Question 1

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

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Question 2

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 3

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 4

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 would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern. This would entail contacting lenders, creditors, and other key stakeholders to determine if there are any upcoming changes or issues that may impact the entity's ability to continue operating. The other choices do not directly relate to identifying going concern risks.

Question 5

On March 15,2018,Kent,CPA,issued an unqualified opinion on a client's audited financial statements for the year ended December 31,2017.On May 4,2018,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

The auditor should undertake alternative procedures to provide a satisfactory basis for the opinion. If alternative procedures cannot be performed or are not sufficient, the auditor should withdraw the opinion, inform the client's management and those charged with governance, and consider whether other parties need to be notified. The auditor should not compensate for the omitted procedure by performing tests of controls or reissuing the opinion with an explanatory paragraph, as these options do not address the underlying issue of impairment to the auditor's ability to support the opinion. Option A is also incorrect as it suggests that the auditor should advise management to merely disclose the issue to the stockholders, which is not sufficient in addressing the auditor's responsibility to ensure the accuracy of the financial statements.

Question 6

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

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Question 7

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 8

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...

Question 9

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 a separate responsibility to report on the entity's ability to continue as a going concern, but must consider all evidence and modify their report accordingly if substantial doubts exist.

Question 10

You are auditing Green Corporation for the calendar year 2017.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,2017.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 2,2018.The financial statements were issued on March 14,2018.On March 20,2018,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 20,2018.

Accepted Answer

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

Question 11

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 12

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 13

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

Once the financial statements and Rory's report have been released, his responsibility as an auditor ends. He is not required to perform additional procedures or reissue his report for events that occur after the release of the financial statements.

Question 14

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 can provide auditors with evidence of subsequent events that may have an impact on the financial statements. This is because minutes of meetings may contain information about significant business transactions, events, or decisions made after the date of the financial statements. Confirming accounts receivable established after year-end, comparing financial statements with those of the prior period, and inquiring about unusual adjustments made just before year-end are procedures that may provide evidence about events that occurred before the date of the financial statements, but not necessarily subsequent events.

Question 15

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 16

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 the auditors believe that management's plan is sufficient to mitigate going-concern uncertainties and there is no substantial doubt about going concern, then they can simply conclude that no disclosure or modification of the audit report is necessary. This is the most appropriate course of action in this scenario.

Question 17

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 18

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

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Question 19

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.

Quiz 11: Completing the Audit

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?

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

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.

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) :

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

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

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

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

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