Question 1

Which of the following substantive procedures would not ordinarily be used by auditors in evaluating the potential existence of subsequent events?

Accepted Answer

Performing cut-off testing near year end is a procedure used to ensure that transactions are recorded in the correct period or fiscal year. It is not directly related to evaluating the potential existence of subsequent events, which refer to events occurring after the balance sheet date but before issuance of financial statements. The other options (reviewing latest interim financial statements, inquiring of officers and other client executives, and obtaining written representations) are all relevant to evaluating subsequent events.

Question 2

Following the audit report release date,auditors became aware of facts existing at the report date that would have affected the reports had auditors then been aware of such facts.What is the most appropriate initial course of action that auditors should take?

Accepted Answer

The auditors should first determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the newly discovered information. This will help them assess whether the information is material enough to warrant any action. If there are users who would consider the information important, the auditors may need to consider issuing revised financial statements or taking other appropriate measures.

Question 3

Subsequent events occur between the ____ and the____.

Accepted Answer

Subsequent events refer to events that occurred after the date of the financial statements but before the date of the auditors' report. As a result, the answer would be the time period between these two dates. Option A correctly identifies this period as the window for subsequent events.

Question 4

The primary objective of analytical procedures used near the end of an audit is to

Accepted Answer

Analytical procedures used near the end of an audit are primarily used to assist auditors in evaluating the overall financial statement presentation. This is done through comparing financial information with expectations developed from auditors' knowledge of the entity's business and industry. The objective is to identify any potential material misstatements or inconsistencies with the financial statements. Analytical procedures do not provide evidence on specific details tested or the validity of control risk assessments, and they are not used to identify specific risks relevant to the audit.

Question 5

Which of the following subsequent events would represent an event that provides information about conditions that arose following the date of the financial statements?

Accepted Answer

Loss of inventory as a result of a flood is an example of a subsequent event that provides information about conditions that arose after the date of the financial statements, as it is an event that occurred following the financial statement date and could not have been anticipated based on conditions existing at that time.

Question 6

In an audit of contingent liabilities,which of the following procedures would be least effective?

Accepted Answer

Examining customer confirmation replies would be least effective because customers may not always be aware of contingent liabilities, or may have a vested interest in downplaying their existence. The other procedures can provide reliable evidence of contingent liabilities. Reviewing a bank confirmation letter confirms the existence of loans or guarantees, examining invoices for professional services can reveal legal claims or disputes, and reading the board of directors minutes can provide information on potential legal proceedings, disputes or claims currently being considered by the organization.

Question 7

Management letters are not a means of

Accepted Answer

The answer of Management letters are not a means of
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Question 8

An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts.Auditors most likely could have detected this irregularity by

Accepted Answer

Performing analytical procedures designed to disclose differences from expectations would have allowed auditors to identify any irregularities in the revenue and expense accounts that deviated from the expected amounts. This could have prompted auditors to investigate the specific journal entries and ultimately detect the misstatements in the income statements. Tracing journal entries to the general ledger, evaluating the effectiveness of internal controls, and investigating reconciliations between controlling accounts and subsidiary records would not directly address the irregularity in the expense and revenue accounts recorded in the journal entries.

Question 9

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the:

Accepted Answer

The answer of Auditors have a responsibility to evaluate whether...

Question 10

Near the end of an audit,the application of analytical procedures is

Accepted Answer

Analytical procedures are required by auditing standards at the end of an audit to help the auditor form an overall conclusion about the financial statements.

Question 11

The primary source of information auditors use to obtain information about litigation,claims,and assessments is the

Accepted Answer

Client's management is the primary source of information auditors use to obtain information about litigation, claims, and assessments.

Question 12

The Orange Corporation was audited for the year ended December 31.The audit was completed on January 25; prior to the release of the report,auditors learned of a two-for-one stock split on February 1.If dual dating is used,what are the proper dates for the auditors' reports?

Accepted Answer

The answer of The Orange Corporation was audited for the...

Question 13

Long and Short,CPAs,were auditing Island Corporation for the year ended December 31,2017.On January 11,2018,a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in their warehouse on January 8,2018.As a result,a material accounts receivable from the customer was determined to be uncollectible.Long and Short,CPAs,would expect the client to

Accepted Answer

The bankruptcy of a major customer is a subsequent event that provides evidence about a condition that did not exist at the balance sheet date. In this case, it is a non-adjusting subsequent event because it occurred after the balance sheet date but before the issuance of the financial statements. Long and Short, CPAs should disclose the loss in a footnote to the 2017 financial statements because it is material and relevant to users of the financial statements. Recording the loss in the 2018 financial statements as a routine transaction would not be appropriate because the loss occurred in 2017, and adjusting the 2017 financial statements to record the loss would be a violation of the accounting period concept. Filing a lawsuit against the customer is an option but not the best choice given that the customer has already declared bankruptcy, and the likelihood of collecting the money owed is low.

Question 14

Auditors must complete various phases of an audit after the date of the financial statements.The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the

Accepted Answer

The auditors' responsibility for matters affecting the client extends to the audit report release date, which is when the auditors have completed their review and the report is formally issued.

Question 15

Analytical procedures performed near the end of an audit generally include

Accepted Answer

Analytical procedures near the end of an audit are used to assess the overall financial statement presentation and to identify any unusual or unexpected account balances that may require further investigation.

Question 16

Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously-expressed opinion.Auditors need not try to perform the omitted procedure if

Accepted Answer

If the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence, auditors need not try to perform the omitted procedure. This is because there is already sufficient evidence to support their previously-expressed opinion.

Question 17

An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the:

Accepted Answer

An engagement quality review is performed by a second partner to ensure that the audit work meets the quality standards of the firm, including compliance with auditing standards and regulations. This review is intended to provide an added level of assurance that the financial statements are accurate and complete. While "to-do lists," audit plan procedures, and tick-mark notations may all be reviewed as part of the engagement quality review, the primary objective is to ensure overall quality of the audit work.

Question 18

A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation.This review usually focuses on

Accepted Answer

The engagement quality review primarily focuses on ensuring that the financial statements are fairly presented in conformity with GAAP, as this is a critical aspect of the audit's overall quality and reliability.

Question 19

Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern:

Accepted Answer

Failure to meet forecasted earnings per share, while potentially concerning for other reasons, does not directly indicate a company's inability to continue as a going concern. The other options (A, C, D) directly relate to financial or legal challenges that could question the entity's ability to continue operating.

Question 20

Small and Tall,CPAs completed the December 31,2017 audit of Big Company on February 10,2018.After the audit report release date,an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31,2017 financial statements.The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed.Based on this new information,Small and Tall,CPAs should

Accepted Answer

The event occurred after the audit report release date, so it is considered a subsequent event that does not require adjustment to the financial statements. The auditors are not responsible for events occurring after the audit report release date.

Quiz 11: Completing the Audit