Question 1

The auditors should communicate any material concerns regarding internal control:
A) to the audit committee.
B) to the shareholders via the audit report of the ICFR.
C) to the SEC directly.
D) Both "a" and "b".

Accepted Answer

The auditors should communicate any material concerns regarding internal control to the audit committee, which is responsible for overseeing the financial reporting process, and also include them in the audit report of the ICFR (Internal Control over Financial Reporting). This report is included as part of the annual 10-K and is made available to shareholders. Therefore, both choices A and B are correct. There is no need to communicate concerns directly to the SEC unless it is a serious issue that requires immediate attention.

Question 2

Describe the different types of ICFR audit reports that can be issued and the circumstances justifying each type of report.

Accepted Answer

The answer of Describe the different types of ICFR audit...

Question 3

Cohen and Single, LLP, are auditing the ICFR and financial statements of Copley and Sons, a public company that sells supplies to government agencies. Copley and Sons has a 12/31 fiscal year end. Cohen and Single conclude that the financial statements for the current and prior year are fairly stated. However, they found a material weakness in ICFR. There is a lack of separation of duties because the company's CFO has the ability to change passwords on employee's computer identification numbers and has unlimited access to a computer terminal through which any journal entry can be entered without approval and review. Management's evaluation of ICFR is also as of 12/31, and management's report states that ICFR is not effective due to the computer security problem causing the lack of separation of duties. Draft Cohen and Single's combined audit report with opinions on the financial statements and ICFR as described.

Accepted Answer

The answer of Cohen and Single, LLP, are auditing the...

Question 4

Triad, Inc. sells body armor to various governments around the world. One of its major customers was a country that was experiencing civil unrest throughout the
past year. Triad, Inc. had a very material account receivable from this country's military
government at its fiscal year end on December 31.
Although it was temporarily kept a secret from the press, the military government
was overthrown in the last week of the calendar year and a new democratic government
was set up with an interim president. When elections were held in January, one
of the decisions made by the voters was to disavow any of the prior government's
debts to any entities outside the country. Triad, Inc. management and the audit firm
learn about these events from news reports in January while the integrated audit
engagement is in process.
(a) How should these events affect Triad, Inc.'s financial statements? How should they
affect the financial statement audit report? Does this scenario affect the auditor's
report on ICFR?
(b)Assume that the military government was overthrown in early January and Triad
and the auditor learned of it in February, when the audit was still in process.How
does your answer change?
(c) Assume that the military government was overthrown in March and that Triad
and the audit firm saw the news reports shortly after the 10K, including the audit
report, was filed with the SEC. How does your answer change?

Accepted Answer

The answer of Triad, Inc. sells body armor to various...

Question 5

What types of audit reports are issued for financial statement audits? Are all of those types of reports likely to be issued for audits of public companies? If not,
which ones are not likely used and why?

Accepted Answer

The answer of What types of audit reports are issued...

Question 6

Under which circumstances should an auditor NOT issue a disclaimer of opinion?
A) When the auditor has not performed all the necessary fieldwork.
B) When an auditor has determined the client is not following GAAP.
C) When the auditor is denied access to the minutes of the Board of Directors.
D) Both "b" and "c".

Accepted Answer

A disclaimer of opinion is not appropriate when the auditor determines that the client is not following GAAP; instead, a qualified or adverse opinion should be issued.

Question 7

An adverse opinion on ICFR includes:
A) The definition of a material weakness.
B) Identification of the material weakness.
C) A statement that a material weakness has been identified.
D) All of the above.

Accepted Answer

An adverse opinion on ICFR includes all three components: (A) the definition of a material weakness, (B) identification of the material weakness, and (C) a statement that a material weakness has been identified. Therefore, option D is the correct answer.

Question 8

You are approached by Dillon Audit Firm to finalize the audit for Jerrod Corp, a publically traded company having net sales of $10 million dollars, assets of $50 million, liabilities of $35 million and net income of $5 million. You agree and determine that the fieldwork is complete and only wrap-up remains. Describe below the procedures you would follow and order them appropriately.

Accepted Answer

The answer of You are approached by Dillon Audit Firm...

Question 9

Who is responsible for the contents and filing of the 10K?
A) The auditors.
B) Management.
C) The audit committee.
D) All of the above.

Accepted Answer

The responsibility for the contents and filing of the 10K report lies with the management of the company. While the auditors and audit committee play a role in the process, the ultimate responsibility belongs to the management.

Question 10

How can the language of an unqualified ICFR audit report be modified and for what reasons?

Accepted Answer

The answer of How can the language of an unqualified...

Question 11

If the auditor concludes that audit committee oversight of financial reporting and ICFR is ineffective and that a material weakness exists, the auditor should:
A) communicate this directly to the SEC.
B) communicate this to the audit committee.
C) communicate this to the predecessor auditor.
D) communicate this to the board of directors.

Accepted Answer

The auditor should communicate the material weakness and ineffective oversight to the board of directors, as they have the ultimate responsibility for oversight of the financial reporting process and internal controls.

Question 12

For each of the following scenarios below, determine what type of audit opinion would be issued on the financial statements. Your choices are:
1. Unqualified
2. Unqualified with explanatory paragraph
3. Qualified
4. Qualified with explanatory paragraph
5. Disclaimer of opinion
6. Adverse opinion
7. No effect on audit opinion
TASK
A. A client refuses to provide details of all pending litigations which while material are not considered pervasive. 
b. A client's warehouse burns down, making inventory observation impossible.
c. A client files for bankruptcy protection.
d. A client changes from one method of accounting to another method of accounting promulgated by GAAP. 
e. A client changes from one method of accounting to another method not promulgated by GAAP.
f. A client fails to book material adjusting journal entries proposed by the auditor. 
g. A client refuses to allow the auditor to access to the company's outside legal counsel. This is a scope limitation. 
h. A client switches auditors prior to year-end and selects your firm. The predecessor auditor is uncooperative.
i. The auditor realizes that the partner on the client is the brother-in-law of the client's controller.
j. The client refuses to disclose material related-party disclosures. 
k. Material weaknesses are found in the ICFR, although the financial statements are fairly presented. 
l. The outside legal counsel refuses to comply with the request for information despite pleas from the client.

Accepted Answer

The answer of For each of the following scenarios below,...

Question 13

Assume you are a senior who has been assigned to the audit of Overkill Motor Yachts, when the senior previously assigned to the engagement left the firm for another position. Most of the audit planning has been completed, but the audit plan for the wrap-up phase is not finished. Draft the audit plan for the wrap up, including all audit procedures and steps for the wrap up stage of the integrated audit of Overkill Motor Yachts.

Accepted Answer

The answer of Assume you are a senior who has...

Quiz 11: Completing the Integrated Audit and Reporting

The auditors should communicate any material concerns regarding internal control:

Describe the different types of ICFR audit reports that can be issued and the circumstances justifying each type of report.

What types of audit reports are issued for financial statement audits? Are all of those types of reports likely to be issued for audits of public companies? If not, which ones are not likely used and why?

Under which circumstances should an auditor NOT issue a disclaimer of opinion?

An adverse opinion on ICFR includes:

Who is responsible for the contents and filing of the 10K?

How can the language of an unqualified ICFR audit report be modified and for what reasons?

If the auditor concludes that audit committee oversight of financial reporting and ICFR is ineffective and that a material weakness exists, the auditor should: