Deck 11: Completing the Integrated Audit and Reporting

Question 1

Unasserted claims are:

A) potential claims.
B) existing claims.
C) pending claims.
D) None of the above.

Answer 1

A

Question 2

The audit report must contain explanatory language if there is a going concern issue.

Answer 2

True

Question 3

The audit opinion on the financial statements and the ICFR must be in the same report.

Answer 3

False

Question 4

An audit report must be issued whenever an auditor is associated with financial statements.

Question 5

The final phase of the audit occurs after the report date.

Question 6

An adverse opinion requires modification of the opinion paragraph and the addition of a paragraph preceding the opinion paragraph explaining the circumstances motivating the opinion.

Question 7

An adverse opinion is issued when the auditor cannot perform appropriate audit procedures because of a scope limitation.

Question 8

If a material event occurs subsequent to the issuance of the financial statements that renders the audit report no longer reliable, the auditor should communicate that fact to all parties who are known to be relying on the audit report.

Question 9

If a material event is discovered prior to issuance of the financial statements the auditor must issue an audit report with two separate dates, one disclosing the date the regular field work ended and a separate date for disclosure of the subsequent event.

Question 10

Explanatory language is always necessary if the auditor issuing the audit report relies on the work of other auditors.

Question 11

Failure to provide the auditor information regarding pending litigation is grounds for a scope limitation.

Question 12

Litigation differs from a claim in that:

A) litigation involves obligations that have already been assessed; claims are possible obligations.
B) litigation involves amounts that have been set; claims involve possible obligations.
C) litigation involves legal actions; claims are possible obligations.
D) None of the above.

Question 13

The auditor obtains representations from management and attorneys prior to issuing the audit report.

Question 14

The management representation letter:

A) is required per Audit Standard #5.
B) is dated as of the audit report date.
C) cannot substitute for audit evidence.
D) All of the above.

Question 15

Inquiry of a client's lawyer:

A) is required by GAAS.
B) requests that the lawyer identify the nature and reason for any limitation on her response.
C) requires disclosure of any omission made by management in identifying existing and pending litigation.
D) All of the above.

Question 16

All subsequent events are recorded in the footnotes as a contingent liability.

Question 17

Wrap-up audit procedures include which of the following:

A) subsequent events review.
B) going concern evaluation.
C) inquiry of a client's lawyer.
D) All of the above.

Question 18

Audit Standard (AS) number 5 addresses the impact of consistency issues on the audit report.

Question 19

If a client changes auditors, the new auditors may have to reissue the audit report for the previous year.

Question 20

Type I subsequent events are always referenced in the audit report.

Question 21

The client includes which of the following in its representation letter:

A) a statement that all transactions for the period under audit have been recorded.
B) a statement that management has no knowledge of fraud amongst its employees.
C) a statement that management has responsibility for the accuracy of the financial statements.
D) All of the above.

Question 22

If a client refuses to provide a management representation letter for an integrated audit, the auditor may:

A) withdraw from the engagement.
B) note the scope limitation and issue a qualified opinion.
C) issue a report explaining the limitation in the explanatory paragraph.
D) None of the above.

Question 23

Auditing Standard #3 requires the auditor:

A) to complete all documentation as of the audit report date.
B) to complete all testing as of the audit report date.
C) to complete all documentation within 45 days of the audit report date.
D) None of the above.

Question 24

A client acquires a company on January 12, 20X1 while its auditor is preparing the audit report for 20X0. Plans for this acquisition began in late December, 20X0, although the auditor was unaware of them. GAAS requires the auditor to:

A) include the purchase transaction in its audit work.
B) include the purchase transaction in the footnotes.
C) disclose the purchase transaction in the audit report.
D) depending on the circumstances, the auditor may choose any of the above.

Question 25

ABC Auditors are auditing Jersey Charities, which is incorporated as a not-for-profit charitable organization. The fiscal year-end is June 30, 20X0. The auditors concluded their work on July 15^th, 20X0 and dated their audit report on that date. On July 20th, a major donor declared bankruptcy, leaving in serious doubt collection by Jersey of material pledges owed. The auditors should:

A) recall the audit report and re-issue a new one.
B) issue an amendment to the audit report dated July 20^th.
C) determine if the financial statements have been made available.
D) depending on the circumstances, the auditor may choose any of the above.

Question 26

An auditor compiles the financial statements for a nonprofit firm. Per GAAS, the auditor must:

A) issue an audit opinion on the financial statements.
B) issue a report as to the work performed on the financial statements.
C) require management sign a representation letter.
D) depending on the circumstances, the auditor may choose any of the above.

Question 27

Company A hired Q to perform its year-end audit. Subsequent to year-end, A discovers that one of its customers, who owes Company A a material amount, has filed for bankruptcy protection. Assume that Q completed the audit work prior to the date of bankruptcy filing but has not yet issued the audit report. In this case, Q should:

A) ignore the event since it does not apply to the current year under audit.
B) notify those individuals known to be relying on its work of the bankruptcy.
C) perform additional work, as deemed necessary given the circumstances.
D) None of the above.

Question 28

Which of the following is a subsequent event:

A) Sale of a bond or capital stock issues.
B) Purchase of a business.
C) Loss of inventories due to flooding.
D) All of the above.

Question 29

When reviewing subsequent events, the auditor should:

A) treat ICFR events separate from financial statement events.
B) review SEC correspondence with the client for evidence of any lapses in internal control.
C) inquire of management as to any lapses in internal control.
D) All of the above.

Question 30

A SAS 8 review:

A) requires auditors review other information provided in the financial statements by the client.
B) requires the auditor investigates inconsistencies between the annual report and the financial statements.
C) allows the auditor to include an explanatory paragraph in the audit report for inconsistencies between the other information and the financial statements.
D) All of the above.

Question 31

Section 302 certifications are:

A) completed by the auditors.
B) completed by management.
C) completed by the audit committee.
D) None of the above.

Question 32

The management representation letter is used:

A) by the auditor in lieu of audit testing in cases of scope limitation.
B) by the auditor as evidence that management understands its responsibility for the financial statements and internal control environment.
C) by the auditor as its sole defense in case of lawsuits arising from an audit failure.
D) All of the above.

Question 33

Company A hired Q to perform its year-end audit. Subsequent to year-end, A discovers that one of its customers has filed for bankruptcy protection. Q should:

A) perform additional audit work to satisfy itself that the amount receivable from the customer is properly stated.
B) dual-date the audit report, noting the bankruptcy filing as the reason for the second date.
C) change the date of the audit report to include the time needed for additional testing.
D) Impossible to determine given lack of specifics.

Question 34

If a subsequent event that has a material effect on ICFR is discovered after the financial report date, but existed at year-end, the duty of the auditor is to:

A) disclose the event in the audit report and issue a qualified opinion.
B) disclose the event in the audit report and issue an adverse opinion on the ICFR.
C) disclose the event in the audit report and add an explanatory paragraph.
D) depending on the circumstances, the auditor may choose any of the above.

Question 35

SOX section 103 and AS #7 require:

A) second partner review of the work papers.
B) an independent review of the audit engagement.
C) an independent approval of the audit report.
D) All of the above.

Question 36

As part of the wrap-up procedures, Mary Ellen Dillon reviews the minutes of the Board of Directors for a client. During her review, she discovers that a major acquisition is planned in the coming months. This planned acquisition should:

A) be disclosed in the footnotes to the financial statements.
B) be disclosed in an explanatory paragraph of the audit report.
C) be audited by the audit firm as part of its wrap-up work.
D) None of the above.

Question 37

Jimmy Joe, a young staff auditor, finds a document in his briefcase that relates to a client he worked on two months ago. Jimmy, fearing the worst, inserts the document in the client working papers without notifying his supervisors. By doing this, Jimmy has violated:

A) AS #5
B) AS #7
C) AS #3
D) Impossible to determine given lack of specifics.

Question 38

A material type II subsequent event:

A) requires disclosure in the notes to the financial statements.
B) requires recognition in the body of the financial statements.
C) Either "a" or "b" depending on the circumstances.
D) None of the above.

Question 39

If the auditor is performing an audit of a nonpublic company and the client refuses to provide a management representation letter, the auditor may:

A) issue a financial statement audit report.
B) issue an integrated audit report.
C) issue a financial statement audit report with a scope limitation.
D) depending on the circumstances, the auditor may choose any of the alternatives.

Question 40

Company A hired Q to perform its year-end audit. Subsequent to the completion of field work, but prior to the issuance of the financial statements, A discovers that one of its customers has filed for bankruptcy protection. Assume that Q decides to perform additional work to determine the affect of the bankrupt customer on A's financial statements, then Q:

A) should issue a dual-dated report.
B) should expand the testing procedures and wrap-up work in order to extend the report date.
C) amend the financial statements with a footnote and issue the audit report as planned.
D) Either "a" or "b" depending on the amount of additional testing performed.

Question 41

An audit report on a client's ICFR differs from the audit report for a financial statement by:

A) being separate from the audit report for the financial statements.
B) including an explanatory paragraph.
C) including a definition paragraph.
D) All of the above.

Question 42

Per GAAS, a standard audit report consists of at least:

A) opinion, scope, and explanatory paragraphs in that order.
B) introductory, explanatory, and scope paragraphs in that order.
C) introductory, scope, and opinion paragraphs in that order.
D) None of the above.

Question 43

If a predecessor auditor re-issues an audit report, the date of the predecessor auditor's report should be:

A) the end of field work for the current year.
B) the date the predecessor auditor was removed as auditor.
C) the original report date.
D) the same date as that of the successor auditor's report.

Question 44

Going concern issues should be addressed by the auditor:

A) in an explanatory paragraph.
B) in the scope paragraph.
C) in the annual report.
D) All of the above.

Question 45

In addition to withdrawal, scope limitations on ICFR audits result in:

A) an adverse opinion.
B) a qualified opinion.
C) a disclaimer of opinion.
D) depending on the circumstances, the auditor may choose any of the above.

Question 46

Who is responsible for compliance with SOX section 404:

A) management.
B) the auditors.
C) both management and the auditors.
D) It depends on the specifics.

Question 47

An audit report should be reissued by the predecessor auditor if:

A) the predecessor auditor has access to the current year's financial statements.
B) the predecessor auditor has access to the successor auditor's working papers.
C) the predecessor auditor has access to management and to the successor auditor.
D) All of the above.

Question 48

When an auditor relies on the work of another auditor, the auditor issuing the audit report may:

A) state this fact in the audit report.
B) disclaim responsibility for this audit work.
C) issue a qualified opinion with an explanatory paragraph.
D) issue a qualified opinion, except for the work of the other auditor.

Question 49

In a financial statement audit, the difference between when an auditor issues a disclaimer or issues a qualified opinion because of a scope limitation centers on:

A) the reason for the scope limitation.
B) management's attitude and response to the auditor.
C) the cause and severity of the scope limitation.
D) Both "a" and "b".

Question 50

In general, scope limitations beyond the control of management:

A) result in a qualified opinion, subject to the scope limitation.
B) result in an unqualified opinion.
C) result in an adverse opinion.
D) result in a qualified opinion, except for the scope limitation.

Question 51

An audit report may need to be reissued if:

A) the auditor is replaced and the subsequent auditor refuses to rely on the predecessor auditor's work.
B) the predecessor auditor relies wholly on the work of the successor auditor.
C) the successor auditor requests that the predecessor auditor issue an audit report on the previous year's financial statements, presented for comparative purposes.
D) depending on the circumstances, the auditor may choose any of the above.

Question 52

A client decides to change accounting procedures for certain types of transactions which have a material impact on the financial statements. The client changes from the LIFO method of inventory valuation to the FIFO method without justification. The auditor should issue what type of opinion?

A) Adverse opinion.
B) Disclaimer of opinion.
C) Qualified opinion.
D) Depending on the circumstances, the auditor may choose either "a" or "c" above.

Question 53

A client decides to change accounting procedures for certain types of transactions which have a material impact on the financial statements. The client adopts accounting treatment promulgated under GAAP. Prior to this, the client was not using GAAP; as part of the change the prior year financial statements are restated. The auditor should issue what type of opinion?

A) Unqualified opinion.
B) Qualified opinion.
C) Adverse opinion.
D) Depending on the circumstances, the auditor may choose any of the above.

Question 54

A client decides to change accounting procedures for certain types of transactions which will have a material impact on the financial statements. The client adopts an accounting change promulgated by GAAP but this change has no effect on the current period financial statements. The auditor should issue what type of opinion?

A) Qualified opinion.
B) Unqualified opinion.
C) Disclaimer of opinion.
D) Depending on the circumstances, the auditor may choose any of the above.

Question 55

The audit report should include a statement that:

A) the financial statements were presented accurately.
B) the financial statements are free from material error.
C) management is responsible for the audit findings.
D) the audit was performed by testing a sample of transactions.

Question 56

Under GAAS,:

A) the auditor can amend the language of the ICFR audit report.
B) the auditor can issue an adverse opinion on the ICFR without withdrawing from the engagement.
C) the auditor cannot issue an adverse opinion on ICFR without citing scope limitation.
D) the auditor can issue an adverse opinion on the ICFR only if (s)he issues a qualified opinion on the financial statements.

Question 57

Dillon is auditing Byrne Corp., a public company. Byrne recently implemented a new accounting system. As part of the ICFR audit, Dillon discovers that material controls surrounding access to the new software were only partially installed. Dillon should:

A) withdraw from the audit.
B) issue a disclaimer opinion on the ICFR.
C) issue an adverse opinion on the ICFR.
D) depending on the circumstances, the auditor may choose any of the above.

Question 58

An auditor is responsible for communicating which of the following matters to the audit committee?

A) Audit adjustments.
B) Consultation with other accountants.
C) Disagreements with management.
D) All of the above.

Question 59

If an auditor has serious going concern issues regarding the client, but the financial statements are correctly stated, then the auditor should:

A) issue an adverse opinion.
B) issue a disclaimer of opinion.
C) issue an unqualified opinion with appropriate explanatory language.
D) perform analytical procedures of the adjusted financial statements.

Question 60

Company A hired Q to perform its year-end audit. Subsequent to year-end, A discovers that one of its customers, who owes Company A a material amount, has filed for bankruptcy protection. Assume that the financial statements and audit report have already been issued. Q should:

A) recall the financial statements.
B) inform regulators that the audit report can no longer be relied upon.
C) inform the client that the regulators should be notified that the audit report can no longer be relied upon.
D) reissue a revised audit report.

Question 61

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".

Question 62

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

Question 63

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.

Question 64

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?

Question 65

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?

Question 66

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".

Question 67

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.
MATCHING

Question 68

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.

Question 69

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.

Question 70

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

Question 71

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.

Question 72

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.

Question 73

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.