Question 1

During the audit of Brooklyn Oil Company,the engagement team discovers that Brooklyn has illegally buried 40,000 gallons of sludge in the field behind its factory.The auditors will assess Brooklyn's treatment of the illegality in the financial statements and related disclosures and possibly draw attention to it in the audit report.

Accepted Answer

The auditors have a responsibility to assess the impact of the illegality on the financial statements and related disclosures, and to consider the need to draw attention to it in the audit report. Failure to do so could result in a failure to meet professional standards and legal requirements.

Question 2

An example of a Type II Subsequent Event includes an earthquake that happens after balance sheet date and destroys a major warehouse of the client.

Accepted Answer

A Type II Subsequent Event is an event that provides evidence about conditions that did not exist at the balance sheet date but arose subsequent to that date, and if known at the balance sheet date, would have resulted in adjustment to the financial statements. An earthquake that destroys a major warehouse after the balance sheet date is an example of a Type II Subsequent Event as it occurred after the balance sheet date but had an impact on the financial statements.

Question 3

An example of a Type II Subsequent Event includes the settlement two months after year-end of a liability for an amount well in excess of the amount that was accrued at year-end.

Accepted Answer

The answer of An example of a Type II Subsequent...

Question 4

The letter of audit inquiry to the client's lawyer is the primary source of corroborative evidence of management's description of litigation,claims and assessments against them.

Accepted Answer

The letter of audit inquiry to the client's lawyer is a primary source of corroborative evidence for the auditor to confirm management's description of litigation, claims, and assessments against them.

Question 5

A quality audit

Accepted Answer

The answer of A quality audit
...

Question 6

Contingencies are considered by the auditor in relation to the ASC 450 (SFAS No.5)criteria to determine whether material contingencies exist with the client and,if so,that they are properly accrued or disclosed.

Accepted Answer

Contingencies are indeed considered by the auditor in relation to the ASC 450 (SFAS No.5) criteria to determine whether material contingencies exist with the client and, if so, that they are properly accrued or disclosed. This is done to ensure that the client's financial statements provide a fair and accurate depiction of the company's financial position and potential liabilities.

Question 7

The Sarbanes-Oxley Act requires the CEO and the CFO to certify that the financial statements are fairly presented in accordance with GAAP.

Accepted Answer

The Sarbanes-Oxley Act does require CEOs and CFOs to certify the accuracy of financial statements in accordance with GAAP.

Question 8

The primary drivers of the Financial Reporting Council's Audit Quality Framework include which of the following?

Accepted Answer

The Financial Reporting Council's Audit Quality Framework primarily focuses on factors outside of the control of the auditors that affect audit quality, such as regulatory environment and market conditions.

Question 9

If subsequent to the issuance of an audit report and financial statements facts comes to the auditor's attention that would have affected the audit report and financial statements had they been known at the time then the auditor can wait and update the audit report the next time that it is issued.

Accepted Answer

If subsequent events come to the auditor's attention that could affect the financial statements, the auditor has a responsibility to update the financial statements and, if necessary, issue a revised or updated audit report. Waiting for the next audit period could be a violation of auditing standards and could result in a loss of credibility for the auditor and the financial statements.

Question 10

A management representation letter is a letter to the auditors that is required to be signed by the client's chief executive and chief financial officer in order to remind management of its responsibility for the financial statements and confirm oral responses given to the auditor during the audit.

Accepted Answer

A management representation letter is a letter signed by the client's chief executive and chief financial officer to confirm their responsibility for the financial statements and provide confirmation of oral responses given to the auditor during the audit.

Question 11

If subsequent to the issuance of an audit report and financial statements facts comes to the auditor's attention that would have materially affected the audit report and the financial statements had those facts been known at the time,then the auditor should ask the client to inform regulatory agencies and users not to rely on the financial statements and to reissue those financial statements.

Accepted Answer

According to the generally accepted auditing standards (GAAS), if the auditor becomes aware of facts that existed at the date of the audit report and may have affected the report, the auditor should take appropriate action. The appropriate action may include requesting management or the client to disclose the facts and their impact to regulatory agencies and users of the financial statements. If such facts are material and pervasive, it may be necessary to request the client to reissue the financial statements with appropriate disclosure. Therefore, the answer is true, and the auditor should ask the client to inform regulatory agencies and users not to rely on the financial statements and to reissue the financial statements.

Question 12

A quality audit is one that

Accepted Answer

A quality audit provides reasonable assurance that the audited financial statements are not materially misstated. It does not provide a guarantee that the financial statements are error-free, as there may be some immaterial errors or omissions. Therefore, option C is the correct choice as it correctly describes the purpose of a quality audit.

Question 13

Contingencies include purchase and sale commitments and obligations to banks under standby letters of credit.

Accepted Answer

Contingencies can include purchase and sale commitments as well as obligations to banks under standby letters of credit.

Question 14

The driver of audit quality under the Financial Reporting Council's Audit Quality Framework that relates to audit methodology and tools applied to the audit is which of the following?

Accepted Answer

The driver of audit quality under the Financial Reporting Council's Audit Quality Framework that relates to audit methodology and tools applied to the audit is the effectiveness of the audit process. This includes the methods and tools used by the auditor to gather and evaluate evidence, and the overall quality of their work. Factors such as audit firm culture and factors outside the control of auditors can also impact audit quality, but they are not directly related to the audit methodology and tools used by the auditor. The reliability and usefulness of audit reporting is also important, but it is related more to communication and presentation of the audit findings, rather than the methodology and tools used in the audit process.

Question 15

Analytical procedures do not need to be performed at the end of the audit as these procedures should have been already performed in the beginning of the audit and as a substantive test during the audit.

Accepted Answer

Analytical procedures should be performed both at the beginning of an audit and as a substantive test during the audit. However, they should also be performed at the end of the audit as a final review of the overall financial statements and to assist in evaluating the overall financial statement presentation and disclosures.

Question 16

The auditor's responsibility for accounting estimates made by management that are incorporated in the financial statements is to evaluate their reasonableness.

Accepted Answer

The auditor is responsible for evaluating the reasonableness of accounting estimates made by management and incorporated in the financial statements, in accordance with auditing standards. This includes assessing whether the estimates are based on appropriate assumptions and methodologies, and whether the disclosures related to the estimates are adequate.

Question 17

The attorney's inability to assess the outcome of a material lawsuit is deemed a scope limitation that will adversely affect the opinion rendered by the auditor.

Accepted Answer

The answer of The attorney's inability to assess the outcome...

Question 18

Guarantees by the client of the liabilities of others are included as contingencies that are assessed by auditors during their concluding procedures.

Accepted Answer

This statement is true. Auditors assess the contingent liabilities of a company, which includes guarantees made by the client for the liabilities of others. Evaluation of contingent liabilities is one of the concluding procedures carried out by auditors.

Question 19

The skills and qualities of the engagement team is likely to provide a positive contribution to audit quality where

Accepted Answer

The best choice is D because all of the options listed contribute to a positive contribution to audit quality. Understanding the client's business and adhering to professional and ethical standards helps ensure that the audit is conducted with the appropriate level of care and attention. Exhibiting professional skepticism and being robust in dealing with issues identified during the audit helps ensure that potential issues are appropriately addressed. Providing sufficient training to audit personnel in relevant areas helps ensure that auditors have the necessary knowledge and skills to effectively carry out the audit. Ultimately, a combination of these factors contributes to high-quality auditing services.

Question 20

A concurring partner review (engagement quality review)is required at the end of every audit of public companies.

Accepted Answer

A concurring partner review (also known as an engagement quality review) is required at the end of every audit of public companies to ensure that the audit was conducted in accordance with auditing standards and to provide an additional level of quality control. The review is conducted by a second partner who was not involved in the audit. Therefore, the statement is true.

Quiz 15: Ensuring Audit Quality in Completing the Audit