Deck 12: Completion and Review

Question 1

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against a client except the:

A) period in which the underlying cause for legal action occurred.
B) probability of an unfavourable outcome.
C) jurisdiction in which the matter will be resolved.
D) existence of a situation indicating an uncertainty as to the possible loss.

Answer 1

C

Question 2

After an auditor has issued an auditor's report on the financial report of an entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial report covered by that report unless:

A) new information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report
B) material adverse events occur after the date of the auditor's report
C) final determination or resolution was made on matters that had resulted in a modification of the auditor's report
D) final determination or resolution was made of a contingency that had been disclosed in the financial report.

Answer 2

A

Question 3

An auditor is concerned with completing various phases of the examination after the balance date. This 'subsequent period' for audit testing extends to the date of the:

A) final review of the audit working papers.
B) auditor's report.
C) delivery of the auditor's report to the client.
D) public issuance of the financial report.

Answer 3

B

Question 4

A major customer of an audit client suffers a fire just prior to completion of year-end fieldwork. The audit client believes that this event could have a significant direct effect on the financial report. The auditor should:

A) advise management to disclose the event in notes to the financial report.
B) disclose the event in the auditor's report.
C) withhold submission of the auditor's report until the extent of the direct effect on the financial report is known.
D) advise management to adjust the financial report.

Question 5

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

A) An analysis of related-party transactions for the discovery of possible irregularities.
B) A review of the cut-off bank statements for the period after the year-end.
C) An inquiry of the client's solicitor concerning litigation.
D) An investigation of material weaknesses in internal accounting control previously communicated to the client.

Question 6

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

A) Investigate changes in shareholders' equity occurring after year-end.
B) Recalculate a sample of large-dollar transactions occurring after year-end for arithmetic accuracy.
C) Confirm bank accounts established after year-end.
D) Inquire of the entity's solicitor concerning litigation, claims and assessments arising after year-end.

Question 7

If a solicitor refuses to furnish corroborating information regarding litigation, claims and assessments, the auditor should:

A) honour the confidentiality of the client-solicitor relationship.
B) consider the refusal to be a scope limitation.
C) seek to obtain the corroborating information from management.
D) disclose this fact in a footnote to the financial report.

Question 8

Which of the following auditing procedures is ordinarily performed last?

A) Reading the mins of the directors' meetings.
B) Confirming accounts payable.
C) Obtaining a management representation letter.
D) Testing the purchasing function.

Question 9

When obtaining evidence regarding litigation against a client, the auditor would be least interested in determining:

A) an estimate of when the matter will be resolved.
B) the period in which the underlying cause of the litigation occurred.
C) the probability of an unfavourable outcome.
D) an estimate of the potential loss.

Question 10

Promotion Ltd's directors voted immediately after the year-end of 30 June 2010 to double its advertising budget for the coming year and authorised a change in advertising agencies. What is the effect of this event on the
30 June 2010 financial report?

A) Disclosure by means of supplemental, pro-forma financial information.
B) Adjustment of the financial report.
C) Disclosure in a footnote to the financial report.
D) No disclosure or adjustment necessary.

Question 11

Management's refusal to furnish a written representation on a matter that the auditor considers essential constitutes:

A) prima facie evidence that the financial report is not presented fairly.
B) a violation of the Corporations Act 2001.
C) an uncertainty sufficient to preclude an unmodified opinion.
D) a scope limitation sufficient to preclude an unmodified opinion.

Question 12

The audit inquiry letter to the client's solicitor should be mailed only by the:

A) client after the auditor has reviewed it for appropriate content.
B) auditor after preparation by the client and review by the auditor.
C) auditor's solicitor after preparation by the client and review by the auditor.
D) client after review by the auditor's solicitor.

Question 13

When an audit is made in accordance with the auditing standards, the independent auditor must:

A) utilise statistical sampling.
B) confirm receivables at year-end.
C) obtain certain written representations from management.
D) observe the taking of physical inventory on the balance date.

Question 14

Analytical procedures used in the overall review stage of an audit generally include:

A) testing transactions to corroborate management's financial report assertions.
B) considering unusual or unexpected amount balances that were not previously identified.
C) retesting control procedures that appeared to be ineffective during the assessment of control risk.
D) gathering evidence concerning account balances that have not changed from the prior year.

Question 15

A solicitor's response to an auditor's request for information concerning litigation, claims and assessments will ordinarily contain which of the following?

A) An explanation regarding limitations on the scope of the response.
B) A statement of concurrence with the client's determination of which unasserted possible claims warrant specification.
C) Confidential information that would be prejudicial to the client's defence if publicised.
D) An assertion that the list of unasserted possible claims identified by the client represents all such claims of which the solicitor may be aware.

Question 16

Lisa Tan has audited the financial report of Basalt Ltd for the year ended 30 June 2012. Although Lisa's audit fieldwork was completed on 25 August 2012, her auditor's report was signed on 28 August 2012 and sent to management that
Day) The management of Basalt Ltd advised Lisa that their annual report, which will be mailed to shareholders on
8 October 2012, will also include an unaudited financial report for the first quarter ended 30 September 2012. Under
The circumstances, Lisa is responsible for undertaking subsequent events audit procedures through to:

A) 25 August 2012.
B) 28 August 2012.
C) 30 September 2012.
D) 8 October 2012.

Question 17

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

A) Comparing the financial report being reported on with those of previous period.
B) Confirming a sample of material accounts receivable established after year-end.
C) Inquiring as to whether any unusual adjustments were made after year-end.
D) Investigating personnel changes in the accounting department occurring after year-end.

Question 18

After an auditor has issued an auditor's report on the financial report of a non-public entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial report covered by that report unless:

A) new information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.
B) material adverse events occur after the date of the auditor's report.
C) final determination or resolution was made on matters that had resulted in a modification of the auditor's report.
D) final determination or resolution was made of a contingency that had been disclosed in the financial report.

Question 19

The date of the management representation letter should coincide with the:

A) date of the auditor's report.
B) balance date.
C) date of the latest subsequent event referred to in the notes to the financial report.
D) date of the engagement letter.

Question 20

The property portfolio of Utopia Pty Ltd is stated at a value of $1 million in excess of its current market value. Utopia Pty Ltd is a non-reporting entity and does not apply the provisions of AASB 1010 in the preparation of its financial
Report. The directors believe that it would be inappropriate to write the properties down to market value as it is their
Intention to hold the properties as a long-term investment and the properties will eventually recover their value. The
Independent valuer agrees that the property will eventually recover its full value. Sufficient appropriate audit evidence
To support the value of the property would include obtaining a letter of representation from management confirming:

A) the directors' intention to hold the property on a long-term basis, that the value of the buildings is likely to increase in the long term and that the company is indeed a non-reporting entity.
B) the directors' intention to hold the property on a long-term basis and that the company is indeed a non-reporting entity.
C) the intention to hold the property on a long-term basis.
D) the company is indeed a non-reporting entity.

Question 21

As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should:

A) express an opinion that is modified due to the inability of the client company to continue as a going concern.
B) evaluate management's performance in causing this decline.
C) require footnote disclosure.
D) consider the possibility of an error in the financial report.

Question 22

A written representation from a client's management which, among other matters, acknowledges responsibility for the fair presentation of the financial report, should be signed by the:

A) chief executive officer and the chief financial officer.
B) chief financial officer and the chairman of the board of directors.
C) chairman of the audit committee of the board of directors.
D) chief executive officer, the chairman of the board of directors, and the client's solicitor.

Question 23

Auditors often request that the audit client send a letter of inquiry to those solicitors who have been consulted with respect to litigation, claims or assessments. The primary reason for this request is to provide the auditor with:

A) an estimate of the dollar amount of the probable loss.
B) an expert opinion as to whether a loss is possible, probable or remote.
C) information concerning the progress of cases to date.
D) corroborating evidence.

Question 24

A representation letter issued by a client:

A) is essential for the preparation of the audit program.
B) is a substitute for testing.
C) does not reduce the auditor's responsibility.
D) reduces the auditor's responsibility only to the extent that it is relied upon.

Question 25

An auditor will ordinarily examine invoices from solicitors primarily in order to:

A) substantiate accruals.
B) assess the legal ramifications of litigation in progress.
C) estimate the dollar amount of contingent liabilities.
D) identify possible unasserted litigation, claims and assessments.

Question 26

Which set of assertions are tested when, during completion of the audit, the audit partner conducts a final review of the format of the entity's financial report?

A) Assertions about classes of transactions and events.
B) Assertions about account balances at the period end.
C) Assertions about presentation and disclosure.
D) None of the given answers are correct.

Question 27

Which of the following statements is not correct?

A) The auditor is required to read other information accompanying the financial report to ensure that there are no inconsistencies.
B) The auditor may provide advice on accounting matters but the financial report and related disclosures are the entity's responsibility.
C) Towards the end of the audit the auditor should examine all related-party transactions.
D) Second-partner reviews are only required of the financial reports of public companies.

Question 28

Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

A) Review compliance with the terms of debt agreements.
B) Confirm accounts receivable from principal customers.
C) Reconcile interest expense with outstanding debt.
D) Confirm bank balances.

Question 29

An auditor has received a solicitor's letter in which no significant disagreements with the client's assessments of contingent liabilities were noted. The resignation of the client's solicitor shortly after receipt of the letter should
Alert the auditor that:

A) undisclosed unasserted claims may have arisen.
B) the solicitor was unable to form a conclusion with respect to the significance of litigation, claims and assessments.
C) the auditor must begin a new examination of contingent liabilities.
D) an adverse opinion will be necessary.