Question 1

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Accepted Answer

The answer of Which of the following statements ordinarily is...

Question 2

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

Accepted Answer

The correct statement is that the auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management. This is in accordance with International Standard on Auditing (ISA) 260, which outlines the auditor's responsibility to communicate with those charged with governance about matters related to the audit. While weaknesses in internal control previously reported to those charged with governance do need to be followed up on, they only need to be communicated after subsequent audits if they have not been corrected. Choice A is incorrect as not all matters communicated to those charged with governance are required to be communicated to management. Choice C is incorrect as the auditor is required to communicate with both management and those charged with governance.

Question 3

A Type I subsequent event usually requires

Accepted Answer

A Type I subsequent event is an event that provides additional evidence about conditions that existed at the date of the financial statements, and the information should be reflected in the financial statements. Therefore, an adjustment to the financial statements would be necessary.

Question 4

For which of the following matters should an auditor obtain written management representations?

Accepted Answer

When management makes contractual agreements that may affect the financial statements, management representations should be obtained in writing to reduce the risk of material misstatement. Options A, B, and D do not necessarily need management representations in writing.

Question 5

Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.

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The answer of Discuss the steps used by an auditor...

Question 6

While auditing other business processes, an auditor may identify information about contingent liabilities. What specific audit procedures relating to other business processes could uncover these liabilities?

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The answer of While auditing other business processes, an auditor...

Question 7

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless

Accepted Answer

If new information is discovered concerning undisclosed related party transactions of the previously audited period, the auditor may need to take action, as it could affect the fairness of the financial statements.

Question 8

What information is typically requested in a legal letter to an entity's attorney?

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The answer of What information is typically requested in a...

Question 9

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless

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The answer of After issuance of the auditor's report, the...

Question 10

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless

Accepted Answer

If new information comes to the auditor's attention regarding an event that occurred before the report date and could have affected the report, the auditor may need to take action.

Question 11

What is the difference between a contingent liability and a commitment?

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The answer of What is the difference between a contingent...

Question 12

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter?

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The answer of Key Co. plans to present comparative financial...

Question 13

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Accepted Answer

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

Question 14

Who generally signs the legal letter?

Accepted Answer

The answer of Who generally signs the legal letter?
...

Question 15

Define the term "contingent liability" and discuss the criteria used to classify these events or conditions. Provide some examples of contingent liabilities.

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The answer of Define the term "contingent liability" and discuss...

Question 16

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

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

Question 17

Pretty People Incorporated, is the defendant in a pending discrimination lawsuit. What information about the lawsuit would you, as an auditor, need to know to decide whether to disclose the litigation in the financial statements?

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The answer of Pretty People Incorporated, is the defendant in...

Question 18

What is an unasserted claim and why would an attorney and/or entity be reluctant to disclose an unasserted claim in the financial statements?

Accepted Answer

The answer of What is an unasserted claim and why...

Question 19

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when

Accepted Answer

A contingent liability should be disclosed in the footnotes if the outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated. If the loss can be reasonably estimated and the outcome is either probable or likely, the liability should be recorded and reflected in the financial statement accounts. If the outcome is unknown but the loss can be reasonably estimated, the liability should also be recorded in the financial statement accounts. If the entity does not want to book the loss, it cannot withhold the disclosure of the contingent liability.

Question 20

From the list below, select the procedures that an auditor would use to test for contingent liabilities.
a. Inquire of SEC officials regarding reported violations by the entity that create claims.
b. Read the entity's contracts, loan agreements, leases, and other documents.
c. Read the entity's minutes of meetings of shareholders, directors, and committees.
d. Request a representation letter from all the entity's employees.
e. Read the legal briefs of all suits filed against the entity's competitors.
f. Request the entity's management to prepare a letter of inquiry to the entity's attorney regarding pending litigation against the entity.

Accepted Answer

The answer of From the list below, select the procedures...

Quiz 17: Completing the Audit Engagement