Question 1

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 the CFO (Chief Financial Officer) of the company.

Question 2

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 3

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 4

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 changes in income statement items are all useful tools for financial statement analysis, particularly in assessing a company's financial performance over time. These methods can provide insight into trends in revenue, expenses, profits, and other key financial metrics, and can help investors and analysts identify potential areas of concern or opportunity.

Question 5

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

This statement is true. The Altman Z-score is a formula that uses a combination of financial ratios to predict the likelihood of bankruptcy for a company. It has been found to be effective in many studies.

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

Management's refusal to sign the management representation letter is a significant scope limitation that affects the auditor's ability to obtain sufficient appropriate evidence. As a result, the auditor cannot issue an unqualified opinion and must either modify the opinion or, if the scope limitation is pervasive, issue a disclaimer of 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

Some auditors may be hesitant to issue a going-concern audit opinion because it could lead to a loss of investor and creditor confidence, which could hasten the company's failure.

Question 8

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 9

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

A final analytical review is performed to identify any unusual, unexpected, or unexplained relationships that should be resolved before issuing the audit report.

Question 10

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

This statement accurately describes the purpose of a quality audit. The auditor will assess the effectiveness of management's processes and provide feedback on whether they are sufficient to ensure quality and reliability.

Question 11

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

Accepted Answer

Auditors should obtain a management representation letter at the end of each audit. This letter provides written confirmation from management regarding various aspects of the financial statements and the audit process.

Question 12

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 it could have negative consequences for the perception of the business among stakeholders such as investors, lenders, and customers.

Question 13

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

Accepted Answer

An audit opinion is not a guarantee, but rather an opinion about whether the financial statements give a true and fair view of the company's financial position and performance. While the auditor may include a disclosure about the business's ability to continue as a going concern, this is not a guarantee.

Question 14

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 of the audit are meant to corroborate the conclusions formed during the audit. This helps the auditor to draw conclusions upon which to base their audit opinion. Therefore, the given statement is true.

Question 15

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

Accepted Answer

Analytical procedures are a crucial tool for auditors in assessing the overall presentation of the financial statements. These procedures involve the analysis of financial data and ratios to identify any unusual fluctuations, anomalous trends, or discrepancies that require further investigation. By comparing current and past financial data, as well as industry benchmarks and expectations, auditors can gain insights into the financial health of the organization and the accuracy of the financial statements. This analysis helps auditors to identify potential risks or areas of concern, and to make informed decisions about the appropriate audit procedures to perform.

Question 16

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

The statement is false. If management is unable to provide an explanation for a previously unrecognized risk identified through analytical procedures, the auditor should perform further audit procedures to obtain sufficient appropriate audit evidence to evaluate the risk and its impact on the financial statements. The issuance of an adverse opinion should only occur if the auditor concludes that the financial statements are materially misstated due to the identified risk and management refuses to provide adequate disclosure or correction.

Question 17

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 18

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 19

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 going-concern evaluation is based on evidence obtained from normal audit procedures, not separate procedures.

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

A decrease in competitiveness of a product and changes in the market can lead to decreased sales and revenue, which can contribute to going-concern problems.

Quiz 14: Activities Required in Completing a Quality Audit