Question 1

Which of these substantive procedures is not used to obtain evidence about contingencies?

Accepted Answer

Scanning expense accounts for credit entries is not a relevant or commonly used procedure to obtain evidence about contingencies. Contingencies are potential liabilities that may or may not occur in the future, and are usually documented through legal agreements, minutes of board meetings, contracts, or correspondence. Scanning expense accounts for credit entries would be more relevant for detecting fraudulent transactions, errors, or unusual expenses.

Question 2

Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements?

Accepted Answer

The settlement of litigation in February for $100,000 that was estimated at $12,000 in the December 31 financial statements indicates a material misstatement in the financial statements, and requires an adjustment to reflect the true amount of the liability. This would necessitate a restatement of the financial statements for the year ended December 31. The other events occurred after December 31 and would not affect the financial statements for that period.

Question 3

A.Griffin audited the financial statements of Dodger Magnificat Corporation for the year ended December 31,2012.She completed gathering sufficient appropriate evidence on January 30 and later learned of a stock split voted by the board of directors on February 5.The financial statements were changed to reflect the split,and she now needs to dual date the report on the company's financial statements before sending it to the company.Which of the following is the proper form?

Accepted Answer

The auditor's report should be dual dated to reflect the completion of audit procedures on January 30, 2013, and the subsequent event (stock split) on February 5, 2013.

Question 4

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until

Accepted Answer

Auditors are responsible for considering subsequent events up to the audit report release date, as this is when the financial statements are finalized and made available to users.

Question 5

On March 15,2013,Kent,CPA,issued an unqualified opinion on a client's audited financial statements for the year ended December 31,2012.On May 4,2013,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

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 or causing alarm.

Question 6

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?

Accepted Answer

New information concerning undisclosed lease transactions during the period under audit could indicate that the financial statements were materially misstated, prompting further inquiries.

Question 7

A major objective of written representations is to

Accepted Answer

The objective of written representations is to impress on management its ultimate responsibility for the financial statements and disclosures. It does not shift responsibility to auditors (A), act as a substitute for substantive procedures (B), or provide an opportunity for management to make assertions about the quantity and valuation of physical inventory (C).

Question 8

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

Accepted Answer

Auditors investigate changes in long-term debt occurring after cutoff to identify any significant events that may affect the financial statements, as these could indicate subsequent events that need disclosure or adjustment.

Question 9

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

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 10

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 status does not exist?

Accepted Answer

If auditors have evaluated management's plan to mitigate going-concern uncertainties and believe that substantial doubt about going-concern status does not exist, they should simply conclude that no financial statement disclosure or modification of the auditors' report is necessary. This is the correct course of action as per Generally Accepted Auditing Standards (GAAS).

Question 11

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?

Accepted Answer

Confirming with third parties the details of arrangements to maintain financial support would help auditors identify conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern. This procedure would provide information about external sources of financing that may be available to the entity to support its operations. Inspecting title documents, reconciling cash balances, and comparing asset policies may be useful audit procedures but they are less likely to be directly related to assessing going concern issues.

Question 12

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?

Accepted Answer

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

Question 13

Assume that T.Rory is auditing the financial statements of Augusta,Inc.Rory completes fieldwork on February 25 and issues the report (along with Augusta's financial statements)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?

Accepted Answer

The hurricane occurred after the release of the financial statements and the report issued by Rory, hence he has no responsibility to perform any additional procedures or reissue his report.

Question 14

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

Accepted Answer

Reading the minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements may provide information about subsequent events that would impact the financial statements. The other options do not provide direct evidence about the occurrence of subsequent events.

Question 15

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?

Accepted Answer

Interest expense is often predictable and consistent due to fixed interest rates and regular payment schedules, making it a reliable source for analytical procedures.

Question 16

Which of the following best describes the role of analytical procedures in the review stages of the audit engagement?

Accepted Answer

Analytical procedures in the review stage are used to provide an overall review of the financial information and assess the adequacy of evidence gathered during the audit engagement.

Question 17

The auditing standards regarding subsequently discovered facts refers to knowledge obtained after

Accepted Answer

Subsequently discovered facts refer to knowledge obtained after the date of the auditor's report. This includes information that may have existed at the time of the audit but was not discovered until after the report was issued. The auditor has a responsibility to consider the impact of these facts on the financial statements and the report issued. Therefore, the auditor should take appropriate action to address any material misstatements or omissions in the financial statements.

Question 18

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

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 19

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):

Accepted Answer

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

Question 20

Which of the following is not required by generally accepted auditing standards?

Accepted Answer

While management letters are commonly included in audit reports, they are not required by generally accepted auditing standards. Written representations, attorney letters, and engagement letters are all required by GAAS.

Quiz 11: Completing the Audit