Question 1

On discovery of an omitted procedure, the auditor should assess its importance to his or her ability to currently support the opinion expressed on the financial statements.

Accepted Answer

When an auditor discovers an omitted procedure, they must assess its significance to determine if the opinion previously expressed on the financial statements is still supported. This assessment is crucial to ensure the audit opinion remains valid and reliable.

Question 2

Which of the following events in a subsequent period is an example of a type 1 subsequent event? A) issuance of long-term bonds B) settlement of warranties in excess of recorded amounts C) purchase of a business D) issuance of preferred stock E) casualty loss resulting from a flood

Accepted Answer

Type 1 subsequent events are those that provide additional evidence about conditions that existed at the date of the balance sheet and affect the estimates inherent in the process of preparing financial statements. The settlement of warranties in excess of recorded amounts fits this description because it provides additional evidence about the company's liabilities as of the balance sheet date.

Question 3

In regard to identifying and evaluating subsequent events, AU 560.12 specifies that the auditor inquires of management having responsibility for financial and accounting matters as to:
A) any substantial contingent liabilities or commitments existing at the balance sheet date or report date.
B) any significant changes in capital stock, long-term debt, or working capital to the date of inquiry.
C) the current status of items previously accounted for on the basis of tentative, preliminary, or conclusive data.
D) whether any unusual adjustments have been made since the report date.
E) litigation, claims, and assessments.

Accepted Answer

The answer of In regard to identifying and evaluating subsequent...

Question 4

Which of the following is not among the characteristics of the procedures performed in completing the audit? A) They are optional since they have only an indirect impact on the opinion to be expressed. B) They involve many subjective judgments by the auditor. C) They are performed after the balance sheet date. D) They are usually performed by audit managers or other senior members of the audit team who have extensive audit experience with the client. E) They do not pertain to specific transaction cycles or accounts.

Accepted Answer

Completing the audit procedures are not optional; they are essential for ensuring that the auditor has obtained sufficient appropriate audit evidence to support the opinion expressed in the auditor's report. These procedures help in identifying any subsequent events that may require adjustment or disclosure in the financial statements and in reviewing the overall presentation of the financial statements.

Question 5

Professional standards state that the auditor is not required to search for reportable conditions.

Accepted Answer

Professional standards require the auditor to search for reportable conditions.

Question 6

Matters relevant to management letters should be noted in the audit working papers as the audit progresses to ensure that they are not overlooked.

Accepted Answer

Management letters communicate significant findings and recommendations to the client during an audit. Noting relevant matters in the audit working papers as the audit progresses helps ensure that important observations are captured and addressed appropriately, enhancing the audit's effectiveness and efficiency.

Question 7

Pro forma data attached to the financial statements are only required with:
A) a material type 1 subsequent event.
B) a very material type 1 subsequent event.
C) a material type 2 subsequent event.
D) a very material type 2 subsequent event.
E) either a material type 1 or a very material type 2 subsequent event.

Accepted Answer

The answer of Pro forma data attached to the financial...

Question 8

Auditing standards require the auditor to conduct postaudit reviews of his or her work upon discovery of omitted procedures.

Accepted Answer

Auditing standards require auditors to evaluate the effect of omitted procedures when they are discovered, but they do not specifically mandate conducting postaudit reviews of all work due to such omissions. The auditor must assess whether the omitted procedures are necessary to support the audit opinion and take appropriate action, which may or may not involve a review of all work performed.

Question 9

The auditor is required by GAAS to separately identify and communicate material weaknesses in the report to the audit committee.

Accepted Answer

The answer of The auditor is required by GAAS to...

Question 10

In the final review process, a "cold" (or second) review is one performed by a partner from another CPA firm.

Accepted Answer

A "cold" (or second) review is typically performed by someone within the same CPA firm who was not involved in the audit, to ensure objectivity and thoroughness, not by a partner from another firm.

Question 11

Because of the potential for misinterpretation, the auditor should not state in the report that no reportable conditions were noted.

Accepted Answer

Stating that no reportable conditions were noted could lead to misinterpretation by the reader that the audit was comprehensive in all areas, potentially overlooking or missing some areas of risk or concern. It could give an unwarranted assurance.

Question 12

Ordinarily, type 1 subsequent events require: A) adjustment. B) adjustment and disclosure. C) a disclaimer. D) inclusion as a reportable condition. E) Disclosure.

Accepted Answer

Type 1 subsequent events are events that provide additional evidence about conditions that existed at the date of the balance sheet and affect the estimates inherent in the process of preparing financial statements. These events require adjustment of the financial statements to reflect the new evidence.

Question 13

Additional reviews of the working papers are made at the end of fieldwork by members of the audit team.

Accepted Answer

These additional reviews are conducted to ensure that the audit was performed in accordance with the applicable auditing standards and that the working papers adequately support the audit's findings and conclusions.

Question 14

If the client refuses to disclose newly discovered facts, the auditor should withdraw from the engagement.

Accepted Answer

The answer of If the client refuses to disclose newly...

Question 15

In regard to identifying and evaluating subsequent events, AU 560.12 specifies that the auditor inquires of management having responsibility for financial and accounting matters as to all of the following except:
A) any substantial contingent liabilities or commitments existing at the balance sheet date or date of inquiry.
B) any significant changes in capital stock, long-term debt, or working capital to the date of inquiry.
C) the minutes of meetings of directors, stockholders, and other appropriate committees.
D) the current status of items previously accounted for on the basis of tentative, preliminary, or inconclusive data.
E) whether any unusual adjustments have been made since the balance sheet date.

Accepted Answer

AU 560.12 does not specify that the auditor inquires of management about the minutes of meetings of directors, stockholders, and other appropriate committees as part of identifying and evaluating subsequent events. This is typically part of other audit procedures.

Question 16

The communication of significant deficiencies must be in writing.

Accepted Answer

The answer of The communication of significant deficiencies must be...

Question 17

Which of the following events in the subsequent period is an example of a Type 2 subsequent event? A) realization of recorded year-end receivables at a different amount than recorded B) settlement of recorded year-end estimated product warranty liabilities at a different amount than recorded C) purchase of a machine D) purchase of a business E) sale of equipment

Accepted Answer

The answer of Which of the following events in the...

Question 18

Which of the following is not among the specific auditing procedures the auditor performs to obtain additional audit evidence?
A) making subsequent events review
B) reading minutes of meetings
C) reviewing evidence concerning litigation, claims, and assessments
D) obtaining client representation letter
E) performing analytical procedures

Accepted Answer

The answer of Which of the following is not among...

Question 19

Ordinarily, type 2 subsequent events require: A) adjustment. B) adjustment and disclosure. C) a disclaimer. D) inclusion as a reportable condition. E) disclosure.

Accepted Answer

Type 2 subsequent events, which are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date, require disclosure in the financial statements to inform users about the situation and its potential financial impact. They do not require adjustment of the financial statements because they pertain to conditions that arose after the balance sheet date.

Question 20

By definition, subsequent events occur between: A) the interim and balance sheet date. B) the balance sheet date and the report date. C) the report date and the date the report is issued. D) the date the report is approved and the date the report is issued. E) the balance sheet date and the date the report is issued.

Accepted Answer

Subsequent events occur between the balance sheet date and the date the report is issued, as they are events that provide additional information about conditions that existed at the balance sheet date or indicate new conditions that arose after the balance sheet date.

Quiz 19: Completing the Audit and Postaudit

On discovery of an omitted procedure, the auditor should assess its importance to his or her ability to currently support the opinion expressed on the financial statements.

Which of the following events in a subsequent period is an example of a type 1 subsequent event?

In regard to identifying and evaluating subsequent events, AU 560.12 specifies that the auditor inquires of management having responsibility for financial and accounting matters as to:

Which of the following is not among the characteristics of the procedures performed in completing the audit?

Professional standards state that the auditor is not required to search for reportable conditions.

Matters relevant to management letters should be noted in the audit working papers as the audit progresses to ensure that they are not overlooked.

Pro forma data attached to the financial statements are only required with:

Auditing standards require the auditor to conduct postaudit reviews of his or her work upon discovery of omitted procedures.

The auditor is required by GAAS to separately identify and communicate material weaknesses in the report to the audit committee.

In the final review process, a "cold" (or second) review is one performed by a partner from another CPA firm.

Because of the potential for misinterpretation, the auditor should not state in the report that no reportable conditions were noted.

Ordinarily, type 1 subsequent events require:

Additional reviews of the working papers are made at the end of fieldwork by members of the audit team.

If the client refuses to disclose newly discovered facts, the auditor should withdraw from the engagement.

In regard to identifying and evaluating subsequent events, AU 560.12 specifies that the auditor inquires of management having responsibility for financial and accounting matters as to all of the following except:

The communication of significant deficiencies must be in writing.

Which of the following events in the subsequent period is an example of a Type 2 subsequent event?

Which of the following is not among the specific auditing procedures the auditor performs to obtain additional audit evidence?

Ordinarily, type 2 subsequent events require:

By definition, subsequent events occur between: