Question 1

Auditors of public companies must obtain certain representations from management regarding internal control over financial reporting.

Accepted Answer

This is required by the auditing standards and helps the auditor to assess the effectiveness of internal control over financial reporting.

Question 2

Auditing standards require the auditor's assessment of going concern issues.

Accepted Answer

Auditing standards require the auditor to assess the entity's ability to continue as a going concern for a reasonable period of time, which includes evaluating management's plans, assessing the entity's financial position, and considering events or conditions that may cast significant doubt on the entity's ability to continue as a going concern.

Question 3

Current professional auditing standards mandate the use of analytical procedures during the testing phase of the audit.

Accepted Answer

Analytical procedures are required during the planning and review phases of an audit, but their use during the testing phase is not mandated; it is at the auditor's discretion based on the auditor's judgment and the specific circumstances of the audit.

Question 4

Auditing standards require the auditor to ________ other information included in annual reports pertaining directly to the financial statements.

Accepted Answer

Auditing standards require the auditor to read other information included in annual reports pertaining directly to the financial statements, in order to determine if there are any material inconsistencies with the information presented in the financial statements. However, the auditor is not required to express an opinion on or analyze this other information.

Question 5

Current professional auditing standards require the performance of analytical procedures during the planning and completion phases of the audit.

Accepted Answer

Current professional auditing standards, such as those set forth by the American Institute of Certified Public Accountants (AICPA) and the Public Company Accounting Oversight Board (PCAOB), require the use of analytical procedures as a means of evaluating financial information both during the planning phase of the audit (to identify areas of potential risk and establish expectations) and in the completion phase (as a tool for evaluating the overall reasonableness of the financial statements).

Question 6

At the completion of the audit, management is typically asked to make a written statement as a part of the engagement letter that it is aware of no undisclosed contingent liabilities.

Accepted Answer

The written statement regarding undisclosed contingent liabilities is typically part of a management representation letter, not the engagement letter.

Question 7

Although the letter of representation is typed on the client's letterhead and signed by the client, it is common for the auditor to prepare the letter.

Accepted Answer

The statement is true. It is common for auditors to prepare the letter of representation even though it is signed and issued by the client on their letterhead.

Question 8

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a(n)

Accepted Answer

The refusal by a client to prepare and sign the representation letter is a limitation on the scope of the audit. This limitation prevents the auditor from obtaining sufficient appropriate audit evidence. As a result, the auditor may issue a qualified opinion if the matter is material but not pervasive, or a disclaimer of opinion if the matter is both material and pervasive.

Question 9

If the client refuses to prepare and sign a letter of representation, the auditor would be required to issue either a qualified opinion or a disclaimer of opinion.

Accepted Answer

According to auditing standards, a letter of representation is a necessary and important component of an audit. If the client refuses to provide it, the auditor cannot obtain sufficient evidence to support their opinion on the financial statements. As a result, they would need to issue either a qualified opinion, expressing a limitation of scope, or a disclaimer of opinion, stating that they are unable to form an opinion on the financial statements.

Question 10

A management representation letter is

Accepted Answer

A management representation letter is signed by high-level corporate officials, such as the CEO or CFO, and is used to provide written assurances to the auditor about the accuracy and completeness of financial statements and other information. The letter is usually prepared by the client company and addressed to the auditor, and it should be dated as close as possible to the date of the auditor's report. It is not prepared on the CPA's letterhead as it is a client-prepared document.

Question 11

Which of the following is not a reason why the auditor requests that the client provide a letter of representation?

Accepted Answer

The letter of representation does not determine the type of opinion the auditor will issue on the financial statements. The auditor's opinion is based on the overall assessment of the evidence obtained during the audit. The other options (A, B, and C) are valid reasons why the auditor requests a letter of representation.

Question 12

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the

Accepted Answer

The management letter of representation is a statement made by management to the auditors about its belief that the financial statements are complete and accurate. It includes a statement about any undisclosed contingent liabilities that may affect the financial statements. Therefore, the statement about undisclosed contingent liabilities would appear in the management letter of representation.

Question 13

An auditor must obtain written client representations that might be signed by all but which of the following?

Accepted Answer

All of the listed positions are typically authorized to provide written client representations except for the vice president of operations, who may not have the necessary authority or knowledge of the relevant financial information.

Question 14

Which of the following statements is correct?

Accepted Answer

A letter of representation is a written statement from management, a nonindependent source. While it is an important part of the audit evidence, it is not considered to be reliable evidence because it is a self-serving statement that cannot be corroborated through external sources. However, it is still an important part of the audit process as it helps to communicate responsibilities and confirm management's understanding of the financial statements.

Question 15

Which of the following is correct regarding supplementary information?

Accepted Answer

The auditor can issue a separate report on supplementary information, which does not need to be part of the report on the financial statements.

Question 16

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?

Accepted Answer

Reviewing compliance with debt agreements can help the auditor identify any potential default or breach of covenants which could impact the entity's ability to continue as a going concern. Confirmation of accounts receivable, reconciliation of interest expense, and confirmation of bank balances are all substantive audit procedures and may not necessarily assist in identifying going concern issues.

Question 17

The letter of representation is prepared on the CPA firm's letterhead, addressed to the client's chief executive officer, and signed by the audit engagement partner.

Accepted Answer

The letter of representation (or representation letter) is actually prepared on the client's letterhead, addressed to the CPA firm, and signed by members of the client's management, not the other way around.

Question 18

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

Accepted Answer

The letter of representation (or management representation letter) typically includes categories such as subsequent events, completeness of information, and recognition, measurement, and disclosure. Materiality, while a crucial concept in auditing and accounting, is not a category of items included in the letter of representation. The letter is meant to confirm certain aspects of the financial statements and related disclosures, rather than to discuss the concept of materiality itself.

Question 19

Results from the final analytical procedures may indicate that additional audit evidence is necessary.

Accepted Answer

The results of final analytical procedures may suggest that there are potential material misstatements or inconsistencies that require further inquiry or testing. Therefore, additional audit evidence may be necessary to address these issues and obtain sufficient evidence to support the audit opinion.

Question 20

Auditors are required to obtain a letter of representation that describes management's planned solutions to all internal control weaknesses identified during an audit.

Accepted Answer

A letter of representation from management typically includes acknowledgments of responsibility for the financial statements and disclosures, confirmation of the completeness of information provided, and information about subsequent events, among other things, but it does not require management to describe their planned solutions to all internal control weaknesses identified during an audit.

Quiz 24: Completing the Audit