Question 1

Which of the following auditing procedures is ordinarily performed last?
A) reading minutes of the board of directors' meetings
B) confirming accounts payable
C) obtaining a client representation letter
D) testing the purchasing function

Accepted Answer

Obtaining a client representation letter is typically one of the last steps in the audit process, as it provides evidence that the client is acknowledging their responsibility for the financial statements and reaffirms key representations made throughout the audit. Reading board minutes, confirming accounts payable, and testing the purchasing function are typically performed earlier in the audit process to gather evidence and support the auditor's understanding of the client's operations and financial reporting.

Question 2

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

Accepted Answer

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

Question 3

Auditing standards (SAS No. 99 and SAS No. 54) require the auditor to communicate all management frauds and illegal acts to the audit committee:
A) only if the act is immaterial.
B) only if the act is material.
C) only if the act is highly material.
D) regardless of materiality.

Accepted Answer

Auditing standards require the auditor to communicate all management frauds and illegal acts to the audit committee whether these acts are material or not. This communication is necessary to inform the audit committee of any unethical behaviors and to fulfill the auditor's responsibility to report any findings related to fraud or illegal acts. Thus, the correct answer is D - regardless of materiality.

Question 4

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

Accepted Answer

Analytical procedures are required to be performed during both the planning and completion phases of an audit as per the current professional auditing standards. This helps the auditor to assess the financial information of the business and ensure the financial statements are free from material misstatements.

Question 5

An auditor must obtain written client representations that might be signed by all but which of the following?
A) Treasurer
B) Chief financial officer
C) Vice president of operations
D) Chief executive officer

Accepted Answer

The vice president of operations is not typically considered to be a high enough level of management to provide meaningful representations, whereas the other options are usually appropriate signers for written client representations.

Question 6

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

Accepted Answer

Auditors of public companies are required to obtain written representations from management regarding internal control over financial reporting, as part of their audit procedures. This includes representations about the effectiveness of internal control, any known fraud or illegal acts, and any significant deficiencies or material weaknesses in the system.

Question 7

Which of the following would the auditor find most useful in relation to its previous audit procedures from the client representation letter?
A) to impress upon the audit firm its responsibility for the audit
B) to impress upon management its responsibility for the financial statement assertions
C) to remind management of potential misstatements or omissions in the financial statements
D) to document the responses from management to inquiries about various aspects of the audit

Accepted Answer

The client representation letter is a document provided by management to the auditor that summarizes the discussions and understandings between the auditor and management. It includes statements from management regarding the financial statements, internal controls, and other matters. The most useful information for the auditor would be the documented responses from management to inquiries about various aspects of the audit, as this would provide the auditor with written confirmation of the information provided by management during the audit. Answers A, B, and C all relate to the overall purpose of the client representation letter, but do not specifically address the question of which information would be most useful to the auditor in relation to its previous audit procedures.

Question 8

Which of the following statements is correct?
A) A letter of representation is documentation of management's acceptance of responsibility for the financial statements and is deemed to be reliable evidence.
B) A letter of representation is not deemed to be reliable evidence because of the potential incompetence of management.
C) A letter of representation is not deemed to be reliable evidence because of the lack of independence of the preparers.
D) A letter of representation is documentation of the CPA's acceptance of responsibility for the audit of the financial statement and is deemed to be reliable.

Accepted Answer

A letter of representation is not deemed to be reliable evidence because it is prepared by management, who lack independence. It is not documentation of the CPA's acceptance of responsibility for the audit nor is it evidence of management's acceptance of responsibility for the financial statements. Therefore, options A and D are incorrect. Option B is also incorrect because it implies that the potential incompetence of management automatically makes the letter of representation unreliable, which is not always the case.

Question 9

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

Accepted Answer

This statement is true. Auditing standards mandate that auditors evaluate a company's ability to continue as a going concern for a reasonable period of time, typically one year from the date of the financial statements. This assessment is important because if the auditor concludes that there are substantial doubts about the company's ability to continue as a going concern, this could impact the financial statements and the auditor's report.

Question 10

Auditors are required to evaluate the going concern assumption as part of each audit.

Accepted Answer

Auditors are required by auditing standards to evaluate the company's ability to continue operating as a going concern for at least one year from the date of the financial statements. This assessment is important for ensuring that the financial statements fairly present the financial position, results of operations, and cash flows of the company. If the auditor determines that there is substantial doubt about the company's ability to continue as a going concern, this must be disclosed in the auditor's report.

Question 11

Which of the following is not one of the categories of items included in the client letter of representation?
A) subsequent events
B) Completeness of information
C) recognition, measurement, and disclosure
D) materiality

Accepted Answer

Materiality is a concept used in auditing to determine the significance of an amount, transaction, or discrepancy, but it is not a category typically included in the client letter of representation. The letter usually covers subsequent events, completeness of information, and recognition, measurement, and disclosure.

Question 12

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

It is common for the auditor, not the client, to prepare the letter of representation even though it is signed by the client and typed on the client's letterhead.

Question 13

State the three purposes of the client letter of representation.

Accepted Answer

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

Question 14

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 15

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 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?
A) review compliance with the terms of debt agreements
B) confirmation of accounts receivable from principal customers
C) reconciliation of interest expense with debt outstanding
D) confirmation of bank balances

Accepted Answer

Reviewing compliance with the terms of debt agreements can help the auditor identify any potential financial difficulties the entity may be facing, which could indicate doubt about its ability to continue as a going concern. Confirmation of accounts receivable, reconciliation of interest expense, and confirmation of bank balances are all important audit procedures, but not specifically designed to identify going concern issues.

Question 17

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 answer of At the completion of the audit, management...

Question 18

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

Accepted Answer

The answer of Besides the search for contingent liabilities and...

Question 19

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.

Question 20

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

Accepted Answer

The answer of List four specific matters that should be...

Quiz 24: Completing the Audit

Which of the following auditing procedures is ordinarily performed last?

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

Auditing standards (SAS No. 99 and SAS No. 54) require the auditor to communicate all management frauds and illegal acts to the audit committee: