Question 1

Litigation,claims,and assessments Discuss the information management should provide related to litigation,claims,and assessments.Also describe the purpose of the letter of audit inquiry,who writes it,who it is addressed to,and the important inquiries that are made of the client's lawyer in the letter of audit inquiry.

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Question 2

Management letters to clients What is a management letter and how does it differ from a management representation letter?

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Question 3

Contingent liabilities The auditor will discuss contingencies with the appropriate executives and management of the company.Identify at least five sources of evidence to corroborate management's representations regarding contingencies.

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Question 4

Barrett Jennings, CPA, has prepared a letter of representation for the president and controller to sign. The
following items are contained in it:
(a) Inventory is fairly stated at the lower of cost or market and includes no obsolete items.
(b) All actual and contingent liabilities are properly included in the financial statements.
(c) All subsequent events, relevant to the financial statements, have been disclosed.
Required:
(1) Why is it desirable to have a letter of management representation letter from the client concerning these
matters when the evidence accumulated during the course of the audit is meant to verify the same information?
(2) How is the letter of management representation useful as audit evidence?
(3) What are several other types of information commonly included in the management representation letter?

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Question 5

Dual-dating opinions Describe the concept and the purpose of dual-dating an audit report.

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Question 6

Adjustments In your audit of Lomar Company,you find a number of items that you believe represent possible adjustments to the company's books.Management does not want to make any adjustments. REQUIRED: Assuming that Lomar is a public company,describe how the adjustments might impact your audit report on internal control over financial reporting.

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Question 7

Contingencies Define what a contingency is,describe the auditor's main concerns about them,and indicate how contingencies should be dealt with by management and the auditor.Besides litigation,claims,and assessments,what are some other types of contingencies?

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Question 8

Subsequent events What are the two types of subsequent events identified in the accounting literature and what is required when each occurs? Provide an example of each type of subsequent event.

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Question 9

Management representation letters Describe the purpose of the management representation letter.

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Question 10

Which of the following is not a required communication with the audit committee?

Accepted Answer

Accounting policies, accounting estimates, and difficulties encountered are all required communications with the audit committee, as they relate to the audit process and financial reporting. Economic trends, however, are not a required communication, although they may be discussed as part of a broader discussion of the company's business and financial performance.

Question 11

Which of the following is not a typical communication between the auditor and the audit committee?

Accepted Answer

The communication between the auditor and management regarding staff retention is not typically included in the communication with the audit committee. The other options listed are common communication points between the auditor and the audit committee.

Question 12

Disclosures You are a staff auditor on the audit of Cosmo Technologies,Inc.The audit partner asks you to carefully read the new mortgage contract with the Hometown Bank and abstract all pertinent information that might be needed for a financial disclosure. Required: (1)List the information in a mortgage that is likely to be relevant to the auditor.(2)What are the pros and cons of using a disclosure checklist for this task?

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Question 13

Review analytical procedures What is the purpose of using review analytical procedures in the final stages of the audit?

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Question 14

When auditing Global Alliance Industries, Inc., the auditor performed extensive analytical procedures and found
the following:
(a) The commission expenses as a percentage of sales has stayed constant for several years, but it has increased
significantly in the current year. However, commission rates have not changed.
(b) The rate of inventory turnover has steadily decreased for the past four years.
(c) The inventory as a percentage of current assets has steadily increased for the past four years.
(d) The number of days’ sales in accounts receivable has steadily increased for three years.
(e) The allowance for uncollectible accounts as a percentage of accounts receivable has steadily decreased for
three years.
(f) The absolute amounts of depreciation expense and depreciation expense as a percentage of gross fixed assets
are significantly smaller than in the preceding year.
REQUIRED:
(1) Evaluate the significance of not disclosing or adjusting these items, if material, in the fair presentation of
financial statements.
(2) When assessing disclosures, what criteria do auditors use?

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Question 15

Which of the following is not a required communication with the audit committee?

Accepted Answer

Although analytical review is an important part of the audit process, it is not a required communication with the audit committee. On the other hand, the auditor's responsibility under GAAS, audit adjustments, and uncorrected misstatements are all required communications with the audit committee.

Question 16

If the audit team encounters difficulties in performing an audit,who should the audit team communicate these matters to?

Accepted Answer

The audit team should communicate any difficulties in performing an audit to the audit committee. This is because the audit committee is responsible for overseeing the audit process and is therefore in the best position to address any issues that arise. The audit committee can work with management and the auditor to identify and resolve any problems that may be impeding the audit process. Communication with the SEC or PCAOB may also be necessary in certain situations, but the first point of contact should be the audit committee.

Question 17

Type II subsequent events Provide two examples of a Type II subsequent event and explain how these events would be treated in the financial statements.

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Question 18

CPA is a partner in a medium-sized CPA firm and takes an active part in the conduct of every audit she supervises.She follows the practice of reviewing all audit files of staff auditors on her team as soon as it is convenient,rather than waiting until the end of the audit.When the audit is nearly finished,Thompson reviews the audit files again to make sure that she has not missed anything significant.Because she makes most of the major decisions on the audit,there is rarely anything that requires further investigation.When she completes the review,she prepares a draft of the financial statements,gets them approved by management,and has them assembled in her firm's office.No other partner reviews the audit documentation,because Thompson is responsible for signing the audit reports. REQUIRED: (1)Evaluate the practice of not having a concurring partner review of the audit documentation by another partner in the firm, (2)explain some of the procedures the reviewer should perform as part of the review process,and (3)what documentation should be included.

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Question 19

Type I subsequent events Provide two examples of a Type I subsequent event and explain how these events would be treated in the financial statements.

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Question 20

Testing subsequent events List the audit procedures to be performed to determine if subsequent events have occurred and have been appropriately addressed.

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Quiz 14: Completing a Quality Audit

Management letters to clients What is a management letter and how does it differ from a management representation letter?

Contingent liabilities The auditor will discuss contingencies with the appropriate executives and management of the company.Identify at least five sources of evidence to corroborate management's representations regarding contingencies.

Dual-dating opinions Describe the concept and the purpose of dual-dating an audit report.

Contingencies Define what a contingency is,describe the auditor's main concerns about them,and indicate how contingencies should be dealt with by management and the auditor.Besides litigation,claims,and assessments,what are some other types of contingencies?

Subsequent events What are the two types of subsequent events identified in the accounting literature and what is required when each occurs? Provide an example of each type of subsequent event.

Management representation letters Describe the purpose of the management representation letter.

Which of the following is not a required communication with the audit committee?

Which of the following is not a typical communication between the auditor and the audit committee?

Review analytical procedures What is the purpose of using review analytical procedures in the final stages of the audit?

Which of the following is not a required communication with the audit committee?

If the audit team encounters difficulties in performing an audit,who should the audit team communicate these matters to?

Type II subsequent events Provide two examples of a Type II subsequent event and explain how these events would be treated in the financial statements.

Type I subsequent events Provide two examples of a Type I subsequent event and explain how these events would be treated in the financial statements.

Testing subsequent events List the audit procedures to be performed to determine if subsequent events have occurred and have been appropriately addressed.