Question 1

The going-concern evaluation must be based on separate procedures that test the client's ability to continue as a going concern.

Accepted Answer

The answer of The going-concern evaluation must be based on...

Question 2

Management will often resist a going-concern modification because investors,lenders,and customers may lose faith in the business.

Accepted Answer

Management may resist a going-concern modification because they fear that stakeholders such as investors, lenders, and customers may lose confidence in the business's ability to continue operating. Such a modification could negatively impact the company's reputation and may make it more difficult for the company to secure funding or attract customers.

Question 3

Analytical procedures conducted during the final review phase of the audit should corroborate conclusions formed during the audit,which enables the auditor to draw conclusions upon which to base the audit opinion.

Accepted Answer

Analytical procedures conducted during the final review phase are meant to corroborate the conclusions formed during the audit, which helps the auditor to draw reliable and valid conclusions upon which to base the audit opinion.

Question 4

When management is unable to provide an explanation for a previously unrecognized risk identified through the analytical procedures,the auditor must issue an adverse opinion.

Accepted Answer

If management is unable to provide an explanation for a previously unrecognized risk, the auditor should evaluate the impact of the risk on the financial statements and the effectiveness of the related internal controls. If the auditor determines that the risk is material and pervasive and management is unable to provide satisfactory explanations or take corrective actions, the auditor should issue a disclaimer or adverse opinion. However, the decision to issue such an opinion is based on the materiality and pervasiveness of the risk, not solely on the fact that management cannot explain it.

Question 5

By performing a final analytical review,the audit firm will identify any unusual,unexpected,or unexplained relationships that should be resolved before the issuance of the audit report.

Accepted Answer

The final analytical review is a standard auditing procedure performed to ensure the accuracy and completeness of financial statements, identify any unusual or unexpected relationships, and resolve any issues before the issuance of the audit report. Therefore, the statement is true.

Question 6

Management's refusal to sign the management representation letter is considered a scope limitation sufficient to preclude the issuance of an unqualified opinion.

Accepted Answer

If management refuses to sign the management representation letter, it means that auditors do not have access to all of the information they need to provide an unqualified opinion. Therefore, it would be considered a scope limitation and preclude the issuance of an unqualified opinion.

Question 7

Some auditors may be reluctant to issue a going-concern audit opinion because it may hasten the failure of the client company.

Accepted Answer

This is a common dilemma faced by auditors, as issuing a going-concern audit opinion can damage the reputation and disrupt the operations of a company, potentially leading to its failure. However, it is the auditor's responsibility to report any significant doubt about the company's ability to continue as a going concern. Ultimately, the auditor must prioritize their obligation to provide a fair assessment of the company's financial status over any potential negative consequences.

Question 8

Auditors should obtain a management representation letter at the end of each audit.

Accepted Answer

Obtaining a management representation letter is a standard procedure at the end of an audit. The letter confirms that management has provided all necessary and relevant information to the auditor, and that they have disclosed any known fraud or errors in the financial statements.

Question 9

Analytical procedures may indicate that new controls need to be designed before completing the audit.

Accepted Answer

The answer of Analytical procedures may indicate that new controls...

Question 10

Two paragraphs should be added to the auditor's report when the auditor concludes that substantial doubt remains about the client's ability to continue as a going concern for a reasonable period of time.

Accepted Answer

The answer of Two paragraphs should be added to the...

Question 11

An audit opinion is a guarantee that the business is a going concern.

Accepted Answer

An audit opinion is not a guarantee, but an assessment of the financial statements of the business based on evidence and professional judgment at a point in time. The opinion does not imply certainty or future performance of the business as a going concern.

Question 12

A number of studies of bankruptcies have shown that certain combinations of ratios,like the Altman Z-score,have good predictive power in indicating the likelihood of bankruptcy.

Accepted Answer

Studies have shown that ratios like the Altman Z-score have good predictive power in indicating the likelihood of bankruptcy.

Question 13

Analytical procedures help auditors assess the overall presentation of the financial statements.

Accepted Answer

Analytical procedures are used by auditors to evaluate the overall reasonableness of financial statements. These procedures involve comparing financial information with industry benchmarks, previous financial statements, and other relevant data to identify unusual fluctuations or trends that may indicate potential errors or fraud. Therefore, analytical procedures do assist auditors in assessing the overall presentation of the financial statements.

Question 14

In a quality audit,the auditor will review management's processes for certification to provide reasonable assurance that those processes are adequate and that they can be relied upon.

Accepted Answer

A quality audit is conducted to review management's processes and assess their adequacy for certification. The goal is to provide reasonable assurance that the processes can be relied upon and are effective in meeting the organization's objectives. Therefore, the statement is true.

Question 15

Research has shown that auditors' qualifications of audit reports are better predictors of going-concern problems than are Z-score models.

Accepted Answer

The answer of Research has shown that auditors' qualifications of...

Question 16

The auditor's expectations in final analytical procedures must be more precise than those for substantive analytics.

Accepted Answer

The answer of The auditor's expectations in final analytical procedures...

Question 17

Ratio analysis,common-size analysis,and analysis of the dollar and percentage changes in each income statement item over the previous year are useful for this purpose.

Accepted Answer

Ratio analysis, common-size analysis, and analysis of the dollar and percentage changes in each income statement item over the previous year are commonly used methods for analyzing financial statements and determining the financial health of a company.

Question 18

The signing officers for the certifications under the Sarbanes-Oxley Act are typically the controller and the treasurer of the company.

Accepted Answer

The signing officers for the certifications under the Sarbanes-Oxley Act are typically the CEO and CFO of the company.

Question 19

The auditor should apply a basic three-step process for using analytical procedures during the final review.

Accepted Answer

The answer of The auditor should apply a basic three-step...

Question 20

Significant changes in the competitive market and a decrease in the competitiveness of the client's products are potential indicators of going-concern problems.

Accepted Answer

Significant changes in the competitive market can lead to decreased sales for the client's products, which can indicate potential financial difficulties and going-concern problems. Additionally, a decrease in the competitiveness of the client's products can make it difficult to maintain or increase sales, further indicating potential going-concern issues.

Quiz 14: Activities Required in Completing a Quality Audit