Deck 16: Final Review: Post Balance Sheet Period, Provisions, Contingencies, Letter of Rep

Question 1

After the completion of the audit and signing of the financial statements by the directors, but before the annual general meeting, the auditor becomes aware that the company being audited has just launched a major takeover bid for a significant competitor. The auditor should:

A) Undertake additional audit work and include a letter with the financial statements explaining the additional event that has occurred.
B) Require the directors to amend the financial statements and issue a new opinion.
C) Revise their opinion of the financial statements, possibly issuing a qualified opinion.
D) None of the above.

Answer 1

None of the above.

Question 2

Complete the partial definition of a contingent liability using the options a to f below:
a. able to be measured reliably
b. current
c. improbable future events
d. possible
e. uncertain future events
f. within the control of the entity
-A ________________ obligation that arises from past events and whose existence will be confirmed only by the occurrence of one or more ________________ not wholly ________________.

Answer 2

possible, uncertain future events, within the control of the entity.

Question 3

You are reviewing the financial statements of a company that is currently the plaintiff in a large civil action. They are very confident that they will win and be awarded a material amount of damages in the next financial year. How should this be recorded in the financial statements?

A) They should recognize a provision for legal award as a current asset in their financial statements.
B) They should disclose the information in a note to the financial statements.
C) They should take no action until the money is received.
D) They should treat this as an adjusting event.

Answer 3

They should disclose the information in a note to the financial statements.

Question 4

Which of the following is NOT an example of audit work that should be undertaken by the auditor in the period leading up to signing the audit report?

A) Reviewing minutes from the audit committee meetings.
B) Reviewing cash flow forecasts for the period subsequent to the balance sheet date.
C) Reviewing press coverage of the company.
D) None of the above, they are all audit work that should be undertaken.

Question 5

Which of the following is a role of the management letter of representation?

A) To reduce the liability of the auditors
B) To place liability on management for the accuracy of the financial statements
C) To support the audit evidence relevant to the financial statements
D) All of the above

Question 6

Audit documentation should be sufficient enough to…

A) enable an experienced auditor, unconnected to the audit, to understand it.
B) enable the audit partner to reconstruct the audit if required.
C) allow the engagement team to plan the following year's audit.
D) allow management to understand how the opinion has been formed.

Question 7

Who is responsible for undertaking the final review of an audit file?

A) The internal audit quality reviewer
B) A partner independent of the audit
C) The audit committee
D) The engagement partner