or set of circumstances involving uncertainty about a possible loss that will ultimately be resolved when some future event occurs or fails to occur is a(n) ______ ______.

contingent liability

Pending or threated litigation is an example of a(n) _____ ____.

contingent liability

The primary purpose of a legal letter is to _____. determine if there is substantial doubt about the entity's ability to continue as a going concern corroborate legal expense for the period identify a list of attorneys who have been consulted by the entity corroborate information provided by management about litigation, claims and assessments

corroborate information provided by management about litigation, claims and assessments

All financial statements, including related notes, have been prepared and all significant audit documentation have reviewed and approved by the _____. date of the auditor's report date of issuance of the financial statements subsequent events date balance sheet date

date of the auditor's report

An auditor perform analytical procedures to help evaluate overall financial statement presentation during the _____ stage of the audit. planning interim field work final review

final review

The FASB standard relating to going concern issues requires a "look-forward" period of ____. 1 year from the balance sheet date 1 year from the financial statement issuance date 120 days from the end of field work 45 days from the date of the auditor's report

1 year from the financial statement issuance date

True or false: When the auditor is evaluating the effects of detected misstatements in the financial statements, the auditor must consider both quantitative and qualitative aspects of the account and transaction involved.

True (Both types of issues may materially affect the users of financial statements.)

True or false: The entity's balance sheet date is December 31, 2016, the date of the auditor's report is February 8, 2017, and the financial statements are issued on March 2, 2017. The auditor is not responsible for making any inquiries or conducting any audit procedures in the period between February 8, 2017 and March 2, 2017.

True (The auditor is not responsible for making inquiries or conducting audit procedures after the date of the audit report)

In order to be considered a Type I subsequent event, the condition must have ______ existed at the balance sheet date. already not

already

Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this refers to the _____ ____ in particular.

audit committee

The auditor is determining whether there is enough to support each relevant assertion when evaluating the sufficiency of the _____ ____.

audit evidence

Contingent liabilities include ____. customer advances income tax disputes unearned revenues product warranties

income tax disputes product warranties

A letter of audit inquiry sent to the entity's attorneys is often referred to as a(n) _____ ____.

legal letters

According to auditing standards, analytical procedures are required during the ____ stages of an audit. field work planning final review interim

planning final review

The "carryover effects" of uncorrected prior year misstatements are ignored when misstatements are evaluated using the _____ approach.

rollover

The PCAOB requires that firms archive their public company audit files for retention within _____. 60 days following the balance sheet date 45 days following the time the auditor completes field work and prepares the audit report 45 days following the time the auditor grants permission to use the auditor's report in connection with the financial statements 60 days following the engagement quality review

45 days following the time the auditor grants permission to use the auditor's report in connection with the financial statements

Which of the following parties is most likely involved in the decision to issue a going concern opinion? Accounting firm's head office Entity CEO and CFO Entity internal audit staff Engagement partner Engagement senior manager

Accounting firm's head office Engagement partner Engagement senior manager

Which of the following are characteristics of a contingent liability? An existing condition or set of circumstances. Ultimate resolution when some future event occurs or fails to occur. Uncertainty about the amount of loss. An unavoidable obligation that will occur sometime in the future.

An existing condition or set of circumstances. Ultimate resolution when some future event occurs or fails to occur. Uncertainty about the amount of loss.

The Sarbanes-Oxley Act of 2002 requires the _____ to certify the appropriateness of the financial statements and related disclosures. CFO audit committee board of directors CEO

CFO CEO

The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. The formal subsequent-events period is: December 31, 2018 to February 8, 2019 January 1, 2018 to December 31, 2018 December 31, 2018 to March 2, 2019 February 8, 2019 to March 2, 2019

December 31, 2018 to February 8, 2019

Final analytical procedures provide a "smell test". Which of the following explains the meaning of this phrase? Were any errors made by the entity during the period under audit? Where should audit effort and attention be focused? Do the financial statement amounts make sense? Are internal controls operating effectively?

Do the financial statement amounts make sense?

True or false: In evaluating misstatements related to accounting estimates, if the auditor believes the estimated amount included in the financial statements is unreasonable, the difference between the estimated amount and the closest reasonable estimate should be disclosed in the footnotes.

False (It is treated as a misstatement)

True or false: In a going concern evaluation, "substantial doubt" means is it reasonably possible that the entity will be unable to continue for a reasonable period of time

False (Substantial doubt means it is probable the entity will be unable to continue.)

True or false: Refusal by an entity's attorney to furnish information in a legal letter is a limitation on the scope of the audit, but not sufficient to preclude an unqualified opinion

False (It is both a limitation on the scope of the audit and potentially sufficient to preclude an unqualified opinion)

True or false: The auditor's treatment of subsequent events relating to internal control is similar to the engagement quality review performed at the conclusion of the audit

False (The auditor treats subsequent events related to internal control in a manner similar to those that relate to financial statement account balances - Type I and Type II)

The settlement of a lawsuit after the balance sheet date but before the financial statements are issued for an amount different from the amount recorded in the year-end financial statements is considered a Type ______ subsequent even I II

I

The loss of an entity's manufacturing facility resulting from an earthquake that occurred after the balance sheet date but before the financial statements are issued is considered a Type ______ subsequent event.

II

What is meant by saying a going concern opinion can be a "self-fulling prophecy"? Management must first evaluate the likelihood of the entity continuing in existence as a going concern. It is a subjective judgment that involves the senior manager, the audit partner and the accounting firm's head office. It can interfere with the entity's ability to obtain capital through issuances of debt or equity.

It can interfere with the entity's ability to obtain capital through issuances of debt or equity.

Which of the following statements is correct? It is expected that only material misstatements will be corrected. It is expected that all known misstatements will be corrected. The auditor generally requires all proposed adjustments be booked. Immaterial misstatements are not communicated to the entity.

It is expected that all known misstatements will be corrected.

Which of the following items that occurred after the balance sheet date but prior to issuance of the financial statements are considered Type II subsequent events? Losses on receivables caused by conditions arising such as a business failure. A capital stock or bond issuance. The settlement of a lawsuit for an amount different from the amount recorded in the year-end financial statements. Purchase or disposal of a business by the entity.

Losses on receivables caused by conditions arising such as a business failure. A capital stock or bond issuance. Purchase or disposal of a business by the entity.

Accounting standards on derivatives and hedging require such commitments to be disclosed in a footnote to the financial statements with an adjustment to _____ _____ ____ for any gains or losses.

Other Comprehensive Income

Which of the following categories is a particularly important issue for going concern assessment because it could impact the ability to meet cash requirements? Internal problems Negative financial trends External matters Other financial difficulties

Other financial difficulties

Which of the following are evaluated during a working paper review? Was the correct audit opinion reached? Were the objectives of the procedure achieved? Was the work performed? Was the work documented?

Were the objectives of the procedure achieved? Was the work performed? Was the work documented?

In a legal letter management should request the attorneys provide information including _____. a description and evaluation of any ongoing litigation a list of pending or threatened litigation an indication of the attorney's response is limited in any way the amount or range of potential loss for any pending or threated litigation

a list of pending or threatened litigation an indication of the attorney's response is limited in any way the amount or range of potential loss for any pending or threated litigation

The entity's balance sheet date is December 31, 2018, the date the auditor obtained sufficient evidence for the report is February 8, 2019, and the financial statements are issued on March 2, 2019. On February 27, 2019, the entity entered into an agreement to purchase a competitor. If the audit report is dated February 27, 2019, the auditor is _____. limiting responsibility for events occurring after February 8, 2019 to the subsequent event (competitor purchase) accepting responsibility for identifying any material matters that occur up to February 27, 2019 limiting responsibility for all events to February 8, 2019

accepting responsibility for identifying any material matters that occur up to February 27, 2019

An auditor includes an explanatory paragraph that describes the event and its effects if a subsequent event related to internal control reveals ____. information about a material weakness that existed as of the end of the reporting date information that there were changes in internal control between the end of the reporting period and the date of the auditor's report adverse information about an internal control condition that did not exist as of the end of the reporting period

adverse information about an internal control condition that did not exist as of the end of the reporting period

Regarding responsibility for reporting changes in internal controls that might adversely affect financial reporting between the end of the reporting period and the date of the auditor report, auditors are ______. only responsible for reporting changes in internal control about material weaknesses that existed at the end of the reporting period always responsible for reporting these types of changes in internal controls only responsible for reporting changes in internal control relating to events that did not exist at the end of the reporting period never responsible for reporting these types of changes in internal controls

always responsible for reporting these types of changes in internal controls

To consider the overall reasonableness of the financial statement amounts, the auditor performs final ____ ____.

analytical procedures

Audit procedures occurring after the balance sheet date that may detect subsequent events include _____. asking legal counsel about any developments related to litigation, claims and assessments reviewing selected audit documentation related to judgments and evaluating conclusions reached reading any available interim financial statements that are available after year end testing proper sales and purchases cutoff

asking legal counsel about any developments related to litigation, claims and assessments reading any available interim financial statements that are available after year end

With respect to the audit of internal control over financial reporting, the auditor must communicate all significant deficiencies and material weaknesses in writing to management and the ____ ____.

audit committee

The PCAOB requires that audit documentation be retained for 7 years from the date of the ____. balance sheet engagement quality review auditor's report

auditor's report

he date of the representation letter is generally the date of the _____. auditor's report balance sheet issuance of the financial statements

auditor's report

Accounting Standards Update Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern requires ____. auditors to first evaluate the entity's ability to continue in existence as a going concern managers to make an independent assessment to evaluate the adequacy of the auditor's going concerns disclosures auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures management to first evaluate the entity's ability to continue in existence as a going concern

auditors to make an independent assessment to evaluate the adequacy of management's going concerns disclosures management to first evaluate the entity's ability to continue in existence as a going concern

If oversight by the audit committee is ineffective, the auditor must communicate significant deficiencies and material weaknesses to the _____. entity's legal counsel SEC board of directors auditing firm's home office

board of directors

If a misstatement is considered material to the financial statements, the registrant's financial statements need to be adjusted so that any remaining misstatement is considered immaterial under _____ approach. both the "iron curtain" and "rollover" the "rollover" but not the "iron curtain the "iron curtain" but not the "rollover"

both the "iron curtain" and "rollover"

When misstatements that occurred in prior years were left uncorrected because they were deemed immaterial, the SEC requires that current year misstatements be evaluated using ____ approach. only the "rollover" both the "iron curtain" and "rollover" either the "iron curtain" or "rollover" only the "iron curtain"

both the "iron curtain" and "rollover"

Commitments entered into to obtain a favorable or predictable pricing agreement or to secure the availability of raw materials are known as _____ _____ hedges.

cash flows

Companies often enter into long-term agreements to purchase raw materials or sell products at a fixed price. Such agreements are called _____.

commitments

Inquiry of entity personnel during the audit of the revenue and purchasing processes and a review of the minutes of the board of directors meetings is usually done to identify long-term ____.

commitments

The objectives of communication with the audit committee is to ____. provide information to the audit committee that is relevant to the audit communicate an overview of the overall audit strategy and timing establish an understanding of the terms of the audit engagement with the committee communicate the auditor's responsibilities

communicate an overview of the overall audit strategy and timing establish an understanding of the terms of the audit engagement with the committee communicate the auditor's responsibilities

The engagement quality control reviewer _____. prepares working papers considers the appropriateness of the audit report evaluates significant judgments made by the engagement team ensures all audit documentation is archived reads the financial statements

considers the appropriateness of the audit report evaluates significant judgments made by the engagement team reads the financial statements

When facts are encountered that may affect the auditor's previously issued report, the auditor should ___. withdraw the audit opinion contact individual users of the financial statements who are relying on the auditor's report consult with his or her attorney request that management take responsibility for the mistake

consult with his or her attorney

If the auditor determines that previously issued financial statements are in error, the audit report is affected and the effect on the financial statements cannot be immediately determined, the entity should ____. contact appropriate regulatory agencies contact the SEC notify persons relying on the statements and audit report notify legal council that the auditor's report must no longer be associated with the financial statements

contact appropriate regulatory agencies contact the SEC notify persons relying on the statements and audit report

An auditor may obtain a legal letter when trying to address ____. unearned revenues contingent liabilities conversions of bonds to common stock during the period current portion of long-term debt

contingent liabilities

The auditor should request that the entity issue an immediate revision to the financial statements when the auditor ____. has made recommendations based on observations during the audit including suggested improvements in organizational structure has sent an audit inquiry to the entity's attorneys in order to obtain or corroborate information about litigation and claims discovers an event or transaction after the balance sheet date that may materially affect the financial statements determines that previously issued financial statements are in error and the audit report is affected

determines that previously issued financial statements are in error and the audit report is affected

If an auditor is unable to determine the effects of a subsequent event on the effectiveness of the company's internal controls, the auditor should _____ opinion with respect to the entity's ICFR. issue a qualified issue an adverse issue an unqualified disclaim any

disclaim any

To ensure all required footnotes have been properly included, most public accounting firms use some type of financial statement _____ ____.

disclosure checklist

The PCAOB requires that the auditor retains all ____. correspondence between members of the engagement team documents that "form the basis of the audit or review" documents inconsistent with the final conclusion for significant matters

documents that "form the basis of the audit or review" documents inconsistent with the final conclusion for significant matters

When an auditor using wording in his or her report such as "February 19, 2019 except for Note 4 which is as of March 3, 2019" the audit report is said to be _____ _____.

dual date

The final evaluation of audit evidence from the financial statement audit is primarily concerned with ____. valuation of the audit evidence effects of detected misstatements in the financial statements sufficiency of the audit evidence completeness of the audit evidence

effects of detected misstatements in the financial statements sufficiency of the audit evidence

Auditing standards require auditors to communicate certain matters to "those charged with governance". For publicly traded companies, this includes the ____. entity's board of directors SEC staff auditors auditing firm's head office entity's audit committee

entity's board of directors entity's audit committee

When misstatements that occurred in prior years were left uncorrected because they were deemed immaterial, the SEC requires that current year misstatements be ____. evaluated using the "iron curtain" approach evaluated using the "rollover" approach corrected immediately considered material misstatements

evaluated using the "iron curtain" approach evaluated using the "rollover" approach

The sufficiency of the audit evidence and the effects of detected misstatements in the financial statements are the primary concerns of the _____ _____ of audit evidence.

final evaluation

The period from the date of the financial statements to the date of the auditor's report is sometimes referred to as the _____ subsequent-events period

formal

The auditor has a responsibility to evaluate whether there is substantial doubt about an entity's ability to keep doing business or, in other words, whether or not the entity considered to be a(n) _____ _____.

going concern

An auditor is reviewing tax returns and the minutes of the board of directors meetings. The auditor is most likely trying to _____. identify contingent liabilities ascertain if notes payable should be classified as short-term or long-term determine if title has passed for the purchase of goods measure the amount of a note payable

identify contingent liabilities

When an auditor reviews the minutes of the board of directors meetings and makes inquiries of entity personnel during the audit of the revenue and purchasing processes, (sh)he is most likely trying to ______. identify Type I subsequent events identify long-term commitments determine if there are any unasserted claims identify Type II subsequent events

identify long-term commitments

Gains and losses on derivatives and hedging instruments are reported _____. as part of net income on the income statement in Other Comprehensive Income as an adjustment to the beginning balance of Retained Earnings in a footnote to the financial statements

in Other Comprehensive Income in a footnote to the financial statements

If the auditor has evaluated management's plans to mitigate going concern issues and concludes that substantial doubt exists, the auditor will ____. withdraw from the engagement, notify legal counsel, and disclaim an opinion include an explanatory paragraph in the audit report retain all audit documentation for 10 years because there is an increased chance of legal action consider the adequacy of the disclosures about the entity's ability to continue as a going concern

include an explanatory paragraph in the audit report consider the adequacy of the disclosures about the entity's ability to continue as a going concern

Contingent liabilities include _____. income tax disputes unearned revenues product warranties customer advances

income tax disputes product warranties

The legal letter routinely requests that the attorney ____. indicate if his or her response is limited in any way identify short-term obligations expected to be refinanced comment on unasserted claims where his or her views differ from management provide the amount that should be accrued for a loss related to general business risks

indicate if his or her response is limited in any way comment on unasserted claims where his or her views differ from management

During the subsequent period, AS 22021 states the public company auditor should ____. inquire about and examine regulatory agency reports on ICFR exclude information about the effectiveness of ICFR obtained through other engagements from consideration inquire about and examine relevant internal audit reports exclude any independent auditor reports (other than the primary auditor's) of significant deficiencies or material weaknesses from consideration

inquire about and examine regulatory agency reports on ICFR inquire about and examine relevant internal audit reports

When facts are encountered that may affect the auditor's previously issued report, the auditor should ____. inquire how management intends to address the issue determine whether the facts are reliable notify the SEC that the audit report cannot be relied upon determine whether the facts existed at the balance sheet date discuss the matter with those charged with governance

inquire how management intends to address the issue determine whether the facts are reliable discuss the matter with those charged with governance

The most common situation where an auditor becomes aware that previously issued financial statements contain material misstatements is due to_____. acts of sabotage such as corporate espionage acts of God, such as hurricanes and earthquakes intentional or unintentional acts by management

intentional or unintentional acts by management

If a misstatement accumulates to a material amount over two or more periods, the entire accumulated misstatement must be corrected under the _____ _____ approach.

iron curtain

When misstatements are quantified based on the amount required to correct the misstatement in the balance sheet at period end, regardless of misstatement's year of origination, the _____ _____ approach is being used.

iron curtain

The entity's balance sheet date is December 31, 2018, the date of the auditor's report is February 8, 2019, and the financial statements are issued on March 2, 2019. Regarding the period between February 8, 2019 and March 2, 2019, the auditor _____. actively conducts audit procedures related to the current-year audit is not responsible for making any inquiries or conducting any audit procedures should not make any adjustments or disclosured for items discovered during this time

is not responsible for making any inquiries or conducting any audit procedures

The amount of loss associated with a contingent liability is accrued by a charge to income when it _____. can be estimated and it is either remote or reasonably probable can be estimated and it is either possible or reasonably probable is reasonably possible and can be probably estimated is probable and can be reasonably estimated

is probable and can be reasonably estimated

If the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern even after considering management's plans, the auditor will normally _____. withdraw from the engagement and notify legal counsel disclaim an opinion on the financial statements issue a qualified opinion issue a modified audit report describing the going concern issue

issue a modified audit report describing the going concern issue

The auditor must communicate, in writing, all control deficiencies identified including those that are of a lesser magnitude than significant deficiencies to the _____. SEC board of directors management audit committee

management

The auditor obtains the representation letter from ____. legal counsel the board of directors management the SEC

management

The auditor makes recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues by preparing a(n) ____. legal letter audit report representation letter management letter

management letter

To make recommendations to the entity based on observations during the audit including suggested improvements in organizational structure and efficiency issues, the auditor normally prepares a(n) _____ ____.

management letter

The auditor ____ require all proposed adjustments to be booked. should never may or may not should always

may or may not

Any misstatements detected during the audit process _____ that exceed the planned level of detection risk are considered material and must be corrected by management must be considered in terms of the materiality of their effects on the financial statements that are not corrected require the auditor to issue an adverse opinion require the auditor to compare the likely misstatement to the aggregated misstatement and reject the account balance

must be considered in terms of the materiality of their effects on the financial statements

Regarding changes in internal control between the end of the reporting period and the date of the auditor's report that might adversely affect financial reporting, the auditor _____. must make inquires of management about these types of changes must make inquiries of outside legal counsel about these types of changes has no responsibility regarding these types of changes since they occur after the balance sheet date

must make inquires of management about these types of changes

The auditor assesses the entity's ability to continue as a going concern ______. near the end of the engagement throughout the testing phases of the engagement during the planning of the engagement after the archival period for working papers

near the end of the engagement during the planning of the engagement

Poor results from operations and adverse financial ratios are the basis of _____. negative financial trends internal problems other financial difficulties external matters

negative financial trends

Auditing standards identify four conditions and events which may indicate going concern issues including: negative financial trends internal problems bankruptcy filing external matters

negative financial trends internal problems external matters

An auditor has ______ to conduct audit procedures after the financial statements and the accompanying audit report have been issued. limited responsibility a legal duty no obligation an ethical duty

no obligation

Contingent liabilities judged to be remote are _____. reported as part of comprehensive income, but not as net income not accrued not disclosed in the footnotes disclosed in the footnotes

not accrued not disclosed in the footnotes

The auditor has determined that previously issued financial statements are in error, and the audit report is affected. If the entity refuses to cooperate and make the necessary disclosures, the auditor's next step is to notify the board of directors and ____. refund the fee paid to the auditor by the entity and return all working papers to the entity contact legal counsel and begin proceedings against the entity to compel management to cooperate notify each person known to the auditor to be relying on the financial statements that the auditor's report can no longer be relied upon

notify each person known to the auditor to be relying on the financial statements that the auditor's report can no longer be relied upon

When evaluating management's plans regarding going concern issues, the auditor should ____ obtain evidence about plan elements consult with legal counsel regarding the likelihood of success examine assumptions used in developing the plan

obtain evidence about plan elements examine assumptions used in developing the plan

If, during the planning, performance or completion of the audit there is substantial doubt about the entity's ability to continue as a going concern, the next step for the auditor is to ____. obtain management's plan to mitigate the going concern problem prepare the footnotes to the financial statements explaining the going concern problems and management's response prepare the explanatory paragraph used in the audit report withdraw from the engagement and disclaim an opinion

obtain management's plan to mitigate the going concern problem

Specific steps taken by auditors to identify contingent liabilities include _____. obtaining a legal letter inquiring of and discussing with management policies for identifying contingent liabilities inspecting mortgage notes to ascertain the current portion of long-term debt obtaining written representations from management

obtaining a legal letter inquiring of and discussing with management policies for identifying contingent liabilities obtaining written representations from management

If management concludes it is probable that the entity will not be able to meet its obligations within the look-forward period but develops a plan to mitigate the risk, the plan can be considered sufficient to overcome a substantial doubt conclusion _____. as long as the plan is in writing and approved by the board of directors only if it is probable that the plans can be effectively implemented only if the auditor review determines that the plan is feasible as long as management discloses the plan

only if it is probable that the plans can be effectively implemented

The engagement quality reviewer is a(n) ____. senior-in-charge who has previous experience auditing the entity independent outside party hired by the auditor to ensure quality control partner not associated with the details of the engagement

partner not associated with the details of the engagement

An auditor has read the minutes of board of directors meetings, inquired of legal counsel regarding litigation, read the interim financial statements, and made inquiries of management. The auditor is most likely ____. determining whether to dual-date the audit report performing the analytical procedures required during the final review stage of the audit performing audit procedures for subsequent events determining whether to issue a qualified or unqualified opinion

performing audit procedures for subsequent events

The engagement partner generally reviews working papers _____. reviewed by the senior-in-charge prepared by the manager prepared by staff auditors related to critical audit areas

prepared by the manager related to critical audit areas

If management determines it is _____ that the entity will be unable to meet its obligations within the look-forward period, management is required to make appropriate disclosures. reasonably possible probable possible

probable

In general, an attorney is required to disclose an unasserted claim when it is ____ outcome. either probable or possible and there is a reasonable possibility of an unfavorable probable, regardless of the expected probable and there is a reasonable possibility of an unfavorable probable or possible, regardless of the expected

probable and there is a reasonable possibility of an unfavorable

In general, an attorney is only required to disclose an unasserted claim when it is ______ that the claim will be asserted and there is a ______ that the outcome will be unfavorable. probable, reasonable possibility possible, reasonable possibility probable, reasonable probability possible reasonable probability

probable, reasonable possibility

A Type II subsequent event: provides evidence about conditions that did not exist at the balance sheet date requires adjustment of the numbers in the financial statements provides evidence about conditions that existed at the balance sheet date is usually accounted for by disclosure in the notes to the financial statements

provides evidence about conditions that did not exist at the balance sheet date is usually accounted for by disclosure in the notes to the financial statements

Most firms have a policy requiring an engagement _____ _____ be performed for publicly traded companies and for privately held companies whose financial statements are expected to be widely distributed.

quality review

The Sarbanes-Oxley Act of 2002 requires the CEO and the CFO to certify the appropriateness of the financial statements and related disclosures for _____. annual filings with the IRS quarterly filings with the SEC monthly filings with financial institutions annual filings with the SEC

quarterly filings with the SEC annual filings with the SEC

When a contingent liability exists, the likelihood that the future event will result in a loss is assessed using the categories ____. remote probable reasonably possible reasonably probable

remote probable reasonably possible

Misunderstandings between management and the auditor are reduced by the ____. audit opinion representation letter minutes of board of directors meetings legal letter

representation letter

A Type I subsequent event ____. is usually accounted for by disclosure in the notes to the financial statements requires adjustment of the numbers in the financial statements provides evidence about conditions that did not exist at the balance sheet date

requires adjustment of the numbers in the financial statements

The FASB recently issued an Accounting Standards Update _____. requiring an entity's management to evaluate the entity's ability to continue as a going concern which relieves the auditor of addressing going concern issues creating a departure from the standard role of auditors which is to evaluate and report on managements' assertions

requiring an entity's management to evaluate the entity's ability to continue as a going concern

To identify contingent liabilities an auditor might _____. review accounts and note payable review tax returns and IRS reports review contracts, loan agreements and leases read the minutes of board of directors meetings

review tax returns and IRS reports review contracts, loan agreements and leases read the minutes of board of directors meetings

Audit procedures likely to identify conditions and events that indicate going concern problems include ____. risk assessment engagement quality review review of subsequent events inquiry of legal counsel

risk assessment review of subsequent events inquiry of legal counsel

When misstatements are quantified based only on the amount of the error that originates in the current year income statement, the _____ method us being used. quantifying rollover iron curtain

rollover

With respect to the audit of internal control over financial reporting, the auditor communicates in writing to management and the audit committee ____. significant deficiencies material weaknesses control deficiencies that are not significant deficiencies

significant deficiencies material weaknesses

Transactions that occur after the balance sheet date but before the issuance of the financial statements are called ____ ____.

subsequent events

The representation letter is addressed to ____. the PCAOB the SEC legal counsel the auditor

the auditor

The date of the auditor's report is ____. the date after which all subsequent events are considered Type II subsequent events the date before which all subsequent events are considered Type I subsequent events the date on which management must have explicitly taken responsibility for the financial statements no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date on which all significant audit documentation must have been reviewed and approved

the date on which management must have explicitly taken responsibility for the financial statements no earlier than the date on which the auditor has obtained sufficient appropriate evidence the date on which all significant audit documentation must have been reviewed and approved

The auditor has determined that previously issued financial statements are in error and the audit report is affected. If possible, the auditor should notify regulatory agencies that the auditor's report can no longer be relied upon when ____. the determination of the error has been made, regardless of the entity's actions legal counsel has approved the communication on the part of the auditor the entity refuses to cooperate and make the necessary disclosures

the entity refuses to cooperate and make the necessary disclosures

When significant changes are made to the planned audit approach at any point during the audit, the final documentation should indicate ____. the original plan the archival and retention periods for the documentation rationale for the change in plan any subsequent proceedings or litigation modifications to the plan

the original plan rationale for the change in plan modifications to the plan

In evaluating misstatements related to accounting estimates, if the auditor believes the estimated amount in the financial statements is unreasonable, the difference between the estimated amount and the closest reasonable estimate should be _____. accounted for as a correction of an error disclosured in a footnote ignored treated as a misstatement

treated as a misstatement

If a misstatement is considered material to the financial statements the financial statements need to be adjusted ____. der both the iron curtain and rollover approaches so that any remaining misstatement would be considered immaterial under the iron curtain, but not under the rollover approach under the rollover, but not the iron curtain approach

under both the iron curtain and rollover approaches so that any remaining misstatement would be considered immaterial

Most firms have a policy that publicly traded companies and privately held companies whose financial statements are expected to be widely distributed will _____. undergo an engagement quality review correct all projected errors review all of the auditor's working papers evaluate the conclusions reached by the auditor

undergo an engagement quality review

The auditor reviews the financial statements to _____. verify the inclusion of all necessary disclosures ensure compliance with GAAP check proper presentation of accounts assist with drafting the footnotes

verify the inclusion of all necessary disclosures ensure compliance with GAAP check proper presentation of accounts

Management is required to make disclosures when it is determined that the entity ____ within the forward looking period. will probably be unable to meet its obligations has developed a probable plan to mitigate the risk of not meeting obligations will be able to meet its obligations has developed a plan that reduces the doubt of meeting obligations to less than probable

will probably be unable to meet its obligations has developed a plan that reduces the doubt of meeting obligations to less than probable

Management's refusal to provide a representation letter is ordinarily sufficient to cause an auditor to ____. issue an adverse opinion withdraw from the engagement issue an qualified opinion disclaim an opinion

withdraw from the engagement disclaim an opinion

Reviewers evaluate whether the work was performed and documented and whether the objectives of the procedure were achieved when reviewing the _____ _____.

working paper

There should be a review by an audit team member who is senior to the person in charge of preparing the _____ _____.

working paper