Question 1

If a client makes payments to a middle-man who uses the funds to obtain corporate tax refunds for the client from government officials,this is not considered a violation of the Foreign Corrupt Practices Act of 1977 (FCPA).

Accepted Answer

Making payments to obtain tax refunds from government officials may be considered as a bribe or illegal payment, which violates the anti-bribery provisions of the FCPA.

Question 2

The auditor should consider matters for disclosure only while gathering evidence during the course of the audit.

Accepted Answer

The auditor should consider matters for disclosure throughout the audit process, not just while gathering evidence. This includes considering the adequacy of disclosures in the financial statements and whether there are any known or potential events that may require disclosure to prevent the financial statements from being misleading.

Question 3

Two paragraphs should be added to the auditor's report when the auditor concludes that substantial doubt remains about the client's ability to continue as a going concern for a reasonable period of time.

Accepted Answer

The answer of Two paragraphs should be added to the...

Question 4

Noncompliance with laws and regulations includes only acts of omission by the entity that are considered to be unintentional and contrary to the prevailing laws or regulations.

Accepted Answer

Noncompliance with laws and regulations can include both intentional and unintentional acts of omission or commission by the entity.

Question 5

Auditing standards recognize that there are inherent limitations in an auditor's ability to detect material misstatements relating to the entity's compliance with laws and regulations.

Accepted Answer

Auditing standards acknowledge that there may be restrictions on an auditor's ability to identify non-compliance with laws and regulations, such as the possibility of management concealment or collusion, limited funding for investigative processes or legislative changes.

Question 6

If the auditor continues to have substantial doubt about the client continuing as a going concern,the auditor should evaluate the adequacy of the client's related disclosures.

Accepted Answer

If the auditor continues to have substantial doubt about the client's ability to continue as a going concern, then the auditor should evaluate the adequacy of the client's related disclosures in the financial statements. This is required by auditing standards to ensure that the financial statements are fairly presented and provide sufficient information for users to make informed decisions. Therefore, the answer is true.

Question 7

When obtaining reasonable assurance that the financial statements are free from material misstatements,auditors should consider the applicable legal and regulatory frameworks that apply to the entity.

Accepted Answer

Auditors are required to consider the applicable legal and regulatory frameworks that govern the entity being audited. This is because such frameworks may affect the financial statements and impact the accuracy, completeness, and reliability of the financial information presented. Thus, auditors should assess whether the financial statements are in compliance with the relevant legal and regulatory requirements, and whether any noncompliance may lead to material misstatements in the financial statements.

Question 8

Disclosures can be made either on the face of the financial statements in the form of classifications or parenthetical notations,or they can be made in the notes to the statements.

Accepted Answer

Disclosures can be made on the face of the financial statements or in the accompanying notes.

Question 9

If an auditor becomes aware of violations of the Foreign Corrupt Practices Act of 1977 (FCPA),the auditor should notify the CFO about the violations,their circumstance,and the effect on the financial statements.

Accepted Answer

An auditor should report violations of the FCPA to the audit committee or those charged with governance, not just the CFO, to ensure proper oversight and action.

Question 10

A disclosure checklist is a convenient documentation format for evidence that the auditor adequately evaluated the client's disclosures.

Accepted Answer

A disclosure checklist is a commonly used tool to document that the auditor has adequately reviewed and evaluated the client's disclosures in the financial statements, notes, and other supplementary information. The checklist typically includes a list of required disclosures, with columns to indicate whether the disclosure has been made, whether it is accurate and complete, and whether it complies with relevant accounting standards or reporting frameworks. Using a disclosure checklist can help the auditor ensure that nothing important has been overlooked or omitted in the financial statements and can also provide evidence of the auditor's work for future reference.

Question 11

The auditor's report specifically covers the statements and disclosures made by management in the "Management Discussion and Analysis" (MD&A)section of the annual report.

Accepted Answer

The auditor's report typically covers the financial statements and related disclosures, but not necessarily the MD&A section. However, the auditor may provide a separate report on the MD&A if requested by the company or required by regulatory authorities.

Question 12

Auditors are responsible for obtaining reasonable assurance that the financial statements are free from material misstatements,including material misstatements related to noncompliance with laws and regulations.

Accepted Answer

This statement accurately describes the responsibility of auditors in relation to financial statements and their obligation to detect material misstatements, including those related to noncompliance with laws and regulations.

Question 13

If a lawyer refuses to furnish the requested information about the client's contingencies to the auditor,the auditor should issue an unqualified audit opinion.

Accepted Answer

If a lawyer refuses to furnish the requested information about the client's contingencies to the auditor, the auditor cannot issue an unqualified audit opinion. The auditor must assess the impact of the lack of information on the financial statements and consider issuing a qualified opinion or disclaimer of opinion.

Question 14

Auditors are required to evaluate the likelihood of each client continuing as a going concern for a reasonable period into the foreseeable future.

Accepted Answer

This is a true statement. Auditors are required by auditing standards to assess the ability of a client to continue as a going concern for a reasonable period of time, usually defined as twelve months into the future. This assessment is an important part of the audit process and requires auditors to evaluate the client's financial position and performance, including its ability to meet its obligations as they become due.

Question 15

The going-concern assumption must be based on separate procedures that test the client's ability to continue as a going concern.

Accepted Answer

The going-concern assumption is not solely based on separate procedures but is considered throughout the audit process, including the evaluation of financial statement elements and disclosures, and the assessment of risks and uncertainties.

Question 16

If the auditor determines that informative disclosures are not reasonably adequate,the auditor must identify that fact in the auditor's report.

Accepted Answer

According to the Generally Accepted Auditing Standards (GAAS), if the auditor determines that the informative disclosures in the financial statements are not reasonably adequate, the auditor should include an explanatory paragraph in the auditor's report that explains the deficiencies in the disclosures. This is in compliance with the requirement of GAAS to communicate the inadequacy of disclosures to the users of the financial statements. Therefore, the statement is true, and option A is the correct answer.

Question 17

An audit opinion is a guarantee that the business is a going concern.

Accepted Answer

An audit opinion is not a guarantee that the business is a going concern. It is an independent auditor's professional judgement based on the audit evidence obtained. If the auditor concludes that the business may not continue as a going concern, it would be mentioned in the audit report. However, this does not necessarily mean that the business will definitely fail or that it is not currently a going concern.

Question 18

According to the Foreign Corrupt Practices Act of 1977 (FCPA),companies that have securities listed on U.S.markets must make and keep financial records that accurately and fairly reflect the transactions of the company and design and maintain an adequate system of internal accounting controls.

Accepted Answer

This is stated in the Foreign Corrupt Practices Act of 1977.

Question 19

If management or those charged with governance do not demonstrate a commitment to internal control over noncompliance with laws and regulations,then the auditor should withdraw from the engagement.

Accepted Answer

The auditor's decision to withdraw from an engagement due to management's lack of commitment to internal controls over compliance with laws and regulations depends on the severity of the issues and the applicable auditing standards. Withdrawal is an extreme step and other actions, such as discussing the matter with governance, may be appropriate first.

Question 20

Auditors routinely review the MD&A to provide reasonable assurance that it does not contain information that is factually inaccurate or inconsistent with the audited portion of the financial statements and accompanying notes.

Accepted Answer

Auditors are responsible for reviewing the MD&A to ensure that it is consistent with the audited financial statements and notes. This provides reasonable assurance that the information presented in the MD&A is not factually inaccurate or inconsistent with the audited financial statements.

Quiz 14: Completing a Quality Audit