Quiz 11
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."
What is the maximum number of days in which a nonissuer's auditor should complete the assembly of the final audit file following the report release date?
60 days
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
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
Which of the following statements concerning material weaknesses and significant deficiencies is correct?
All material weaknesses are significant deficiencies.
Uncorrected misstatements should be documented in a manner that allows the auditor to:
All of the answer choices are correct.
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.
In an audit of financial statements, which of the following would most likely be considered a known misstatement?
An unrecorded liability related to services rendered by a vendor during the period under audit
Which of the following is true regarding significant deficiencies?
Auditors must communicate them to the audit committee.
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 factors should an auditor consider in making a judgment about whether an internal control deficiency is so significant that it is a significant deficiency? Diversity of the entity's business Size of the entity's operations
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
Which of the following circumstances most likely would cause an auditor to suspect that material misstatements exist in a client's financial statements?
Differences between reconciliations of control accounts and subsidiary records are not investigated.
An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. Which of the following actions by the auditor is most appropriate?
Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated.
The types of misstatements that are relevant to the auditor's consideration of fraud include which of the following? Misstatements arising from fraudulent financial reporting Misstatements arising from misappropriation of assets Misstatements arising from cash account misstatements
I and II
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 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
To what degree, if at all, is a significant deficiency related to a material weakness?
It is less severe than a material weakness.
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 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
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 auditing procedures most likely would provide assurance about a manufacturing entity's inventory valuation?
Testing the entity's computation of standard overhead rates
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.
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.
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.
A client decides not to make an auditor's proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers. Which of the following statements is correct regarding the financial statement presentation?
The financial statements are free from material misstatement, and no disclosure is required in the notes to the financial statements.
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 evaluating the overall effect of audit findings on the auditor's report, the auditor should document all of the following except:
a summary of all uncorrected misstatements related to known and likely misstatements.
According to the PCAOB, each of the following statements is true with respect to the auditor's responsibility to communicate material weaknesses in internal control over financial reporting, except:
all such weaknesses must be communicated in writing to all stockholders.
In obtaining written representations from management, materiality limits ordinarily would apply to representations related to:
amounts concerning related party transactions.
In an audit of a nonissuer's financial statements, projected misstatement is:
an auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample.
The date of the management representation letter should coincide with the date of the:
auditor's report.
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.
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.
Each of the following is a type of factual misstatement, except:
differences between management and the auditor's judgment regarding estimates.
When issuing an unmodified opinion, the auditor who evaluates the audit findings should be satisfied that the:
estimate of the total likely misstatement is less than a material amount.
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.
In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that:
involves an estimate.
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.
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.
In evaluating the overall effect of audit findings on the auditor's report, the auditor should document all of the following except:
the auditor's conclusion as to whether undetected misstatements, individually or in aggregate, do or do not cause the financial statements to be materially misstated, and the basis for that conclusion.
For uncorrected misstatements, the auditor should document all of the following, except:
the individual responsible for the misstatement.
A purpose of a management representation letter is to reduce:
the possibility of a misunderstanding concerning management's responsibility for the financial statements.
