Question 1

When Sydney Burns was unable to perform work on inventory because of a client's insistence that she not perform an inventory taking, what kind of audit opinion would she most likely consider?
A) adverse opinion
B) emphasis of matter
C) limitation of scope
D) disclaimer of opinion

Accepted Answer

Sydney Burns was unable to perform work on inventory due to the client's request, which limits the scope of the audit. Therefore, a limitation of scope opinion would be most appropriate.

Question 2

Matters of governance that the auditor may wish to discuss with those charged with governance include any practical difficulties encountered in performing the audit.

Accepted Answer

The auditor may wish to discuss any practical difficulties encountered in performing the audit with those charged with governance in order to address any issues and ensure the smooth completion of the audit.

Question 3

When Eddie Okulicz released the audit report of C Corp. he did not anticipate that there would follow an announcement two days later that several days after year-end his client's foreign subsidiary had been nationalized by Libya for non-compliance to environmental laws of the country. What type of subsequent event was this?
A) Type 1
B) Type 2
C) Type 1 and 2
D) this was not a subsequent event

Accepted Answer

The event occurred after the year-end but before the audit report was issued, and it is likely to have a material effect on the financial statements.

Question 4

A limitation on the scope of the auditor's work could result from an inability to perform procedures or an imposition by the entity.

Accepted Answer

The scope of the auditor's work can be limited if they are unable to perform certain procedures or if the entity imposes restrictions on the auditor's access to information or areas of the organization. These limitations can impact the auditor's ability to gather sufficient and appropriate evidence to support their opinion on the financial statements.

Question 5

The auditor's responsibility for the financial statements includes selecting and applying appropriate accounting policies.

Accepted Answer

While auditors may provide guidance to clients on appropriate accounting policies, it is ultimately the responsibility of management to select and apply those policies. The auditor's responsibility is to determine whether the financial statements are free from material misstatement, regardless of the accounting policies selected by management.

Question 6

A type 1 subsequent event provides evidence with respect to conditions that developed subsequent to year-end.

Accepted Answer

A type 1 subsequent event provides evidence about conditions that developed after year-end, such as a lawsuit filed against the company after the close of the reporting period.

Question 7

The client's compliance with contractual requirements of operating agreements is an example of a qualitative factor that may cause misstatements of quantitatively immaterial amounts to be considered material.

Accepted Answer

The client's compliance with contractual requirements is a qualitative factor that may impact the overall assessment of materiality, even if the potential misstatement is quantitatively immaterial. This is because contractual compliance is often considered a key component of the client's overall financial health and integrity.

Question 8

An error is an intentional misstatement in the client's financial statements.

Accepted Answer

An error is an unintentional misstatement in the client's financial statements, whereas fraud or misrepresentation is an intentional misstatement.

Question 9

Syed Hussein, the partner on the Rimouski Copper audit called a meeting of his senior staff during the engagement wrap-up. Which of the following areas would be the least likely to be covered during the wrap up?
A) consideration of the amount used for materiality
B) removal of all unnecessary documentation from the engagement files
C) performing analytical procedures on the adjusted financial statements
D) preparation of budgets for the following year's audit

Accepted Answer

The preparation of budgets for the following year's audit is not typically covered during the wrap-up of an engagement as it is a separate planning process that occurs prior to the start of the next year's audit. The other three areas listed are commonly reviewed and discussed during the wrap-up.

Question 10

Subsequent events procedures are normally performed through to and including the date of the auditor's report.

Accepted Answer

Subsequent events procedures are performed up to the date of the auditor's report to ensure that any events that may affect the financial statements are disclosed or adjusted accordingly.

Question 11

When Samantha Dieter was training her staff about the auditor's responsibility for subsequent events she made the two following statements: (i) Type 2 subsequent events are those events that do not result in changes to financial statements.
(ii) Type 1 subsequent events do not require adjustments to financial statements.
Which of the above statements, if any is true?
A) (i)
B) (ii)
C) (i) and (ii)
D) neither (i) nor (ii)

Accepted Answer

The answer of When Samantha Dieter was training her staff...

Question 12

Generally, the further into the future an event is likely to take place, the greater the uncertainty surrounding the event.

Accepted Answer

This is because there are more variables that can impact the event as time passes, making it harder to predict accurately. Additionally, new information or unforeseen circumstances can arise that may affect the outcome.

Question 13

The uninsured loss of inventory as a result of fire subsequent to year-end is an example of a type 2 subsequent event.

Accepted Answer

A type 2 subsequent event is an event that occurs after the balance sheet date but before the issuance of financial statements and has a material impact on the financial statements. The loss of inventory due to fire is a type 2 subsequent event as it occurred after year-end but before the financial statements were issued, and it has a material impact on the financial statements.

Question 14

The final phase of an audit is to assess all of the audit evidence obtained and determine whether it is sufficient and appropriate.

Accepted Answer

This statement is true. The final phase of an audit is called the audit conclusion, and it involves evaluating all of the audit evidence gathered to determine whether it supports the auditor's opinion on the financial statements. The auditor must assess the quality and quantity of the evidence obtained and determine whether it is sufficient and appropriate to support the conclusions drawn.

Question 15

An unqualified audit report with an emphasis of matter should be issued if a subsequent event has occurred that has resulted in a new audit report being prepared on a revised financial statement.

Accepted Answer

An unqualified audit report with an emphasis of matter is appropriate when there is a need to highlight a matter that is relevant to the user's understanding of the financial statements but does not affect the auditor's opinion. In the case of a subsequent event that requires a revised financial statement and a new audit report, the original audit report is no longer valid and needs to be replaced with a new audit report. The new audit report would likely be qualified or adverse, depending on the nature of the subsequent event and its impact on the financial statements.

Question 16

When Paul Sliz was reviewing existing or possible obligations on the balance sheet, he was told that the outcome for these obligations was uncertain and that the company was awaiting a future event. Paul Sliz was reviewing
A) accruals.
B) going concern.
C) materiality.
D) contingent liabilities.

Accepted Answer

The language "outcome for these obligations was uncertain" and "awaiting a future event" suggests that these obligations are contingent liabilities, meaning they are potential future obligations that will be resolved based on the occurrence or non-occurrence of a future event.

Question 17

As soon as practicable, the auditor should communicate weaknesses in internal controls to management or those charged with governance.

Accepted Answer

This is a requirement under generally accepted auditing standards (GAAS) and is necessary to ensure that management takes appropriate actions to improve the effectiveness of internal controls.

Question 18

Ron Nucci is trying to gather sufficient appropriate evidence. Which of these are factors to consider in evaluating the sufficiency and appropriateness of audit evidence?
A) audit risk
B) control risk
C) quality of information obtained
D) none of the above

Accepted Answer

The sufficiency and appropriateness of audit evidence depends on the quality of information obtained during the audit. Factors such as audit risk and control risk are important in determining the nature and extent of audit procedures, but do not directly impact the sufficiency and appropriateness of audit evidence.

Question 19

Sufficiency relates to the quality of audit evidence gathered.

Accepted Answer

Sufficiency refers to the quantity of audit evidence while appropriateness refers to the quality of audit evidence. Therefore, sufficiency and quality are related, but they are not the same concept.

Question 20

At year-end Marissa Albion sent out accounts receivable confirmations. One of the major customers of her client confirmed that they would not be able to pay off the receivable. The client subsequently went bankrupt and an aggrieved shareholder of Marissa's client sued her firm. What type of subsequent event was this?
A) Type 1
B) Type 2
C) Type 1 and 2
D) this was not a subsequent event

Accepted Answer

The confirmation of the customer's inability to pay off the receivable is a Type 1 subsequent event because it provides additional evidence about a condition that existed at the date of the financial statements.

Quiz 12: Completing and Reporting on the Audit

When Sydney Burns was unable to perform work on inventory because of a client's insistence that she not perform an inventory taking, what kind of audit opinion would she most likely consider?