Question 1

Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously-issued financial statements?

Accepted Answer

New information about undisclosed lease transactions during the audit period could indicate that the financial statements were materially misstated, prompting further inquiries.

Question 2

On March 15, 2021, Kent, CPA, issued an unqualified opinion on a client's audited financial statements for the year ended December 31, 2020. On May 4, 2021, Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory. Omission of this procedure impairs Kent's present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first

Accepted Answer

Kent should first undertake to apply alternative procedures to gather sufficient evidence to support the opinion, as this would address the issue without immediately retracting the opinion or causing unnecessary alarm.

Question 3

Which of the following is an audit procedure that auditors most likely would perform concerning litigation, claims, and assessments?

Accepted Answer

Discussing with management its policies and procedures for evaluating and accounting for litigation, claims, and assessments is a common audit procedure. It helps auditors understand how the company identifies, evaluates, and reports these matters in the financial statements.

Question 4

Explain briefly auditors' responsibility for subsequently discovered facts existing at the date of the auditors' reports.

Accepted Answer

The answer of Explain briefly auditors' responsibility for subsequently discovered...

Question 5

If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date), this is known as a(an):

Accepted Answer

The answer of If an entity had litigation pending at...

Question 6

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Internal control deficiencies

Accepted Answer

Internal control deficiencies are typically communicated in writing either following the date of the auditors' report or as significant matters are identified during the audit process.

Question 7

Assume that Rory is auditing the financial statements of Augusta, Inc. Rory completes his fieldwork on February 25 and his report (along with Augusta's financial statements) is issued on March 1. On March 3, a hurricane destroys a warehouse that contains a significant amount of uninsured inventory. Which of the following best describes Rory's responsibility with respect to the effects of this hurricane on Augusta's financial statements?

Accepted Answer

Rory has no responsibility to perform additional procedures or reissue his report because the hurricane occurred after the release of the financial statements and Rory's report. The event occurred after the audit was completed, and therefore, the financial statements were accurate at the time they were audited and issued. Augusta should adjust their financial statements and provide disclosure of the event in their subsequent filings.

Question 8

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

Accepted Answer

Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements is a procedure that can provide evidence about the occurrence of subsequent events. This may give auditors insight into any events that might have occurred between the end of the reporting period and the date of the auditor's report. The other choices are not relevant to obtaining evidence about subsequent events.

Question 9

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Engagement letter

Accepted Answer

An engagement letter is typically provided prior to the engagement and is written.

Question 10

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Attorney letter response

Accepted Answer

Attorney letter responses are typically obtained prior to or at the date of the auditors' report and are written communications. These letters are used to provide auditors with information about litigation, claims, and assessments involving the entity being audited.

Question 11

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Communications with individuals charged with governance

Accepted Answer

The answer of For each of the communications listed below,...

Question 12

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

Accepted Answer

Confirming with third parties the details of arrangements to maintain financial support can assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern. This can include confirming with lenders or investors about their willingness to continue supporting the entity financially. Inspecting title documents, reconciling cash balances, and comparing asset policies are important audit procedures, but may not be as relevant to identifying going concern risks.

Question 13

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity?

Accepted Answer

Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. This means that auditors do not have to specifically gather evidence on going-concern status, but they should keep an eye out for any warning signs that may suggest that the entity may not be able to continue as a going concern. If such doubts exist, the auditor's report should be modified to reflect this uncertainty.

Question 14

What course of action should auditors take if, after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties, they believe that substantial doubt about going concern does not exist?

Accepted Answer

If, after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties, the auditors believe that substantial doubt about going concern does not exist, they should conclude that no financial statement disclosure or modification of the auditors' report is necessary. This is because the auditors have determined that there is no substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

Question 15

If the date of an entity's financial statements is December 31, the date of the auditor's report is February 20, and the audit report release date is February 22, which of the following is considered a subsequent event?

Accepted Answer

A significant acquisition announced on February 1 is considered a subsequent event because it occurred after the financial statement date (December 31) but before the audit report release date (February 22).

Question 16

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Accepted Answer

Interest expense is typically based on fixed agreements or contracts (e.g., loan agreements), making it more predictable and thus providing a higher level of evidence when auditors use analytical procedures to assess the reasonableness of the amounts recorded.

Question 17

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Management letter

Accepted Answer

The answer of For each of the communications listed below,...

Question 18

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Acceptance letter (signed copy of engagement letter)

Accepted Answer

The acceptance letter, which is a signed copy of the engagement letter, is typically obtained or provided prior to the engagement and is in written form. This document formalizes the audit engagement and outlines the scope and terms of the audit services to be provided.

Question 19

For each of the communications listed below, select the appropriate time period during which the communication is typically obtained or provided and whether the communication is oral, written, or either oral or written. Written representations

Accepted Answer

Written representations are obtained prior to or at the date of the auditors' report to provide written evidence of management's acknowledgement of their responsibility for the financial statements and the accuracy of the information provided to the auditor.

Question 20

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events?

Accepted Answer

Auditors investigate changes in long-term debt after year end to identify any significant events that may affect the financial statements.

Quiz 11: Completing the Audit 500