Question 1

If, during the completion phase of the audit, the auditor determines that he or she has not obtained sufficient evidence to draw a conclusion about the fairness of the client's financial statements, there are two choices: accumulate additional evidence or issue either a qualified or an adverse opinion.

Accepted Answer

The auditor has several options, not just two. They can accumulate additional evidence, issue a qualified or an adverse opinion, or they might also consider issuing a disclaimer of opinion if the limitation on the scope of the audit is so significant that the auditor cannot obtain sufficient appropriate audit evidence.

Question 2

State the three purposes of the management representation letter.

Accepted Answer

The answer of State the three purposes of the management...

Question 3

List four specific matters that should be included in a client representation letter.

Accepted Answer

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Question 4

What two steps must an auditor take if they have reservations about the audit client continuing as a going concern?

Accepted Answer

The answer of What two steps must an auditor take...

Question 5

An example of the use of data analytics at the end of the audit is using software to scan unusual journal entries that may require additional consideration by the auditor of their potential impact on the year-end financial statements.

Accepted Answer

This statement accurately describes one of the potential uses of data analytics at the end of an audit. By scanning for unusual journal entries, auditors can identify potential risks or errors that may require further investigation before finalizing the financial statements.

Question 6

The accounting standards state that management is responsible to evaluate the entity's ability to continue as a going concern within one year after the date the financial statements are issued.

Accepted Answer

This is a requirement under the accounting standards, as stated in the International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP). Management must assess the entity's ability to continue as a going concern and provide disclosures in the financial statements if there is any significant uncertainty regarding the entity's ability to continue operating for at least one year after the date the financial statements are issued.

Question 7

List the three reasons why an experienced member of the audit firm must thoroughly review audit documentation at the completion of the audit.

Accepted Answer

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Question 8

The Financial Accounting Standards Board (FASB) describes a reasonable period of time as two years after the date the financial statements are issued for management to evaluate the entity's ability to continue as a going concern.

Accepted Answer

The Financial Accounting Standards Board (FASB) describes a reasonable period of time as one year after the date the financial statements are issued or available to be issued for management to evaluate the entity's ability to continue as a going concern.

Question 9

When reviewing the summary of misstatements found in the audit,

Accepted Answer

According to auditing standards, auditors must evaluate the combined effect of individually immaterial misstatements to determine whether the combined amount is material. Adjusting journal entries are only required for material misstatements. The auditor should consider the impact of misstatements on both the current and prior years' financial statements. Misstatements can impact both the income statement and the balance sheet.

Question 10

Because a management representation letter is a written statement from a nonindependent source, it cannot be regarded as reliable evidence.

Accepted Answer

A management representation letter is a statement from the management of a company, and as the management is not an independent source, the letter is not considered reliable evidence. It can be used to provide additional corroboration of other evidence, but it cannot stand alone as evidence.

Question 11

After performing all audit procedures in each area, the auditor must integrate the results into an overall conclusion about the financial statements.

Accepted Answer

This is true. The auditor must integrate the results of all audit procedures into an overall conclusion about the financial statements. This conclusion will become the auditor's opinion of the financial statements.

Question 12

To make a final evaluation as to whether sufficient appropriate evidence has been accumulated, the auditor will do all of the following except

Accepted Answer

The answer of To make a final evaluation as to...

Question 13

Besides the search for contingent liabilities and the review for subsequent events, the auditor has five important final evidence accumulation responsibilities, all of which are required by current professional auditing standards. Discuss each of these four responsibilities.

Accepted Answer

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Question 14

There are three reasons why an experienced member of the audit firm must thoroughly review audit documentation of the completion of the audit, including

Accepted Answer

All three reasons are valid and important for an experienced member of the audit firm to thoroughly review audit documentation. By evaluating the performance of inexperienced personnel, the experienced member can ensure that the audit was carried out to the standard of performance expected by the CPA firm. Reviewing the documentation also helps to counteract the bias that can creep into the auditor's judgment. By reviewing the work of others, the experienced member can help ensure that the audit was conducted with objectivity and integrity.

Question 15

Accounting standards generally require the financial statements to be prepared on the assumption an entity will continue its operations for a reasonable amount of time.

Accepted Answer

This assumption is known as the going concern concept, and it is a fundamental principle of accounting. The financial statements are prepared based on the assumption that the entity will continue its operations for the foreseeable future, allowing for the appropriate presentation of assets, liabilities, and equity. If an entity is not expected to continue as a going concern, this must be disclosed in the financial statements.

Question 16

The accounting standards require management to evaluate an entity's ability to continue as a going concern within one year after the date the financial statements are issued. Describe the two steps management is required to perform in performing this evaluation.

Accepted Answer

The answer of The accounting standards require management to evaluate...

Question 17

Which of the following is an accurate statement regarding audit documentation review?

Accepted Answer

It is common for larger audits to have the financial statements and the entire set of audit files reviewed by someone who has not participated in the audit, but is a member of the audit firm doing the audit. This helps to ensure objectivity and quality control. Option A is incorrect because the audit partner should review the work of all members of the audit team, regardless of their level of experience. Option B is incorrect because while the audit senior typically reviews much of the documentation, it is not necessary for them to review all of it. Option D is incorrect because checklists can be a useful tool for ensuring completeness of financial statement disclosures.

Question 18

An independent review must be performed of all audits.

Accepted Answer

Not all audits require an independent review; it depends on the type of audit and the regulations or standards governing it.

Question 19

The Securities and Exchange Commission has established regulations about the presentation of non-GAAP financial measures included in financial statements which include such measures should be relevant and reliable measures that do not mislead investors.

Accepted Answer

The statement accurately reflects the regulations established by the Securities and Exchange Commission regarding the presentation of non-GAAP financial measures.

Question 20

Auditing standards require the auditor to communicate all management frauds and illegal acts to the audit committee

Accepted Answer

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Quiz 24: Completing the Audit