Exam 14: Activities Required in Completing a Quality Audit

An example of a Type I subsequent event would be a significant lawsuit that is initiated relating to an incident that occurred after the balance sheet date.

Auditors are responsible for obtaining reasonable assurance that the financial statements are free from material misstatements, including material misstatements related to noncompliance with laws and regulations.

Auditors routinely review the MD&A to provide reasonable assurance that it does not contain information that is factually inaccurate or inconsistent with the audited portion of the financial statements and accompanying footnotes.

Fulton Educational Company, Inc. has a matter of material litigation that is threatened, but that has not gone to trial. The auditor's consideration of such a matter will not include which of the following?

Management representation letters. Barrett Jennings, CPA, has prepared a letter of representation for the president and controller to sign. The following items are contained in it: (a) Inventory is fairly stated at the lower of cost or market and includes no obsolete items.(b) All actual and contingent liabilities are properly included in the financial statements.(c) All subsequent events, relevant to the financial statements, have been disclosed. Required: (1) Why is it desirable to have a letter of management representation letter from the client concerning these matters when the evidence accumulated during the course of the audit is meant to verify the same information. (2) How is the letter of management representation useful as audit evidence. (3) What are several other types of information commonly included in the management representation letter?

Which of the following is not a main provision of the Foreign Corrupt Practices Act of 1977 (FCPA)?

In addition to risk factors, an important consideration in client continuance decisions involves the audit firm's growth strategy.

Which of the following is false regarding the management letter?

An additional partner review of the audit and its findings is typically performed by an experienced member of the firm. Which of the following individuals is most qualified to perform this concurring partner review?

Which of the following parties has the responsibility for designing and maintaining policies and procedures to identify, evaluate, and account for contingencies?

Which of the following items is not typically requested from the lawyer of a company regarding contingencies?

PCAOB AS 14 provides important insight that auditors must consider as they decide whether management's refusal to correct a detected misstatement is indicative of intentional bias.

Engagement Quality Review. Morgan Thompson, CPA is a partner in a medium-sized CPA firm and takes an active part in the conduct of every audit she supervises. She follows the practice of reviewing all audit files of staff auditors on her team as soon as it is convenient, rather than waiting until the end of the audit. When the audit is nearly finished, Thompson reviews the audit files again to make sure that she has not missed anything significant. Because she makes most of the major decisions on the audit, there is rarely anything that requires further investigation. When she completes the review, she prepares a draft of the financial statements, gets them approved by management, and has them assembled in her firm's office. No other partner reviews the audit documentation, because Thompson is responsible for signing the audit reports. REQUIRED: (1) Evaluate the practice of not having a concurring partner review of the audit documentation by another partner in the firm, (2) explain some of the procedures the reviewer should perform as part of the review process, and (3) what documentation should be included.

Typically, omissions may be discovered when audit documentation is reviewed as part of an external or internal review program.

Disclosures. You are a staff auditor on the audit of Cosmo Technologies, Inc. The audit partner asks you to carefully read the new mortgage contract with the Hometown Bank and abstract all pertinent information that might be needed for a financial disclosure. Required: (1) List the information in a mortgage that is likely to be relevant to the auditor. (2) What are the pros and cons of using a disclosure checklist for this task?

Before releasing the audit report, which of the following would the auditor most likely do?

Management's refusal to sign the management representation letter is considered a scope limitation sufficient to preclude the issuance of an unqualified opinion.

When management is unable to provide an explanation for a previously unrecognized risk identified through the analytical procedures, the auditor must issue an adverse opinion.

On what information does the auditor base a going concern evaluation?

Analytical procedures help auditors assess the overall presentation of the financial statements.