Deck 12: Completing the Audit

Question 1

Examples of contingent liabilities include

A)lawsuits requesting the company to pay damages for product liability or patent infringement
B)product warranty expenses
C)payment of obligations of other parties
D)liabilities for discounted accounts receivable
E)income tax disputes
F)both A and B
G)both A and E
H)both C and D

Answer 1

G

Question 2

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

A)asking management and others in the company,including the in-house legal counsel about potential legal liabilities
B)reviewing minutes of meetings of those charged with monitoring and correspondence between the company and its internal counsel
C)reviewing the expense accounts related to legal expense
D)reviewing tax returns
E)investigating customer complaints
F)both A and B
G)both A and C
H)both D and E

Answer 2

G

Question 3

As auditors gather evidence to determine whether the financial statements are prepared in accordance with the applicable financial reporting framework,the evidence is documented in the working papers.

Answer 3

True

Question 4

On the last day of fieldwork,the auditors complete their work papers and advise the client of any recommended adjustments.The audit report must be signed within 20 days of completion of field work.

Question 5

The auditor is provided with the evidence needed to determine whether the contingent liability should be recorded,disclosed or ignored from

A)attorneys hired by the auditor
B)attorneys hired by the claimant
C)professional judgment
D)attorneys hired by the client

Question 6

If the auditors find misstatements in the account balance or class of transactions,the auditors make audit adjustments to correct the financial statements.

Question 7

Financial statements are prepared with the assumption that the company will continue in business for a reasonable period of time in the future (not to exceed one year from the date of the financial statements).

Question 8

Examples of contingent liabilities include

A)lawsuits requesting the company to pay damages for patent liability or product infringement
B)product warranty expenses
C)guarantees of obligations of other parties
D)liabilities for discounted notes receivable
E)income tax extensions
F)both A and B
G)both B and C
Both C and D

Question 9

The auditing standards require the auditor to consider certain events that occur in the year following the year under audit,referred to as subsequent events,and to determine if any of these events require disclosure or adjustment in the financial statements under audit.

Question 10

When a company issues an annual report including financial statements and footnotes to the financial statements,additional information is often included in the annual report.

Question 11

Examples of contingent liabilities include

A)lawsuits requesting the company to pay damages for patent liability or product infringement
B)product warranty claims
C)payment of obligations of other parties
D)liabilities for discounted accounts receivable
E)income tax disputes
F)both A and C
G)both B and E
H)both D and E

Question 12

Auditors of public companies are required to evaluate the consistency of the financial statements,however,the auditors of private companies are not subject to such a requirement.

Question 13

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

A)asking management and others in the company,including the in-house legal counsel about potential legal liabilities
B)reviewing minutes of meetings of those charged with governance and correspondence between the company and its external counsel
C)reviewing the expense accounts related to audit expense
D)reviewing tax returns
E)investigating customer complaints
F)both A and B
G)both C and E
H)both D and E

Question 14

At the end of an audit,the information given by management to the auditor is formalized in the form of an attorney's letter.

Question 15

Examples of contingent liabilities include

A)lawsuits requesting the company to pay damages for patent liability or product infringement
B)product warranty claims
C)payment of obligations of other parties
D)liabilities for discounted notes receivable
E)income tax extensions
F)both A and C
G)both B and D
H)both D and E

Question 16

Examples of contingent liabilities include

A)lawsuits requesting the company to pay damages for product liability or patent infringement
B)product warranty expenses
C)guarantees of obligations of other parties
D)liabilities for discounted accounts receivable
E)income tax extensions
F)both A and C
G)both B and E
H)both D and E

Question 17

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

A)asking management and others in the company,including the in-house legal counsel about legal liabilities
B)reviewing minutes of meetings of those charged with governance and correspondence between the company and its external counsel
C)reviewing the expense accounts related to legal expense
D)reviewing tax returns
E)investigating customer complaints
F)both A and B
G)both A and D
Both B and C

Question 18

Contingent liabilities are liabilities that may arise in the future based on an event that may have occurred in the current year.

Question 19

An arm's length transaction is a transaction between a willing buyer and a willing seller;who are unrelated and are acting independently of each other.

Question 20

Noncompliance with laws and regulations usually does not result in fines,litigation,or other consequences for the company that may have a material effect on the financial statements.

Question 21

Normally,the auditor's work does not extend into the following year.However,the auditing standards require the auditor to consider certain events that occur in the year following the year under audit and determine if any of these events require

A)disclosure in the financial records for the year under audit
B)adjustment to the financial statements under audit
C)disclosure in the prior financial statements
D)adjustment to the financial records for the year under audit
E)disclosure in the financial statements under audit
F)both A and B
G)both B and E
H)both C and D

Question 22

When a contingent liability exists,the likelihood for loss can be evaluated as probable,reasonably possible,or remote.A remote loss is

A)a loss where the chance of occurrence is slight
B)a loss that is likely to occur
C)a loss where the chance of occurrence is moderate
D)falls between the chance of occurrence is slight and a loss is likely to occur

Question 23

If the auditor does not assess a risk of material misstatement related to a potential contingent liability,

A)he is required to contact the external counsel for the audit client and request additional information
B)he is required to contact the internal counsel for the audit client
C)he is not required to contact the external counsel for the audit client
D)he is not required to contact the internal counsel for the audit client and request additional information

Question 24

According to the U.S.accounting standards,estimated losses from loss contingencies should be recorded (by a charge to income and liabilities)if two conditions are met

A)the loss must be probable
B)the loss must be possible
C)the amount of the loss can be reasonably documented
D)the amount of the loss can be reasonably estimated
E)the amount of the loss can be accurately estimated
F)both A and B
G)both A and D
H)both C and E

Question 25

If during the process of identifying litigation,claims,and assessments involving the company that may increase the risk of material misstatement,the auditor assesses a risk of material misstatement due to a potential contingent liability,the auditor should

A)seek direct communication with the company's internal legal counsel
B)seek direct communication with the company's external legal counsel
C)seek direct communication with the company's management
D)seek direct communication with the company's board of directors

Question 26

When a contingent liability exists the likelihood for loss can be evaluated as probable,reasonably possible,or remote.A probable loss is

A)a loss where the chance of occurrence is slight
B)a loss that is likely to occur
C)a loss where the chance of occurrence is moderate
D)falls between the chance of occurrence is slight and a loss is likely to occur

Question 27

When a contingent liability exists,the likelihood for loss can be evaluated as probable,reasonably possible,or remote.A reasonably possible loss is

A)a loss where the chance of occurrence is slight
B)a loss that is likely to occur
C)a loss where the chance of occurrence is moderate
D)falls between the chance of occurrence is slight and a loss is likely to occur

Question 28

Subsequent events are events that

A)occur between the date of the financial statements and the date of the auditor's report,that do not require disclosure or adjustment in the financial statements
B)become known to the auditor after the date of the auditor's report that may have caused the auditor to amend his report had he known of them before the report was written
C)become known to the auditor after the issuance of the auditor's report that may have caused the auditor to amend his report had he known of them before the report was written
D)occur between the date of the financial statements and the date of the auditor's report,that require disclosure or adjustment in the financial statements

Question 29

In the evidence gathering process,the auditor seeks to determine

A)the existence of a condition indicating a contingent liability
B)the location where the cause for the legal action occurred
C)the probability of an unfavorable outcome
D)the actual amount of the loss
E)the person in the company responsible for the condition
F)both A and B
G)both A and C
H)both D and E

Question 30

The auditing standards require the auditor to consider the possible effect of events occurring

A)after year-end but before the financial statements are issued to the public
B)after year-end but before the completion of fieldwork
C)during the year but before the financial statements are issued to the public
D)during the year but before the completion of fieldwork

Question 31

Normally,the auditor's work does not extend into the following year.However,the auditing standards require the auditor to consider certain events that occur in the year following the year under audit,referred to as

A)following events
B)substantive tests of transactions
C)subsequent events
D)disclosure events

Question 32

Type I subsequent events

A)provide evidence for conditions that existed at the date of the auditor's report
B)provide evidence of conditions that arose after the date of the auditor's report
C)provide evidence for conditions that arose at the date of the financial statements
D)provide evidence of conditions that arose after the date of the financial statements
E)provide evidence for conditions that existed at the date of the financial statements

Question 33

The auditor seeks direct communication with the company's external legal counsel by

A)a letter of inquiry,prepared by the auditor,sent by management,requesting the company's legal counsel to communicate directly with the auditor
B)a demand letter,prepared by management,sent by the auditor,instructing the company's legal counsel to communicate directly with the auditor
C)a letter of inquiry,prepared by the auditor,sent by management,requesting the company's legal counsel to communicate directly with management
D)a letter of inquiry,prepared by management,sent by the auditor,requesting the company's legal counsel to communicate directly with the auditor

Question 34

In addition to contingent liabilities,a company may have another type of potential liability in the form of

A)under funded pension plans
B)future commitments made to lease holders,suppliers of raw materials,or consolidated or non-consolidated subsidiaries
C)over funded pension plans
D)unfunded health care plans

Question 35

There are two types of events of interest to the auditor

A)subsequently discovered events
B)prior period events
C)subsequent events
D)current period events
E)subsequently discovered facts
F)both A and B
G)both C and E
H)both D and E

Question 36

The requirements for Type I and Type II subsequent events are

A)Type I events are disclosed in the financial statements
B)Type II events are disclosed in the financial statements
C)neither Type I nor Type II events are recorded in the financial statements
D)Type II events are recorded in the financial statements
E)Type I events are recorded in the financial statements
F)both A and B
G)both B and E
H)both C and D

Question 37

The auditor's responsibility according to the auditing standards is to

A)respond to subsequent events
B)prepare adjusting entries for subsequently discovered facts if they come to the auditor's attention
C)ensure the client discloses subsequently discovered facts if they come to the auditor's attention
D)search for subsequent events
E)respond to subsequently discovered facts if they come to the auditor's attention
F)both A and B
G)both C and E
Both D and E

Question 38

If both required conditions of loss contingencies are not met,then U.S.accounting standards require

A)recording of loss contingencies if the loss is reasonably possible
B)disclosure of loss contingencies if the loss is possible
C)disclosure of loss contingencies if the loss is reasonably possible
D)disclosure of loss contingencies if the loss is probable

Question 39

Type II subsequent events

A)provide evidence for conditions that existed at the date of the auditor's report
B)provide evidence of conditions that arose after the date of the auditor's report
C)provide evidence for conditions that arose at the date of the financial statements
D)provide evidence of conditions that arose after the date of the financial statements
E)provide evidence for conditions that existed at the date of the financial statements

Question 40

Subsequently discovered facts are facts that

A)occur between the date of the financial statements and the date of the auditor's report,that do not require disclosure or adjustment in the financial statements
B)become known to the auditor after the date of the auditor's report that may have caused the auditor to amend his report had he known of them before the report was written
C)become known to the auditor after the issuance of the auditor's report that may have caused the auditor to amend his report had he known of them before the report was written
D)occur between the date of the financial statements and the date of the auditor's report,that require disclosure or adjustment in the financial statements

Question 41

The FASB define related parties as

A)customers of the company
B)investments accounted for using the equity method of accounting for investment securities
C)trusts for the benefit of employees,such as,pension and profit sharing trusts that are managed by union representatives
D)principal owners of the company and their immediate families
E)employees of the company and their immediate families
F)both A and B
G)both B and D
H)both C and E

Question 42

The FASB define related parties as

A)affiliates of the company
B)investments accounted for using the cost method of accounting for investment securities
C)trusts for the benefit of employees,such as,pension and profit sharing trusts that are managed by management
D)principal debtors of the company and their immediate families
E)employees of the company and their immediate families
F)both A and C
G)both B and D
H)both D and E

Question 43

The auditor is concerned about the client's compliance with laws and regulations that have an indirect impact on the financial statements.Because of the inherent limitations of an audit,there is an unavoidable risk that some material misstatements in the financial statements may be undetected.This risk is greater related to potential violations of laws and regulations for which of the following reasons?

A)many government contracts refer to a specific set of regulations
B)many government programs are subject to state and federal laws
C)many laws and regulations do not affect the financial statements
D)noncompliance may involve conduct designed to reveal the noncompliance
E)whether an action constitutes noncompliance is a matter for determination in a court of law
F)both A and B
G)both C and E
H)both D and E

Question 44

From the auditor's point of view,the problem with related party transactions is that

A)related party transactions may not have oversight in accordance with the applicable reporting framework
B)related party transactions may not have been classified in accordance with the applicable reporting framework
C)related party transactions may not have been occurred in accordance with the applicable reporting framework
D)related party transactions may not have been recorded in accordance with the applicable reporting framework

Question 45

The FASB define related parties as

A)customers of the company
B)investments accounted for using the equity method of accounting for investment securities
C)trusts for the benefit of employees,such as,pension and profit sharing trusts that are managed by union representatives
D)principal debtors of the company and their immediate families
E)management of the company and their immediate families
F)both A and C
G)both B and E
H)both D and E

Question 46

The FASB define related parties as

A)affiliates of the company
B)investments accounted for using the cost method of accounting for investment securities
C)trusts for the benefit of employees,such as,pension and profit sharing trusts that are managed by union representatives
D)principal debtors of the company and their immediate families
E)management of the company and their immediate families
F)both A and E
G)both B and C
H)both D and E

Question 47

The auditing standards have identified transactions that may indicate the existence of related parties.These include

A)borrowing or lending at an interest rate or a rate of interest significantly above or below market rates
B)selling real estate at a price that differs significantly from its appraised value
C)exchanging property for similar property in a monetary transaction
D)making loans with scheduled terms for when and how the funds will be repaid
E)designing off-balance sheet debt agreements with one of the purposes being keeping the debt off the books of the company
F)both A and B
G)both C and D
H)both D and E

Question 48

Management's responsibility when considering the company's compliance with laws and regulations during an audit of financial statements is

A)to ensure that the company complies with the laws and regulations that affect the company
B)to identify material misstatements that might occur in the financial statements due to noncompliance with laws and regulations
C)to ensure that the company complies with the laws and regulations that might affect the company
D)to identify material misstatements that have occurred in the financial statements due to noncompliance with laws and regulations

Question 49

Which of the following procedures should the search for subsequent events involve?

A)Gain an understanding of the procedures used by auditors to ensure that subsequent events are identified
B)Inquire of management about whether there had been any events that have occurred after the date of the financial statements that might affect the financial statements
C)Request the minutes of meetings of shareholders,directors,and management and inquire about matters discussed at such meetings for which minutes are not yet available
D)Read the interim financial statements
E)Review the subsequent event expense account
F)both B and D
G)both C and A
H)both D and E

Question 50

The FASB define related parties as

A)customers of the company
B)investments accounted for using the cost method of accounting for investment securities
C)trusts for the benefit of employees,such as,pension and profit sharing trusts that are managed by management
D)principal owners of the company and their immediate families
E)employees of the company and their immediate families
F)both A and B
G)both B and E
Both C and D

Question 51

The auditing standards have identified transactions that may indicate the existence of related parties.These include

A)borrowing or lending at an interest rate or a rate of interest above or below market rates
B)selling real estate at a price that differs significantly from its advertised value
C)exchanging property for similar property in a nonmonetary transaction
D)making loans with no scheduled terms for when or how the funds will be repaid
E)designing off-balance sheet debt agreements with one of the purposes being keeping the debt off the books of the company
F)both A and B
G)both C and D
H)both D and E

Question 52

The auditor should obtain sufficient appropriate evidence for material amounts and disclosures in the financial statements that are determined by laws and regulations that have a direct impact on the financial statements.Examples include

A)SEC reporting requirements for private companies
B)FASB reporting requirements for public companies
C)industry specific financial reporting issues
D)accounting for transactions under government contracts,including the amount of revenue to be accrued
E)the accrual and recognition of sales tax expense
F)both A and B
G)both B and E
Both C and D

Question 53

Examples of Type I events are

A)a customer with a material accounts receivable balance goes bankrupt between the balance sheet date and the date of the audit report
B)the purchase of a new business between the balance sheet date and the date of the audit report
C)the loss of a warehouse as a result of a fire with a material amount of the loss not reimbursed by insurance between the balance sheet date and the date of the audit report
D)sale of a bond between the balance sheet date and the date of the audit report
E)settlement of a legal case between the balance sheet date and the date of the audit report
F)both A and C
G)both A and E
H)both D and E

Question 54

The auditor's responsibility related to related party relationships and transactions is

A)to obtain an understanding of related party relationships and transactions sufficient to determine if fraud is present
B)to obtain an understanding of related party relationships and transactions sufficient to determine if misstatements are present
C)to obtain an understanding of related party relationships and transactions sufficient to determine if fraud risk factors are present
D)to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been properly classified in the financial statements
E)to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified,accounted for,and disclosed in the financial statements
F)both A and B
G)both C and E
H)both D and E

Question 55

The auditor should obtain sufficient appropriate evidence for material amounts and disclosures in the financial statements that are determined by laws and regulations that have a direct impact on the financial statements.Examples include

A)SEC reporting requirements for public companies
B)FASB reporting requirements for public companies
C)industry specific management reporting issues
D)recording transactions under government contracts,including the amount of revenue to be accrued
E)the accrual and recognition of income tax and pension expense
F)both A and B
G)both A and E
H)both C and D

Question 56

Which of the following procedures should the search for subsequent events involve?

A)Gain an understanding of the procedures used by management to ensure that subsequent events are identified
B)Inquire of management about whether there had been any events that have occurred before the date of the financial statements that might affect the financial statements
C)Read the minutes of meetings of shareholders,directors,and management and inquire about matters discussed at such meetings for which minutes are not yet available
D)Read the interim financial records
E)Review the subsequent event expense account
F)both A and C
G)both B and D
H)both D and E

Question 57

The auditor's responsibility when considering the company's compliance with laws and regulations during an audit of financial statements is

A)to ensure that the company complies with the laws and regulations that affect the company
B)to identify material misstatements that might occur in the financial statements due to noncompliance with laws and regulations
C)to ensure that the company complies with the laws and regulations that might affect the company
D)to identify misstatements that have occurred in the financial statements due to noncompliance with laws and regulations

Question 58

The FASB define related parties as

A)other parties with which the company may deal if one part or can influence the management or operating policies of the other
B)other parties that can significantly influence the management or operating policies of the transacting parties or that has an ownership interest in one of the transacting parties and can significantly influence the other party
C)principal owners of the company and their immediate families
D)employees of the company and their immediate families
E)both B and C
F)both C and D
G)both D and E

Question 59

Examples of Type II events are

A)a customer with a material accounts receivable balance goes bankrupt between the balance sheet date and the date of the audit report
B)the purchase of a new business between the balance sheet date and the date of the audit report
C)the loss of a warehouse as a result of a fire with the loss reimbursed by insurance between the balance sheet date and the date of the audit report
D)sale of a bond between the balance sheet date and the date of the audit report
E)settlement of a legal case between the balance sheet date and the date of the audit report
F)both A and B
G)both B and D
H)both C and E

Question 60

The FASB define related parties as

A)other parties with which the company may deal if one part controls or can significantly influence the management or operating policies of the other
B)other parties that can influence the management or operating policies of the transacting parties or that has an ownership interest in one of the transacting parties and can influence the other party
C)trusts for the benefit of employees,such as,pension and profit sharing trusts that are managed by union representatives
D)principal debtors of the company and their immediate families
E)management of the company and their immediate families
F)both A and B
G)both A and E
H)both D and E

Question 61

For laws with an indirect impact on the financial statements the auditor should perform audit procedures to identify instances on noncompliance with laws and regulations that may have a material effect on the financial statements.The auditor does this by

A)inquiring with management about the company's compliance with laws and regulations
B)reviewing regulations of relevant licensing or regulatory bodies
C)corresponding with relevant licensing or regulatory bodies
D)inspecting correspondence with relevant licensing or regulatory bodies
E)both A and B
F)both A and D
G)both C and E

Question 62

Financial statements are prepared with the assumption that

A)the company will continue for an indefinite period of time in the future
B)the company will continue for a reasonable period of time in the future
C)the company may continue for a reasonable period of time in the future
D)the company may continue for an indefinite period of time in the future

Question 63

The auditing standards have listed several circumstances that might cause quantitatively immaterial misstatements to be judged material.These include

A)misstatements that change income into a loss
B)the effect of the misstatement on loan covenants,contractual agreements and regulatory provisions
C)the existence of statutory or regulatory reporting requirements that might have an impact on materiality levels
D)misstatements that have the effect of increasing management's compensation
E)the effect of misclassifying income between operating and nonrecurring
F)both A and B
G)both C and D
H)both D and E

Question 64

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

A)net liability positions
B)positive operating cash flows
C)ability to pay creditors on due dates
D)change from cash-on-delivery to credit transactions with suppliers
E)loss of key management without replacement
F)both A and E
G)both B and C
H)both D and E

Question 65

The auditor's responsibility regarding the going concern assumption is to

A)evaluate the possibility that the company could go bankrupt
B)obtain sufficient appropriate evidence to evaluate the appropriateness of management's use of the going concern assumption in the preparation and presentation of the financial statements
C)formulate an assumption about whether there is a material uncertainty about the company's ability to continue as a going concern
D)determine the implications for the audit report
E)estimate the net income that the company expects to earn during the current year
F)both B and D
G)both C and E
H)both D and E

Question 66

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

A)net asset positions
B)negative operating cash flows
C)ability to pay creditors on due dates
D)change from credit to cash-on-delivery transactions with suppliers
E)loss of key management with replacement
F)both A and E
G)both B and C
Both B and D

Question 67

The auditor's responsibility regarding the going concern assumption is to

A)evaluate the possibility that the company could go bankrupt
B)evaluate the appropriateness of management's use of the going concern assumption in the preparation and presentation of the financial statements
C)conclude about whether there is a material uncertainty about the company's ability to continue as a going concern
D)determine the implications for the audit report
E)estimate the net income that the company expects to earn during the current year
F)both A and B
G)both C and D
H)both D and E

Question 68

The auditor is concerned about the client's compliance with laws and regulations that have an indirect impact on the financial statements.Because of the inherent limitations of an audit,there is an unavoidable risk that some material misstatements in the financial statements may be undetected.This risk is greater related to potential violations of laws and regulations for which of the following reasons?

A)many government contracts refer to a specific set of regulations
B)many government programs are subject to state and federal laws
C)many laws and regulations do not affect the financial statements
D)noncompliance may involve conduct designed to conceal the noncompliance
E)whether an action constitutes noncompliance is a matter for determination by the board of directors
F)both A and B
G)both C and D
H)both D and E

Question 69

The purpose of the management representation letter is to

A)clarify all the information provided to the auditor during the audit reducing the possibility of misunderstanding between management and the auditor
B)obtain additional information to support audit conclusions
C)clarify assumptions provided to the auditor during the audit
D)obtain audit evidence that was not available during the normal course of fieldwork

Question 70

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

A)net asset positions
B)positive operating cash flows
C)ability to pay creditors on due dates
D)change from credit to cash-on-delivery transactions with suppliers
E)loss of key management without replacement
F)both A and B
G)both C and E
Both D and E

Question 71

The auditing standards have listed several circumstances that might cause quantitatively immaterial misstatements to be judged material.These include

A)misstatements that change a loss into income
B)the effect of the misstatement on compliance with loan covenants,contractual agreements and regulatory provisions
C)the existence of statutory or regulatory reporting requirements that might have an impact on quantitative levels
D)misstatements that have the effect of increasing employees' compensation
E)the effect of misclassifying income between operating and nonrecurring
F)both A and B
G)both C and E
H)both D and E

Question 72

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

A)net asset positions
B)negative operating cash flows
C)inability to pay creditors on due dates
D)change from cash-on-delivery to credit transactions with suppliers
E)loss of key management with replacement
F)both A and B
G)both B and C
H)both D and E

Question 73

If the auditor determines that the company does not comply with relevant laws and regulations,the auditor

A)should report the noncompliance to management or those charged with governance
B)must report the noncompliance to management or those charged with governance
C)should determine whether he has a responsibility to report the noncompliance to outside parties
D)should report the noncompliance to outside parties
E)must report the noncompliance to outside parties
F)both B and C
G)both C and E
H)both D and E

Question 74

If the management representation letter is not obtained,

A)issue the audit report and request that management send the letter as soon as possible
B)issue the report with an adverse opinion
C)issue the report with an "except for" opinion
D)the audit evidence should not be considered complete

Question 75

The management representation letter is to be dated

A)as of the last day of fieldwork;the date of the audit report
B)as of the date of the financials statements
C)the date the financial report is issued
D)as of the date that management completes the letter

Question 76

The auditor's responsibility regarding the going concern assumption is to

A)evaluate the possibility that the company could go bankrupt
B)obtain sufficient appropriate evidence to evaluate the appropriateness of management's use of the going concern assumption in the preparation and presentation of the financial statements
C)conclude about whether there is a material uncertainty about the company's ability to continue as a going concern
D)determine the implications for the work papers
E)estimate the net income that the company expects to earn during the current year
F)both A and B
G)both B and C
H)both D and E

Question 77

Which of the following audit procedures would the auditor use to identify conditions that may indicate doubt that the company will continue as a going concern for a reasonable period of time?

A)net liability positions
B)positive operating cash flows
C)inability to pay creditors on due dates
D)change from cash-on-delivery to credit transactions with suppliers
E)loss of key management with replacement
F)both A and C
G)both B and E
H)both D and E

Question 78

When workpapers are evaluated by audit management,they will be judged against the standard of

A)professional judgment
B)due care
C)legal liability
D)due diligence

Question 79

Audit documentation is defined as

A)the written record of the basis for the auditor's opinions
B)the written record of the basis for the auditor's evidence
C)the written record of the basis for the auditor's conclusions
D)the written record of the basis for the auditor's work

Question 80

The auditor is concerned about the client's compliance with laws and regulations that have an indirect impact on the financial statements.Because of the inherent limitations of an audit,there is an unavoidable risk that some material misstatements in the financial statements may be undetected.This risk is greater related to potential violations of laws and regulations for which of the following reasons?

A)many government contracts refer to a specific set of regulations
B)many government programs are subject to state and federal laws
C)many laws and regulations do not directly affect the financial statements
D)noncompliance may involve conduct designed to conceal the noncompliance
E)whether an action constitutes noncompliance is a matter for determination in a court of law
F)both A and B
G)both C and E
Both D and E