Question 1

If a client's major customer goes bankrupt in the period subsequent to cutoff and the allowance for doubtful accounts does not cover the loss,the client should adjust the allowance prior to the completion of the audit.

Accepted Answer

If the client's major customer goes bankrupt after the cutoff period and the allowance for doubtful accounts does not cover the loss, the client should adjust the allowance prior to the completion of the audit to ensure that the financial statements accurately reflect the loss. This is because the going concern assumption may be in doubt if a major customer goes bankrupt, and the auditor should consider the implications of this event on the client's ability to continue operating in the future.

Question 2

The auditor may discover an event after the last date of field work,but prior to the issuance of the report.If this event is disclosed,the auditor has no other option but to dual date the report.

Accepted Answer

The auditor has the option to either dual date the report or extend the date of the report to cover the new event. Dual dating is not the only option.

Question 3

A stock split takes place March 30,three days after the audit report is delivered to the client.The auditor is not required to do anything.

Accepted Answer

The auditor is not required to do anything after a stock split, as it does not affect the financial statements or the audit report.

Question 4

The auditor may decide to communicate certain issues to the audit committee of the board of directors at the conclusion of an audit to provide client service but is not required to do so.

Accepted Answer

Auditors are required to communicate certain issues, such as significant findings or deficiencies, to the audit committee as part of their professional responsibilities and standards.

Question 5

Settlement of a lawsuit in January for a materially different amount than was accrued at December 31 calls for an adjustment to the financial statements.

Accepted Answer

If the settlement of a lawsuit in January is for a materially different amount than what was accrued at December 31, it would require an adjustment to the financial statements because the accrued amount at year-end would no longer be accurate. This adjustment would ensure that the financial statements provide users with reliable and relevant information.

Question 6

Subsequent events may indicate conditions that did not exist at the balance sheet date,and should be considered for footnote disclosure.

Accepted Answer

Subsequent events refer to events and transactions that occur after the balance sheet date but before the financial statements are issued. These events are important because they may have an impact on the financial statements and may require disclosure in the footnotes. Therefore, it is true that subsequent events should be considered for footnote disclosure even if they did not exist at the balance sheet date.

Question 7

Pending litigation can often be discovered by the audit team in its review of the minutes of the board of directors meetings.

Accepted Answer

The review of minutes of the board of directors meetings is a common practice during an audit, and it can reveal information about pending or potential litigation that the company may be facing. The audit team can also request additional information from management about any legal matters that have not been disclosed in the minutes.

Question 8

The primary source of corroborative evidence concerning litigation,claims,and assessments is the client.

Accepted Answer

The answer of The primary source of corroborative evidence concerning...

Question 9

When the client is filing a registration statement with the SEC subsequent to fieldwork,the auditor is required to perform a subsequent events review up to the effective date of the registration statement.

Accepted Answer

The auditor is required to perform a subsequent events review up to the effective date of the registration statement as part of their responsibility to provide reasonable assurance that the financial statements do not contain any material misstatements. This is in accordance with auditing standards and SEC regulations.

Question 10

In auditing for subsequent events the auditor should read the minutes of meetings of the board of directors and stockholder meetings from year end through the last date of field work.

Accepted Answer

Reading minutes of meetings of the board of directors and stockholder meetings from year end through the last date of field work is necessary for the auditor to identify any subsequent events that may impact the company's financial statements.

Question 11

Significant changes in working capital during the subsequent events period should be investigated by the auditor.

Accepted Answer

Significant changes in working capital during subsequent events period may indicate potential financial misstatements or irregularities that require further investigation by the auditor. Therefore, it is important for the auditor to pay close attention to such changes during subsequent event procedures.

Question 12

The auditor must demand that management make all adjustments,no matter how large or small,prior to signing off on the financial statements.

Accepted Answer

Auditors are required to ensure that financial statements are free from material misstatements, but they do not need to demand adjustments for immaterial items. Management can decide not to adjust for immaterial misstatements.

Question 13

The auditor may discover an event after the last date of field work,but prior to the issuance of the report.If this event is disclosed,the auditor has no other option but to extend the review for subsequent events.

Accepted Answer

The auditor can choose to disclose the event in the financial statements or modify the audit report without necessarily extending the review for subsequent events.

Question 14

If the auditor concludes that the client may have a going-concern problem then the auditor should identify and assess management's plans to overcome this problem.

Accepted Answer

This is true. According to auditing standards, if the auditor has concerns about the client's ability to continue operations as a going concern, they should assess management's plans to address the issue. This includes evaluating the feasibility of the plans, the likelihood of their success, and whether they will be implemented in a timely manner. The auditor should disclose any significant uncertainties related to the client's ability to continue as a going concern in the audit report if appropriate.

Question 15

For the client to be considered a going concern,the auditor must satisfy himself or herself that the entity will continue in existence for a reasonable period of time,usually one year from the last day of the fiscal year.

Accepted Answer

This statement is true. The auditor is required to consider whether there is substantial doubt about the entity's ability to continue as a going concern for at least one year from the date of the financial statements.

Question 16

One purpose of the management representation letter is to further acknowledge management's responsibility for the financial statements in writing.

Accepted Answer

The statement is true. The management representation letter serves to document management's acknowledgement and acceptance of their responsibility for the financial statements. It is an important part of the audit process and helps to ensure the accuracy and completeness of the financial information provided to stakeholders.

Question 17

The failure of management to provide a management representation letter is considered a scope limitation on the audit.

Accepted Answer

Yes, the failure of management to provide a management representation letter is considered a scope limitation as it prevents the auditor from obtaining sufficient appropriate audit evidence about management's assertions.

Question 18

The management representation letter should be typed on the client's letterhead,addressed to the auditor and signed by the audit partner.

Accepted Answer

The management representation letter should be typed on the client's letterhead and signed by a responsible member of management, not the auditor. The auditor may request that the letter be addressed to them, but this is not necessary.

Question 19

Because contingencies may have particular reporting implications,auditors assess client contingencies for possible disclosure and adjustment.

Accepted Answer

Auditors do assess client contingencies for possible disclosure and adjustment, as they have specific reporting implications.

Question 20

A stock split takes place March 30,three days after the audit report is delivered to the client.The auditor should ask the client to recall the audit report.

Accepted Answer

A stock split that occurs after the delivery of the audit report does not require the auditor to recall the audit report. However, the auditor should consider whether the stock split has any impact on the financial statements and disclosure requirements.

Quiz 15: Ensuring Audit Quality in Completing the Audit