Question 1

A client has a calendar year-end.Listed below are four events that occurred after December 31.Which one of these subsequent events might result in adjustment of the December 31 financial statements?
A)Sale of a major subsidiary
B)Adoption of accelerated depreciation methods
C)Write-off of a substantial portion of inventory as obsolete
D)Collection of 90% of the accounts receivable existing at December 31

Accepted Answer

The write-off of a substantial portion of inventory as obsolete is a subsequent event that might result in an adjustment of the December 31 financial statements. This event would result in a decrease in the value of inventory and a corresponding decrease in the net income and total assets recorded on the December 31 financial statements. The other events listed (sale of a major subsidiary, adoption of accelerated depreciation methods, and collection of 90% of accounts receivable) would not require adjustment of the December 31 financial statements.

Question 2

The letter of representation obtained from an audit client should be:
A)dated as of the end of the period under audit.
B)dated as of the audit report date.
C)dated as of any date decided upon by the client and auditor.
D)dated as of the issuance of the financial statement.

Accepted Answer

The letter of representation obtained from an audit client should be dated as of the audit report date. This is because it is a representation by the management about the financial statements, and it should be made as of the date that the auditor is going to express an opinion about the financial statements. Therefore, the best choice is B, and the other options are not appropriate.

Question 3

The issuance of bonds by the client subsequent to the balance sheet date would require a footnote disclosure in, but no adjustment to, the financial statements under audit.

Accepted Answer

The issuance of bonds after the balance sheet date is considered a subsequent event and requires a footnote disclosure in the financial statements, but no adjustment to the financial statements under audit. This is in accordance with accounting standards and professional auditing standards.

Question 4

Subsequent events which require adjustment to the financial statements provide additional information about significant conditions/events which did not exist at the balance sheet date.

Accepted Answer

Subsequent events that require adjustment to the financial statements are those that provide additional evidence about conditions that existed at the balance sheet date, not those that did not exist at the balance sheet date.

Question 5

The auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit examination is best expressed by which of the following statements?
A)The auditor is fully responsible for events occurring in the subsequent period and should extend all detailed procedures through the last day of fieldwork.
B)The auditor is responsible for determining that a proper cutoff has been made and performing a general review of events occurring in the subsequent period.
C)The auditor's responsibility is to determine that a proper cutoff has been made and that transactions recorded on or before the balance sheet date actually occurred.
D)The auditor has no responsibility for events occurring in the subsequent period unless these events affect transactions recorded on or before the balance sheet date.

Accepted Answer

The auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit examination is to perform a general review of events occurring in the subsequent period and to determine that a proper cutoff has been made. The auditor is not fully responsible for events occurring in the subsequent period, and does not need to extend all detailed procedures through the last day of fieldwork. While the auditor's responsibility is to determine that transactions recorded on or before the balance sheet date actually occurred, this does not necessarily extend to events occurring in the subsequent period unless they affect transactions recorded on or before the balance sheet date. Therefore, B is the best choice.

Question 6

Which of the following is not one of the categories of items included in the client letter of representation?
A)Subsequent events
B)Completeness of information
C)Recognition, measurement, and disclosure
D)Materiality

Accepted Answer

Materiality is a concept used in auditing to determine the significance of an amount, transaction, or discrepancy, but it is not a category of items included in the client letter of representation. The letter typically includes representations about subsequent events, completeness of information, and recognition, measurement, and disclosure.

Question 7

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?
A)Review compliance with the terms of debt agreements
B)Confirmation of accounts receivable from principal customers
C)Reconciliation of interest expense with debt outstanding
D)Confirmation of bank balances

Accepted Answer

Reviewing compliance with the terms of debt agreements would help the auditor identify any potential defaults or violations that could affect the entity's ability to obtain future financing and continue as a going concern. The other procedures listed are important in their own right, but they would not specifically assist in identifying indications of substantial doubt about the entity's ability to continue as a going concern.

Question 8

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a:
A)qualified opinion or a disclaimer of opinion.
B)adverse opinion or a disclaimer of opinion.
C)qualified or an adverse opinion.
D)unqualified opinion with an explanatory paragraph.

Accepted Answer

If a client refuses to prepare and sign the representation letter, it constitutes a scope limitation for the auditor. This could lead to a qualified opinion if the limitation is material but not pervasive, or a disclaimer of opinion if the limitation is both material and pervasive.

Question 9

When should auditors generally assess a client's ability to continue as a going concern?
A)Upon completion of the audit
B)During the planning stages of the audit
C)Throughout the entire audit process
D)During testing and completion phases of the audit

Accepted Answer

Auditors should assess a client's ability to continue as a going concern throughout the entire audit process to ensure they identify any potential issues as they arise and can adjust their audit approach accordingly.

Question 10

The date of the management representation letter received from the client should coincide with which of the following?
A)Date of latest subsequent event disclosed in the notes to the financial statements
B)Date of the auditor's report
C)Balance sheet date
D)Engagement agreement

Accepted Answer

The management representation letter should be dated as of the date of the auditor's report to ensure that it covers all representations up to that point.

Question 11

Auditing standards require auditors to evaluate whether there is a substantial doubt about a client's ability to continue as a going concern.One of the most important audit procedures to perform to assess the going concern question is:
A)analytical procedures.
B)confirmations from creditors.
C)statistical sampling procedures.
D)inquiries of client and its legal counsel.

Accepted Answer

Analytical procedures help auditors identify trends and unusual financial relationships that may indicate financial distress, which is crucial for assessing going concern.

Question 12

Which of the following would the auditor expect to find in the client's management representation letter?
A)Management's recommendations for internal control effectiveness improvements
B)Management's plans for improving product quality
C)Management's compliance with contractual arrangements that impact the financial statements
D)Management's goals for improving earnings per share

Accepted Answer

The management representation letter typically includes representations about compliance with contractual arrangements that impact the financial statements, as these are relevant to the auditor's understanding and assessment of the financial statements.

Question 13

Which of the following statements regarding the letter of representation is not correct?
A)It is prepared on the client's letterhead.
B)It is addressed to the CPA firm.
C)It is signed by high-level corporate officials, usually the president and chief financial officer.
D)It is optional, not required, that the auditor obtain such a letter from management.

Accepted Answer

The statement "It is optional, not required, that the auditor obtain such a letter from management" is not correct. The letter of representation is required by auditing standards, and the auditor is responsible for obtaining it from management.

Question 14

Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least:
A)one quarter beyond the balance sheet date.
B)one quarter beyond the date of the auditor's report.
C)one year beyond the balance sheet date.
D)one year beyond the date of the auditor's report.

Accepted Answer

Auditing standards require the auditor to evaluate whether there is a substantial doubt about the client's ability to continue as a going concern for at least one year beyond the balance sheet date. This is because financial statements are prepared with a one-year horizon, and it is important for investors and other users of the financial statements to be aware of any significant uncertainties or risks to the company's ability to continue operating for the foreseeable future.

Question 15

When subsequent events are used to evaluate the amounts included in the year-end financial statements, auditors must distinguish between conditions that existed at the balance sheet date and those that came into being after the balance sheet date.

Accepted Answer

This statement is true. Auditors need to distinguish between conditions that existed at the balance sheet date and those that came into being after the balance sheet date when evaluating subsequent events.

Question 16

Which of the following is correct regarding supplementary information?
A)The auditor must express an opinion on the supplementary information.
B)When reporting on supplementary information, the auditor uses a different materiality threshold from that used in forming an opinion on the basic financial statements.
C)If the auditor's report on the audited financial statements contains an adverse opinion, the auditor can still issue an unqualified opinion on the supplementary information.
D)The auditor can issue a separate report on the supplementary information; it does not need to be part of the report on the financial statements.

Accepted Answer

The answer of Which of the following is correct regarding...

Question 17

State the two primary types of subsequent events that require consideration by management and evaluation by the auditor, and give two examples of each type.

Accepted Answer

The answer of State the two primary types of subsequent...

Question 18

The fieldwork for the December 31, 2013 audit of Schmidt Corporation ended on March 17, 2014.The financial statements and auditor's report were issued on March 29, 2014.In each of the material situations (1 through 5)below, indicate the appropriate action (a, b, c ).The possible actions are as follows:
a.Adjust the December 31, 2013 financial statements.
b.Disclose the information in a footnote in the December 31, 2013 financial statements.
c.No action is required.
The situations are as follows:
________ 1.On March 1, 2014, one of Schmidt Corporation's major customers declared bankruptcy.The customer's financial condition in 2013 was deteriorating and they owed Schmidt Corporation a large sum of money as of the balance sheet date.
________ 2.On February 17, 2014, Schmidt Corporation sold some machinery for its book value.
________ 3.On February 20, 2014, a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses.
________ 4.On January 5, 2014, there was a significant decline in the market value of the securities held for resale from their value as of the balance sheet date.
________ 5.On March 10, 2014, the company settled a lawsuit at an amount significantly higher than the amount recorded as a liability on the books as of the balance sheet date.

Accepted Answer

The answer of The fieldwork for the December 31, 2013...

Question 19

A client representation letter is:
A)prepared on the CPA's letterhead.
B)addressed to the client.
C)signed by high-level corporate officials.
D)dated as of the balance sheet date.

Accepted Answer

A client representation letter is signed by high-level corporate officials to confirm the representations made during the audit.

Question 20

Which of the following procedures and methods are important in assessing a company's ability to continue as a going concern?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Which of the following procedures and methods...

Quiz 24: Completing the Audit

A client has a calendar year-end.Listed below are four events that occurred after December 31.Which one of these subsequent events might result in adjustment of the December 31 financial statements?

The letter of representation obtained from an audit client should be:

The issuance of bonds by the client subsequent to the balance sheet date would require a footnote disclosure in, but no adjustment to, the financial statements under audit.

Subsequent events which require adjustment to the financial statements provide additional information about significant conditions/events which did not exist at the balance sheet date.

The auditor's responsibility with respect to events occurring between the balance sheet date and the end of the audit examination is best expressed by which of the following statements?

Which of the following is not one of the categories of items included in the client letter of representation?

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

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a:

When should auditors generally assess a client's ability to continue as a going concern?

The date of the management representation letter received from the client should coincide with which of the following?

Auditing standards require auditors to evaluate whether there is a substantial doubt about a client's ability to continue as a going concern.One of the most important audit procedures to perform to assess the going concern question is:

Which of the following would the auditor expect to find in the client's management representation letter?

Which of the following statements regarding the letter of representation is not correct?

Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least:

When subsequent events are used to evaluate the amounts included in the year-end financial statements, auditors must distinguish between conditions that existed at the balance sheet date and those that came into being after the balance sheet date.

Which of the following is correct regarding supplementary information?

State the two primary types of subsequent events that require consideration by management and evaluation by the auditor, and give two examples of each type.

A client representation letter is:

Which of the following procedures and methods are important in assessing a company's ability to continue as a going concern?