Deck 11: Completion and Review

Question 1

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.

Answer 1

A

Question 2

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 enquiry of the client's solicitor concerning litigation.
D)An investigation of material weaknesses in internal accounting control previously communicated to the client.

Answer 2

C

Question 3

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.

Answer 3

D

Question 4

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 5

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 6

Samantha Roberts has audited the financial report of Restoration Ltd for the year ended 30 June 20X0.Although Samantha's audit fieldwork was completed on 24 August 20X0, her auditor's report was signed on 27 August 20X0 and sent to management that day.The management of Restoration Ltd advised Samantha that their annual report, which will be mailed to shareholders on 7 October 20X0, will also include an unaudited financial report for the first quarter ended 30 September 20X0.Under the circumstances, Samantha is responsible for undertaking subsequent events audit procedures through to:

A)24 August 20X0.
B)27 August 20X0.
C)30 September 20X0.
D)7 October 20X0.

Question 7

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.

Question 8

The property portfolio of Land Pty Ltd (Land) is stated at a value of $1 million in excess of its current market value.Land is a non-reporting entity and does not apply the provisions of AASB 116 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.An independent valuer has advised the auditor 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' belief that the value of the buildings is likely to increase in the long term.
B)the directors' intention to hold the property on a long-term basis.
C)the company is a non-reporting entity.
D)None of the given answers is correct.

Question 9

After an auditor has issued an auditor's report on the financial report of an entity, the auditor should:

A)undertake further audit tests only if 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)review the accounting records for unusual transactions up to the date of the annual general meeting.
C)continue to carry out analytical procedures.
D)None of the given answers are correct.

Question 10

Orange Ltd's directors voted immediately after the year-end of 30 June 20X0 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 20X0 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

After an auditor has issued an auditor's report on the financial report, there is no obligation to make any further audit tests or enquiries 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 12

A major customer of an audit client suffers a fire just after year-end and 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 13

Which of the following auditing procedures is ordinarily performed last?

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

Question 14

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 15

The audit 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 16

Which of the following statements is correct?

A)The auditor is responsible for ensuring that events occurring up to the date of the annual general meeting are reflected in the financial report.
B)The date of the auditor's report establishes the date of the auditor's responsibility for knowledge of events that should be reflected in the financial report.
C)The auditor's report should be dated the same date as the annual general meeting.
D)The only procedures that should be performed after balance date are analytical procedures.

Question 17

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 18

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.

Question 19

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 20

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)sight all fixed assets on the balance date.

Question 21

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 22

Which of the following provisions is not a basic characteristic of a letter of support?

A)The parent entity agrees to provide financial assistance to the subsidiary for a fixed period.
B)The parent entity agrees not to demand repayment of debts the subsidiary owes.
C)The parent entity promises to take action if the subsidiary is placed in receivership.
D)The letter is provided when the subsidiary cannot afford to pay all of its debts.

Question 23

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.

Question 24

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)Engagement quality control reviews are only required of the financial reports of public companies.

Question 25

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 26

As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30 per cent in the preceding year to 20 per cent 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 27

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 28

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 29

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 30

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.