Question 1

Assume that Krenzel Company is subject to a class action lawsuit from its customers resulting from the failure of one of its projects.The suit was filed on November 10,2012 and properly disclosed in Krenzel's December 31,2012 financial statements.How would a settlement of this lawsuit on January 17,2013 be properly reflected in Krenzel's financial statements?
A) The financial statements would not reflect the settlement of the lawsuit because it occurred after the date of the financial statements.
B) Krenzel would prepare pro forma financial statements to reveal the effects of this settlement.
C) Krenzel would adjust its disclosure of the lawsuit to reflect the effects of this settlement.
D) Krenzel would provide a separate disclosure to persons known to be relying on its financial statements to describe the effects of this settlement.

Accepted Answer

Krenzel would adjust the disclosure of the lawsuit to reflect the effects of the settlement. This is because the financial statements already disclosed the lawsuit as a contingent liability, which means that the amount was estimated and included in the company's financial statements. The settlement amount would need to be reflected in the disclosure to provide accuracy to the information previously given. The other options are not correct because the financial statements need to be adjusted to reflect the effects of the settlement, rather than leaving the information out or creating pro forma statements. A separate disclosure may be needed for users of the financial statements, but the adjustment to the original disclosure is necessary for accuracy.

Question 2

_____________________________ are necessary audit procedures that were not performed prior to the audit report release date that may come to the auditors' attention as a result of a PCAOB inspection,external peer review,or firm's internal inspection program.

Accepted Answer

The answer of _____________________________ are necessary audit procedures that were...

Question 3

If a subsequent event provides new information regarding a condition that existed at the date of the financial statements,auditors would ensure that the client's financial statements were _________________________________ to reflect the new information related to the matter.

Accepted Answer

The answer of If a subsequent event provides new information...

Question 4

If the client fails to provide written representations to the auditor,a qualified opinion or ___________________________________________ should be issued.

Accepted Answer

The answer of If the client fails to provide written...

Question 5

The _________________________________ method of evaluating adjustments considers the aggregated effect of current and prior misstatements in the entity's balance sheet.

Accepted Answer

The answer of The _________________________________ method of evaluating adjustments considers...

Question 6

Which of the following forms of communication ordinarily does not take place following completion of the audit examination?
A) Attorney letter.
B) Communications with individuals charged with governance.
C) Internal control deficiency communications.
D) Management letter.

Accepted Answer

The attorney letter is typically part of the audit evidence gathering process and is completed before the audit examination is finalized, not after.

Question 7

If auditors learn of facts after the date of the auditors' report but prior to the audit report release date,they may ______________________________ the auditors' reports.

Accepted Answer

The answer of If auditors learn of facts after the...

Question 8

A situation in which substantial doubt exists about the client's ability to continue in existence is known as __________________________.

Accepted Answer

The answer of A situation in which substantial doubt exists...

Question 9

Subsequent events occur between the date of the financial statements and the date of the _______________________________.

Accepted Answer

The answer of Subsequent events occur between the date of...

Question 10

If substantial doubt exists about the entity's ability to continue as a going concern,auditors should ensure that appropriate disclosures are provided in the financial statements and modify their on the entity's financial statements.

Accepted Answer

The answer of If substantial doubt exists about the entity's...

Question 11

A(n)__________________________________________ is a proposed adjustment auditors decide not to insist that the client make because it does not have a material effect on the client's financial statements.

Accepted Answer

The answer of A(n)__________________________________________ is a proposed adjustment auditors decide...

Question 12

_____________________________ are used by auditors to evaluate the relationship among financial and nonfinancial data.

Accepted Answer

The answer of _____________________________ are used by auditors to evaluate...

Question 13

K.Navarre,CPA,has just issued her report on Big Blue's financial statements.Following the audit report release date,she learned of an event that occurred after the date of the auditors' report.What is Navarre's most appropriate response?
A) Inform users who are currently known to be relying on the financial statements of the nature of the event.
B) Perform the appropriate substantive procedures related to the event and dual date the audit report.
C) Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event.
D) Withdraw her report on Big Blue's financial statements and reissue the report following her substantive procedures.

Accepted Answer

The answer of K.Navarre,CPA,has just issued her report on Big...

Question 14

Interim testing occurs between the _________________________ of the year and the date of the financial statements.

Accepted Answer

The answer of Interim testing occurs between the _________________________ of...

Question 15

_____________________________ work extends auditors' conclusion from the date of the interim testing to the date of the financial statements.

Accepted Answer

The answer of _____________________________ work extends auditors' conclusion from the...

Question 16

To obtain evidence regarding litigation,claims,and assessments,auditors request that the client send a letter to its ____________________________.

Accepted Answer

The answer of To obtain evidence regarding litigation,claims,and assessments,auditors request...

Question 17

_____________________________________ are obtained by auditors from the client to impress upon management their primary responsibility for the financial statements.

Accepted Answer

The answer of _____________________________________ are obtained by auditors from the...

Question 18

______________________________________ are matters that come to the auditors' attention following the date of the auditors' report.

Accepted Answer

The answer of ______________________________________ are matters that come to the...

Question 19

The review of audit documentation by a partner or equivalent within the firm who has not been involved with the audit is referred to as a(n)______________________________ review.

Accepted Answer

The answer of The review of audit documentation by a...

Question 20

Auditors are not required to evaluate the accuracy of management's estimates but are required to evaluate the ___________________ of those estimates as well as the process used in developing those estimates.

Accepted Answer

The answer of Auditors are not required to evaluate the...

Quiz 11: Completing the Audit