Deck 12: Completing and Reporting on the Audit

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

Answer 1

C

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.

Answer 2

True

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

Answer 3

A

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.

Question 5

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

Question 6

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

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.

Question 8

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

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

Question 10

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

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)

Question 12

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

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.

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.

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.

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.

Question 17

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

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

Question 19

Sufficiency relates to the quality of audit evidence gathered.

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

Question 21

Procedures used by an auditor when conducting a subsequent events review include:

A) assessing continued compliance with borrowing limits and loan covenants.
B) enquiring of those charged with governance as to whether any subsequent events have occurred that may affect the financial statements.
C) reading minutes of the meetings of the board of directors.
D) all of the above.

Question 22

Which items are matters of governance interest that an auditor would wish to discuss with those charged with governance?

A) the general approach and overall scope of the audit
B) the potential effect on the financial statements of any material risks and exposures
C) material uncertainties related to events and conditions that may cast significant doubt on the entity's ability to continue as a going concern
D) all of the above

Question 23

If the auditor is not able to obtain sufficient appropriate audit evidence, the appropriate audit opinion will either be:

A) a qualified opinion or an unqualified opinion.
B) a disclaimer of opinion or an emphasis of matter.
C) a qualified opinion or disclaimer of opinion.
D) an emphasis of matter or a qualified opinion.

Question 24

When Greg Hill was preparing the audit report of his client, he did not include one of the following items in the report. Which item did he exclude?

A) report date
B) introductory paragraph
C) management's responsibility for the financial statements
D) compliance with CICA Handbook

Question 25

Which of the following are examples of qualitative considerations that may cause misstatements of quantitatively immaterial amounts to be considered material?

A) the client's compliance with contractual requirements of operating or other agreements
B) key ratios monitored by analysts or other key users of the financial statements
C) both a and b
D) none of the above

Question 26

When misstatements or deviations from controls are found in planned procedures, consideration should always be given to:

A) the need to modify or perform further audit procedures.
B)
B) the reason for the misstatement or deviation.
C) both a and
D) none of the above.

Question 27

Which of the following factors is not relevant when management is assessing the going concern assumption?

A) whether the auditor specializes in the client's industry
B) the time into the future that an event is likely to take place
C) the nature and condition of the entity's business
D) the size and complexity of the entity

Question 28

The final phase of an audit includes which of the following?

A) performing substantive tests of account balances
B) gaining an understanding of the client's internal control system
C) confirming the terms of the audit engagement with the auditor
D) determining whether the audit evidence obtained is sufficient and appropriate to reduce the risk of material misstatements in the financial statements to an acceptably low level

Question 29

Which of the following statements regarding judgmental misstatements is incorrect?

A) They are the same as errors.
B) They can arise as a result of a difference in underlying assumptions by the client and the auditor.
C) They are not the same as errors.
D) They can arise as a result of a difference in the application of judgment by the client and the auditor.

Question 30

Under the going concern assumption:

A) an entity is viewed as not likely to continue in operation for the foreseeable future.
B) an entity's assets and liabilities are recorded at liquidation values.
C) an entity is viewed as continuing in business for the foreseeable future.
D) an entity is considered to be a separate legal entity from its owners.

Question 31

When Olena Vardon mentioned that the financial statements were materially misstated, what kind of opinion was this?

A) disclaimer
B) emphasis of matter
C) adverse
D) limitation of scope

Question 32

Which of the following are areas normally covered during the wrap-up of an audit engagement?

A) Perform subsequent events procedures.
B) Consider the amount used for materiality.
C) Reconsider the assessments of internal control at the entity level and the risk of fraud.
D) All of the above.

Question 33

Which of the following are included in the main components of the auditor's report?

A) management's responsibility for the financial statements
B) the auditor's opinion on whether the financial statements are fairly presented
C) the date of the audit report
D) all of the above

Question 34

A subsequent event occurs:

A) before the end of the financial year.
B) between the client's financial year-end and the date of the auditor's report.
C) after the auditor completes the tests of controls.
D) after the auditor signs the audit engagement letter.

Question 35

If it is not possible to obtain sufficient appropriate audit evidence, the auditor should:

A) express an unqualified opinion.
B) express a qualified, adverse or disclaimer of opinion.
C) report the client to CICA.
D) express an unqualified opinion with an emphasis of matter.

Question 36

When an error or exception is identified during substantive testing, the first response is to:

A) qualify the audit report.
B) understand why the error or exception has arisen.
C) increase the sample size.
D) report the error or exception to the audit committee.

Question 37

Management's responsibilities for the financial statements do not include which of the following?

A) selecting and applying appropriate accounting policies
B) expressing an opinion on the financial statements
C) establishing and maintaining internal controls
D) making reasonable accounting estimates

Question 38

A limitation on the scope of the auditor's work may result from:

A) damage to accounting records.
B) lack of access to key personnel.
C) absence of adequate accounting records.
D) all of the above.

Question 39

Which of the following statements is correct regarding a type 1 subsequent event?

A) They are events that do not result in changes to amounts in the financial statements.
B) They occur before the end of the client's financial year.
C) They may be of such significance as to require disclosure in the financial statements.
D) The financial statements are adjusted for any material changes in estimates from these types of events.

Question 40

Manuel DeSousa knew that the nature of his concern about a client matter would not require a qualification. What kind of audit report was he considering?

A) qualified opinion
B) emphasis of matter
C) compilation
D) none of the above

Question 41

Those charged with governance are accountable for ensuring that the entity achieves its objectives with regard to which of the following?

A) compliance with applicable laws
B) the reliability of financial reporting
C) both a and b
D) none of the above

Question 42

An unqualified audit opinion with an emphasis of matter should be given where there is:

A) inconsistent other information.
B) additional disclosures with which the auditor concurs.
C) a subsequent event that results in a new auditor's report on revised financial statements.
D) all of the above.

Question 43

Discuss the factors that are relevant when management is assessing the going concern assumption.

Question 44

Explain the difference between management's and the auditor's responsibility for the financial statements.

Question 45

Which of the following would not be included in an audit report?

A) The auditor's address
B) An introductory paragraph
C) The audit fee charged to the client
D) Management's responsibility for the financial statements

Question 46

What are examples of matters of governance interest that the auditor may wish to discuss with those charged with governance.

Question 47

Indicate whether you agree or disagree with the following statements and explain your reasoning.
a) Steven Bischoff, the senior auditor at Martineau, Hellman and Nathan made the following statement to his audit team: "What constitutes sufficient appropriate audit evidence is a matter of judgment."
b) Metropolitan Poultry Company operates as a specialty food distributor. Gordon Atkins, auditor, has told his staff that the bankruptcy of a customer at year-end should not be considered a type 1 event.
c) Mississauga Ice Pucks auditor Dave Ganesh found an omission of a disclosure in the financial statements of the hockey team. He called this an error.
d) Stacey Kurvers was told by the client that a limitation in the scope of his work would require a modification to the audit report.

Question 48

Matters of governance interest that the auditor may wish to discuss with those charged with governance include:

A) any practical difficulties encountered in performing the audit.
B) the potential effect on the financial statements of any material risks and exposures.
C) expected modifications to the audit report.
D) all of the above.

Question 49

Material disagreements with management will result in either:

A) a qualified opinion or adverse opinion.
B) an emphasis of matter or adverse opinion.
C) an adverse opinion or an unqualified opinion.
D) an unqualified opinion or a qualified opinion.

Question 50

Identify quantitative and qualitative considerations that are taken into account when the auditor evaluates whether misstatements either cause financial statements to be materially misstated or require additional disclosure.

Question 51

The auditor's report will not require a modified opinion where:

A) there is a disagreement with those charged with governance.
B) a limitation of scope of the engagement exists.
C) a significant uncertainty exists.
D) the financial statements are presented fairly.

Question 52

Which of the following is not an area of disagreement with those charged with governance that may result in a modified audit opinion?

A) the acceptability of accounting policies selected
B) the terms of the audit engagement
C) the method of application of accounting policies
D) the adequacy of disclosures in the financial statements

Question 53

Explain the difference between type 1 and type 2 subsequent events and provide examples of each type of event.