Question 1

Assume that Rory is auditing the financial statements of Augusta Inc.Rory completes his fieldwork on February 25 and his report (along with Augusta's financial statements)is issued on March 1.On March 3,a hurricane destroys a warehouse that contains a significant amount of uninsured inventory.Which of the following best describes Rory's responsibility with respect to the effects of this hurricane on Augusta's financial statements?
A) Because the inventory was included in the financial statements audited by Rory, he is required to perform additional procedures and reissue his report on the revised financial statements.
B) Because the hurricane occurred after the date of Rory's report, he has no responsibility to perform additional procedures or reissue his report.
C) Because the hurricane occurred prior to the next fiscal quarter, Rory is required to perform additional procedures and reissue his report on the revised financial statements.
D) Because the hurricane occurred after the release of the financial statements and Rory's report, he has no responsibility to perform additional procedures or reissue his report.

Accepted Answer

Rory's responsibility as an auditor ends with the issuance of his report. He is not responsible for events or transactions that occur after this date. In this case, the hurricane occurred after the issuance of Rory's report, and therefore he has no responsibility to perform additional procedures or reissue his report.

Question 2

Explain briefly auditors' responsibility for subsequently discovered facts existing at the date of the auditors' reports.

Accepted Answer

The answer of Explain briefly auditors' responsibility for subsequently discovered...

Question 3

If the date of an entity's financial statements is December 31,the date of the auditor's report is February 20,and the audit report release date is February 22,which of the following is considered a subsequent event?
A) A significant acquisition that was announced on February 1 and will be finalized on October 1.
B) A court settlement on March 3 related to a case that was pending on December 31.
C) Losses from the devaluation of a foreign currency that became finalized on February 21.
D) The entity's announcement of a major restructuring plan on December 30 that will be implemented during the upcoming year.

Accepted Answer

The answer of If the date of an entity's financial...

Question 4

For each of the communications listed below,indicate (1)the time period during which the communication is typically obtained or provided and (2)whether the communication is oral,written,or either oral or written.Use the following abbreviations in providing your answer:
A. Prior to the engagement
B. Prior to or at the date of the auditors' report
C. Following the date of the auditors' report
D. Either following the date of the auditors' report or as significant matters are identified
E. Oral
F. Written
G. Either oral or written
___ 1. Engagement letter
___ 2. Acceptance letter (signed copy of engagement letter)
___ 3. Attorney letter response
___ 4. Written representations
___ 5. Internal control deficiencies
___ 6. Communications with individuals charged with governance
___ 7. Management letter

Accepted Answer

The answer of For each of the communications listed below,indicate...

Question 5

Auditors try to identify predictable relationships when using analytical procedures.Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?
A) Accounts receivable
B) Interest expense
C) Accounts payable
D) Travel and entertainment expense

Accepted Answer

Interest expense is typically based on fixed agreements or contracts (e.g., loan agreements), making it more predictable and thus providing a higher level of evidence when auditors use analytical procedures to assess the reasonableness of the amounts recorded.

Question 6

On March 15,2015,Kent,CPA,issued an unqualified opinion on a client's audited financial statements for the year ended December 31,2014.On May 4,2015,Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory.Omission of this procedure impairs Kent's present ability to support the unqualified opinion.If the stockholders are currently relying on the opinion,Kent should first
A) advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on.
B) undertake to apply alternative procedures that would provide a satisfactory basis for the opinion.
C) reissue the auditors' reports and add an explanatory paragraph describing the departure from generally accepted auditing standards.
D) compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.

Accepted Answer

Kent should first undertake to apply alternative procedures to gather sufficient evidence to support the opinion, as this would address the issue without immediately retracting the opinion.

Question 7

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity?
A) Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern.
B) Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.
C) Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern.
D) Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

Accepted Answer

Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. This means that auditors do not have to specifically gather evidence on going-concern status, but they should keep an eye out for any warning signs that may suggest that the entity may not be able to continue as a going concern. If such doubts exist, the auditor's report should be modified to reflect this uncertainty.

Question 8

Which of the following is an audit procedure that auditors most likely would perform concerning litigation,claims,and assessments?
A) Request the client's attorney to evaluate whether the client's pending litigation claims, and assessments indicate a going concern problem.
B) Examine the legal documents in the client's attorney's possession concerning litigation, claims, and assessments to which the attorney has devoted substantive attention.
C) Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.
D) Confirm directly with the client's attorney that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.

Accepted Answer

Discussing with management its policies and procedures for evaluating and accounting for litigation, claims, and assessments is a common audit procedure. It helps auditors understand how the company identifies, evaluates, and reports these matters in the financial statements.

Question 9

Which of the following auditing procedures most likely would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
A) Inspecting title documents to verify whether any assets are pledged as collateral
B) Confirming with third parties the details of arrangements to maintain financial support
C) Reconciling the client's cash balance with the cut-off bank statement and the bank confirmation
D) Comparing the entity's depreciation and asset capitalization policies to other entities in the industry

Accepted Answer

Confirming with third parties the details of arrangements to maintain financial support is a common audit procedure used to assess an entity's ability to continue as a going concern. This procedure involves obtaining letters from banks and other lenders that indicate their willingness to continue providing financial support to the entity. These letters help the auditor evaluate the likelihood that the entity will be able to meet its financial obligations in the near future.

Question 10

Below is a list of events that occur throughout an audit examination.Indicate,using the correct letter,the time period during which these events are most likely to occur.An event may occur in more than one time period.
A. Prior to the date of the financial statements.
B. Between the date of the financial statements and the date of the auditors' report.
C. Between the date of the auditors' report and the audit report release date.
D. After the audit report release date.
___ 1. Subsequently discovered facts.
___ 2. Roll-forward work.
___ 3. Attorney letters.
___ 4. Interim testing relating to substantive procedures.
___ 5. Preparation of proposed adjusting journal entries.
___ 6. Dual dating for subsequently discovered facts.
___ 7. Communications with the individuals charged with governance.
___ 8. Written representations.
___ 9. Identification of subsequent events.
___ 10. Interim testing related to tests of controls.

Accepted Answer

The answer of Below is a list of events that...

Question 11

Define what is meant by the term "subsequent event".In addition,identify the two types of subsequent events and indicate how auditors should modify the engagement for the discovery of subsequent events.

Accepted Answer

The answer of Define what is meant by the term...

Question 12

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?
A) Determine that changes in employee pay rates after year end were properly authorized.
B) Recompute depreciation charges for plant assets sold after year end.
C) Inquire about payroll checks that were recorded before year end but cashed after year end.
D) Investigate changes in long-term debt occurring after year end.

Accepted Answer

The answer of Which of the following procedures would auditors...

Question 13

Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously-issued financial statements?
A) An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.
B) A contingency is resolved that had been disclosed in the audited financial statements.
C) New information is discovered concerning undisclosed lease transactions during the period under audit.
D) A subsidiary is sold that accounts for 25% of the entity's consolidated net income.

Accepted Answer

The answer of Which of the following events occurring after...

Question 14

What course of action should auditors take if,after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties,they believe that substantial doubt about going concern does not exist?
A) Modify their report on the financial statements to describe management's plan to mitigate going-concern uncertainties, the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist.
B) Prepare a separate report that describes management's plan to mitigate going-concern uncertainties, the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist.
C) Require financial statement disclosure of management's plan to mitigate going-concern uncertainties with no modification to the auditors' report on the financial statements or no separate report on going concern.
D) Conclude that substantial doubt about going concern does not exist and not require financial statement disclosure or modification of the auditors' report.

Accepted Answer

If auditors believe that no substantial doubt about going concern exists after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties, they should conclude that no financial statement disclosure or modification of the auditors' report is necessary. This is because the auditors have determined that the company is able to continue operating for the foreseeable future without the need for material adjustments, which would alleviate any concerns about going concern.

Question 15

Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?
A) Confirming a sample of material accounts receivable established after year-end
B) Comparing the financial statements being reported on with those of the prior period
C) Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements
D) Inquiring as to whether any unusual adjustments were made just before year-end

Accepted Answer

Reading minutes of meetings held after the date of the financial statements is the most appropriate procedure to obtain evidence about the occurrence of subsequent events. This is because any significant subsequent event that may affect the financial statements is likely to be discussed in such meetings. Confirming accounts receivable, comparing financial statements with prior periods, and inquiring about unusual adjustments made before year-end are procedures used to obtain evidence about the financial statements' accuracy and completeness at the balance sheet date but not about the occurrence of subsequent events after the balance sheet date.

Question 16

Indicate the type of communication(s)that correspond to each of the following statements.Use the letters A (attorney letter),M (management letter),and WR (written representations).Each statement may be related to more than one type of communication.
____ 1.Discusses management's responsibility for the fairness of the financial statements.
____ 2.Is obtained on the date of the auditors' report.
____ 3.Provides auditors with significant evidence regarding litigation,claims,and assessments.
____ 4.Discusses the absence of fraud activity by the client and its personnel.
____ 5.Is not required by generally accepted auditing standards.
____ 6.Is intended to be returned to auditors as a form of evidence.
____ 7.Is typically prepared following the audit report release date.
____ 8.Is signed by an executive of the client.

Accepted Answer

The answer of Indicate the type of communication(s)that correspond to...

Question 17

Explain briefly (a)written representations,(b)internal control communications,and (c)management letters.In your answer,include the general content of the communication,the parties involved with the communication,the required form of the communication,and whether the communication is required under generally accepted auditing standards.

Accepted Answer

The answer of Explain briefly (a)written representations,(b)internal control communications,and (c)management...

Question 18

Indicate,using the letters C (client),A (auditors),and AT (attorney)which party is responsible for each of the following duties relating to letters of inquiry of attorneys.Each statement is associated with only one party.
___ 1.Respond directly to auditors' initial inquiries regarding litigation,claims,and assessments.
___ 2.Initiate request for attorney letter.
___ 3.Respond to attorney letter.
___ 4.Provide initial description and evaluation of litigation,claims,and assessments.
___ 5.Request attorney letter.
___ 6.Perform various procedures relating to litigation,claims,and assessments.
___ 7.Identify whether client's views expressed in the attorney letter are appropriate.
___ 8.Party the attorney informs if an unasserted claim must be disclosed.

Accepted Answer

The answer of Indicate,using the letters C (client),A (auditors),and AT...

Question 19

You are auditing Green Corporation for the calendar year 2014.Among other items related to the audit,Green Corporation was being sued for personal injury resulting from the malfunction of one of their products.The lawsuit was initiated by Sue Ewe in September,2014.Management and the company's outside legal counsel estimated the loss from the suit to be approximately $250,000.This amount is accrued and properly disclosed in the footnotes of the financial statements.You have no reason to believe that the estimate is inaccurate.You completed your audit and dated your report March 2,2015.The financial statements were issued on March 14,2015.On March 20,2015,you read in a national business periodical that the jury in the trial awarded Sue Ewe $1.5 million.
Required:
Discuss the nature of these events and what responsibility,if any,you have regarding the news of March 20,2015.

Accepted Answer

The answer of You are auditing Green Corporation for the...

Question 20

If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date),this is known as a(n)
A) omitted procedure.
B) prior period adjustment.
C) subsequent event.
D) subsequently discovered fact.

Accepted Answer

The answer of If an entity had litigation pending at...

Quiz 11: Completing the Audit

Explain briefly auditors' responsibility for subsequently discovered facts existing at the date of the auditors' reports.

If the date of an entity's financial statements is December 31,the date of the auditor's report is February 20,and the audit report release date is February 22,which of the following is considered a subsequent event?

Auditors try to identify predictable relationships when using analytical procedures.Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity?

Which of the following is an audit procedure that auditors most likely would perform concerning litigation,claims,and assessments?

Which of the following auditing procedures most likely would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Define what is meant by the term "subsequent event".In addition,identify the two types of subsequent events and indicate how auditors should modify the engagement for the discovery of subsequent events.

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?

Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously-issued financial statements?

What course of action should auditors take if,after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties,they believe that substantial doubt about going concern does not exist?

Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?

If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date) ,this is known as a(n)