Deck 15: Completing the Audit Work

Question 1

Auditors must complete phases of an audit after the balance sheet date. This subsequent period extends from the balance sheet date to the date of the ________.

A) audit report
B) final review of the audit working papers
C) public issuance of the financial statements
D) delivery of the audit report to the client

Answer 1

A

Question 2

For audit purposes, subsequent events are defined as events that occur after the ________.

A) balance sheet date
B) date of the audit report
C) balance sheet date but prior to the date of the audit report
D) date of the audit report and concern contingencies that are not reflected in the financial statements

Answer 2

C

Question 3

The primary source of information that the auditor can use in corroborating information about litigation, claims, and assessments is the ________.

A) client's lawyer
B) court records
C) client's management
D) independent auditor

Answer 3

A

Question 4

Which of the following representations would be made by the client in writing?

A) Losses from sales commitments.
B) Unasserted claims and assessments.
C) That all transactions have been recorded.
D) Noncompliance with contractual agreements.

Question 5

At the review stage of an audit, the application of analytical procedures is ________.

A) recommended by auditing standards
B) not mentioned by auditing standards
C) not useful, since detailed substantive tests have already been performed
D) required by auditing standards

Question 6

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all expenditures for ________.

A) repairs and maintenance have been recorded in the proper period
B) property and equipment have been recorded in the proper period
C) repairs and maintenance have not been charged to capital accounts
D) property and equipment have not been charged to expense

Question 7

Which of the following can illustrate a subsequent event that requires disclosure but not adjustment?

A) Settlement of long outstanding litigation.
B) Collection of a customer debt that had been written off.
C) Loss of inventory as a result of a flood occurring after year-end.
D) An additional tax assessment on prior income.

Question 8

The audit of the year-end franchise revenue balances is normally conducted in conjunction with which related account group?

A) Fixed assets, receivables.
B) Receivables, intangibles.
C) Receivables, investments.
D) Revenues, receivables.

Question 9

The primary reason an auditor asks that enquiry letters be sent to a client's lawyers is to provide the auditor with ________.

A) the probable outcome of asserted claims and pending or threatened litigation
B) corroboration of the information furnished by management about litigation, claims, and assessments
C) the lawyer's opinion of the client's historical experiences in recent similar litigation
D) a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date

Question 10

The refusal by a client's lawyer to provide a representation about the legality of an act committed by the client is generally ________.

A) sufficient reason to issue an adverse opinion
B) considered to be a scope limitation
C) insufficient reason to modify the auditor's report due to the lawyer's obligation of confidentiality
D) proper grounds to withdraw from the engagement

Question 11

Lawyers' letters should be written ________.

A) at the interim audit
B) anytime before the audit report date
C) anytime before the balance sheet date
D) at the final stages of the audit work

Question 12

Which of the following items would appear in a management letter of representation?

A) That a physical inventory was taken, and properly valued.
B) That the control systems are operating effectively.
C) That management has adequate insurance to ensure its ongoing operations.
D) That all financial records and related data were made available to the auditors.

Question 13

Auditors have a responsibility to perform audit procedures ________.

A) after the report date
B) until the report date
C) after the report issuance date
D) after the report date for events between the report date and a later dual dated event

Question 14

A major means by which an auditor obtains evidence about material contingencies is ________.

A) examining documents in the client's possession concerning contingencies
B) enquiring and discussing them with management
C) obtaining a response from the client's lawyer to the client's letter of enquiry
D) reading minutes of shareholders' meeting

Question 15

Analytical procedures used in the overall review stage of an audit generally include ________.

A) considering unusual or unexpected account balances that were not previously identified
B) performing tests of transactions to corroborate management's financial statement assertions
C) gathering evidence concerning account balances that have not changed from the prior year
D) retesting control procedures that appeared to be ineffective during the assessment of control risk

Question 16

An entity's income statements were misstated due to the recording of a journal entry that involved debits and credits to an unusual combination of expense and revenue accounts. The auditor most likely to detect this irregularity by ________.

A) tracing a sample of journal entries to the general ledger
B) evaluating the effectiveness of the internal control system policies and procedures
C) investigating the reconciliation of control accounts with the subsidiary records
D) performing analytical procedures designed to disclose differences between the balances in the accounts and budgeted amounts

Question 17

A subsequent event involving the issue of bonds payable or share capital requires ________.

A) financial statement disclosure only
B) restatement of prior years' financial statements
C) adjustment to financial statement numbers
D) no disclosure or financial statement adjustment

Question 18

Procedures for the audit of warranty expense are generally coordinated with which of the following audit programs?

A) Inventory and liabilities.
B) Inventory, sales, and repairs and maintenance.
C) Investments and intangibles.
D) Sales, inventory, and interest expense.

Question 19

The impact of a subsequent event on the audit report depends on whether it is detected before or after the ________.

A) balance sheet date
B) audit report date
C) year-end date
D) dual date

Question 20

The primary objective of performing analytical procedures in the final review stage of an audit is to ________.

A) obtain evidence from details tested to corroborate management assertions
B) obtain evidence on the validity of the assessment of control risk
C) assist the auditor in evaluating the overall financial statement presentation
D) identify areas that represent specific risks relevant to the audit

Question 21

What procedures should an auditor perform if he or she auditing the financial statements of a company and finds out that the company has several clearing accounts?

Question 22

Settlement of litigation when the event giving rise to the claim took place after the balance sheet date requires financial statement disclosure only.

Question 23

In the audit of revenue and expense accounts, a number of accounts will have been audited in connection with related balance sheet accounts. For each of the revenue and expense accounts listed in column A, indicate the related balance sheet account(s). If no account is specifically related, indicate if the account should be analyzed in detail or simply compared to the balance in the previous year.

Question 24

Toward the end of an audit, it is not necessary that external auditors consider the revenue and expense accounts that were not audited in connection with balance sheet accounts.

Question 25

The client signs the enquiry letter about claims and possible claims that is sent to the company's law firm for confirmation.

Question 26

A written letter of representation from a client can provide a good defence for not performing audit procedures.

Question 27

Management letters are a means of ________.

A) reporting recommendations to the client
B) making the client aware of the firm's consulting services
C) communicating matters related to control risk
D) identifying frauds and material misstatements

Question 28

An analysis of the comparative balances of minor expense accounts is often sufficient to decide whether the amounts are fairly presented.

Question 29

An auditor is most likely to suspect the existence of undisclosed related parties by noticing _______.

A) large-sales transactions
B) abnormally long collection terms for a receivable
C) a large number of sales to numbered corporations
D) a significant increase in sales over the prior year

Question 30

A working paper reference index reflects ________.

A) all balance sheet accounts
B) all income statement accounts
C) all trial balance accounts
D) all capital assets

Question 31

A loss on uncollectible trade accounts receivable resulting from the bankruptcy of a major customer requires financial statement disclosure only.

Question 32

Auditors draft the letter of representation that will be prepared on company letterhead and signed by the officers of the company.

Question 33

According to the CPA Canada Handbook, auditors should watch for unusual transactions in the course of their audit. List four examples of these transactions.

Question 34

The primary purpose of the second partner review is to help in forming the audit opinion.

Question 35

What are the two types of subsequent events?

Question 36

Having identified related party transactions, the auditor should _______.

A) confirm the terms and amounts of the transactions with the related parties
B) inform the audit committee in writing
C) consult with a fraud specialist to consider extended procedures
D) consider including an emphasis of matter paragraph in the audit opinion

Question 37

A second-partner review of the working papers and financial statements is performed to ensure that the ________.

A) to-do lists are reviewed and cleared
B) audit program procedures are signed off as evidence of completion
C) tick-mark notations are cleared
D) audit work meets the quality standards of the firm

Question 38

All revenue accounts designated "miscellaneous" or "other" are generally immaterial in amount and, therefore, not audited.

Question 39

A type of subsequent event that provides new information regarding financial conditions that existed at the date of the balance sheet requires only footnote disclosure.

Question 40

Analytical procedures are used during the overall evaluation of the financial statements.

Question 41

What are the three key features that must be included in the management representation letter?

Question 42

Why do auditors ask about related party transactions and where do they typically do this?

Question 43

What are the auditors' responsibilities regarding subsequent events?

Question 44

Regarding subsequent events, when would pro-forma financial statement be the best disclosure?