Question 1

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

Accepted Answer

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

Question 2

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 3

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

Accepted Answer

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

Question 4

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.

Accepted Answer

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

Question 5

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 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?

Accepted Answer

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

Question 7

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

The auditor has a duty to perform further audit tests and inquiries if they become aware of new information that may have affected their report. This is because the audit report is based on information available up to the date of the report. If new information comes to light after the report is issued, the auditor may need to update their report to reflect this information.

Question 8

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

Accepted Answer

Management representations typically include disclosures about compensating balances and restrictions on cash, as these are relevant to the financial statements.

Question 9

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 that...

Question 10

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?

Accepted Answer

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

Question 11

Who generally signs the legal letter?

Accepted Answer

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

Question 12

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

Accepted Answer

The auditor's communication with those charged with governance should include significant matters, such as changes in the application of significant accounting policies by management.

Question 13

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

Accepted Answer

When the outcome of a contingent liability is judged to be reasonably possible but the loss cannot be reasonably estimated, a disclosure in the footnotes is the appropriate course of action. This is because the contingent liability does not meet the criteria for recognition in the financial statements, but it is important to provide information about the nature of the event and its potential impact on the company's financial position.

Question 14

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

Accepted Answer

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

Question 15

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?

Accepted Answer

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

Question 16

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

Accepted Answer

Management's compliance with contractual agreements that may affect the financial statements is a matter that requires written management representations to be obtained by the auditor. This representation helps the auditor in assessing the completeness of the financial statements and identifies any potential financial reporting risks associated with the entity's contracts. The other options do not require such written representations.

Question 17

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 18

A Type I subsequent event usually requires

Accepted Answer

A Type I subsequent event is one that provides additional evidence about conditions that existed at the balance sheet date. It requires adjustment to the financial statements to reflect the impact of the event.

Question 19

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

Accepted Answer

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

Question 20

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to

Accepted Answer

Dual dating the audit report is used when the auditor performs work on a subsequent event that occurred after the original date of the auditor's report. This indicates that the auditor has extended auditing procedures to verify the subsequent event.

Quiz 17: Completing the Audit Engagement