Question 1

Examples of contingent liabilities include

Accepted Answer

Contingent liabilities are potential liabilities that may occur depending on the outcome of an uncertain future event. Examples include lawsuits (A) where the company might have to pay damages if the lawsuit is lost, and income tax disputes (E) where the company might owe additional taxes depending on the resolution of the dispute.

Question 2

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Accepted Answer

G

Question 3

As auditors gather evidence to determine whether the financial statements are prepared in accordance with the applicable financial reporting framework,the evidence is documented in the working papers.

Accepted Answer

This statement is true. As auditors gather evidence, it is documented in working papers as a record of the procedures performed, the conclusions reached, and the evidence obtained. Working papers also serve as evidence of the auditor's compliance with auditing standards and provide support for the auditor's opinion.

Question 4

On the last day of fieldwork,the auditors complete their work papers and advise the client of any recommended adjustments.The audit report must be signed within 20 days of completion of field work.

Accepted Answer

While the auditors may complete their work papers and advise the client of recommended adjustments on the last day of fieldwork, they still need additional time to review and finalize the audit report. The audit report must be signed within 60 days of completion of fieldwork under generally accepted auditing standards. However, this time frame may vary depending on the specific audit engagement and jurisdiction.

Question 5

The auditor is provided with the evidence needed to determine whether the contingent liability should be recorded,disclosed or ignored from

Accepted Answer

Attorneys hired by the client have the most direct and relevant information about the contingent liability and can provide the necessary evidence to the auditor. However, the auditor must exercise professional judgment in evaluating the evidence provided and determining the appropriate treatment of the contingent liability. Attorneys hired by the auditor or claimant may also provide relevant information, but it is typically not as direct or material to the auditor's decision-making process as the information provided by the client's attorneys.

Question 6

If the auditors find misstatements in the account balance or class of transactions,the auditors make audit adjustments to correct the financial statements.

Accepted Answer

Auditors do not make audit adjustments themselves; they recommend adjustments to management, who are responsible for the financial statements and making any necessary corrections.

Question 7

Financial statements are prepared with the assumption that the company will continue in business for a reasonable period of time in the future (not to exceed one year from the date of the financial statements).

Accepted Answer

This assumption is known as the going concern assumption, which states that the company will continue to operate in the future and fulfill its obligations. It is a fundamental concept in accounting, and financial statements are prepared based on this assumption unless there is evidence to the contrary.

Question 8

Examples of contingent liabilities include

Accepted Answer

The answer of Examples of contingent liabilities include
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Question 9

The auditing standards require the auditor to consider certain events that occur in the year following the year under audit,referred to as subsequent events,and to determine if any of these events require disclosure or adjustment in the financial statements under audit.

Accepted Answer

This statement is true. The auditing standards do require the auditor to consider subsequent events that occur after the balance sheet date but before the audit report is issued, and to determine if these events require disclosure or adjustment in the financial statements under audit.

Question 10

When a company issues an annual report including financial statements and footnotes to the financial statements,additional information is often included in the annual report.

Accepted Answer

Additional information such as management's discussion and analysis, corporate governance disclosures, and information about the company's operations and future plans are often included in an annual report along with financial statements and footnotes.

Question 11

Examples of contingent liabilities include

Accepted Answer

Contingent liabilities are potential liabilities that may occur depending on the outcome of an uncertain future event. Examples include product warranty claims (B) and income tax disputes (E), as these obligations depend on future events such as product failures or the resolution of tax issues.

Question 12

Auditors of public companies are required to evaluate the consistency of the financial statements,however,the auditors of private companies are not subject to such a requirement.

Accepted Answer

Auditors of private companies are still required to evaluate the consistency of financial statements in accordance with generally accepted auditing standards. The difference lies in the fact that public companies are required by the Securities and Exchange Commission (SEC) to disclose all material changes in accounting principles, whereas private companies have more flexibility in changing their accounting policies. However, this does not exempt auditors of private companies from evaluating consistency.

Question 13

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Accepted Answer

The best choices to identify potential litigation, claims, and assessments involving the company are to ask management and others in the company, including the in-house legal counsel, about potential legal liabilities (choice A) and to review minutes of meetings of those charged with governance and correspondence between the company and its external counsel (choice B). The other options (choices C, D, and E) are not relevant to identifying potential legal liabilities.

Question 14

At the end of an audit,the information given by management to the auditor is formalized in the form of an attorney's letter.

Accepted Answer

At the end of an audit, the information given by management to the auditor is formalized in the form of a management representation letter, not an attorney's letter. An attorney's letter is a separate document that requests information about litigation, claims, and assessments from the company's lawyers.

Question 15

Examples of contingent liabilities include

Accepted Answer

The answer of Examples of contingent liabilities include
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Question 16

Examples of contingent liabilities include

Accepted Answer

Contingent liabilities are potential liabilities that may arise in the future depending on the outcome of a certain event, such as a lawsuit or a guarantee of obligations of other parties. Examples of contingent liabilities include lawsuits requesting the company to pay damages for product liability or patent infringement (choice A) and guarantees of obligations of other parties (choice C). Product warranty expenses (choice B) are not considered contingent liabilities, as they are expected expenses based on the company's current products. Liabilities for discounted accounts receivable (choice D) are not contingent liabilities either, as they are already recognized and measured. Income tax extensions (choice E) are also not contingent liabilities, as they are simply an extension of time to pay a known and measurable liability. Therefore, the best choice is F, both A and C.

Question 17

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Accepted Answer

The answer of The auditing standards require the auditor to...

Question 18

Contingent liabilities are liabilities that may arise in the future based on an event that may have occurred in the current year.

Accepted Answer

The answer of Contingent liabilities are liabilities that may arise...

Question 19

An arm's length transaction is a transaction between a willing buyer and a willing seller;who are unrelated and are acting independently of each other.

Accepted Answer

This definition of an arm's length transaction is accurate.

Question 20

Noncompliance with laws and regulations usually does not result in fines,litigation,or other consequences for the company that may have a material effect on the financial statements.

Accepted Answer

Noncompliance with laws and regulations can result in fines, litigation, and other consequences that may have a material effect on the financial statements. This is because noncompliance can lead to penalties, legal settlements, or reputational damage that can impact the company's financial performance. Failure to properly disclose such noncompliance can also result in regulatory action or legal liability.

Quiz 12: Completing the Audit

Examples of contingent liabilities include

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

As auditors gather evidence to determine whether the financial statements are prepared in accordance with the applicable financial reporting framework,the evidence is documented in the working papers.

On the last day of fieldwork,the auditors complete their work papers and advise the client of any recommended adjustments.The audit report must be signed within 20 days of completion of field work.

The auditor is provided with the evidence needed to determine whether the contingent liability should be recorded,disclosed or ignored from

If the auditors find misstatements in the account balance or class of transactions,the auditors make audit adjustments to correct the financial statements.

Financial statements are prepared with the assumption that the company will continue in business for a reasonable period of time in the future (not to exceed one year from the date of the financial statements).

Examples of contingent liabilities include

The auditing standards require the auditor to consider certain events that occur in the year following the year under audit,referred to as subsequent events,and to determine if any of these events require disclosure or adjustment in the financial statements under audit.

When a company issues an annual report including financial statements and footnotes to the financial statements,additional information is often included in the annual report.

Examples of contingent liabilities include

Auditors of public companies are required to evaluate the consistency of the financial statements,however,the auditors of private companies are not subject to such a requirement.

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

At the end of an audit,the information given by management to the auditor is formalized in the form of an attorney's letter.

Examples of contingent liabilities include

Examples of contingent liabilities include

The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation,claims,and assessments involving the company that may increase the risk of material misstatement.The auditor does this by

Contingent liabilities are liabilities that may arise in the future based on an event that may have occurred in the current year.

An arm's length transaction is a transaction between a willing buyer and a willing seller;who are unrelated and are acting independently of each other.

Noncompliance with laws and regulations usually does not result in fines,litigation,or other consequences for the company that may have a material effect on the financial statements.