Question 1

Every contingent liability must be recorded.

Accepted Answer

A) True 
 B)False

Question 2

A Type I subsequent event usually requires

Accepted Answer

A)  an adjustment to the financial statements. 
B)  no adjustment to the financial statements. 
C)  withdrawal from the engagement. 
D)  no action. 
A)  an adjustment to the financial statements. 
B)  no adjustment to the financial statements. 
C)  withdrawal from the engagement. 
D)  no action.

Question 3

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

Accepted Answer

A)  Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters. 
B)  Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters. 
C)  Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company. 
D)  Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters. 
A)  Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters. 
B)  Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters. 
C)  Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company. 
D)  Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters.

Question 4

A written representation from an entity's management that,among other matters,acknowledges responsibility for the fair presentation of financial statements should normally be signed by the

Accepted Answer

A)  chief executive officer and the chief financial officer. 
B)  chief financial officer and the chairman of the board of directors. 
C)  chairman of the audit committee of the board of directors. 
D)  chief executive officer, the chairman of the board of directors and the entity's lawyer. 
A)  chief executive officer and the chief financial officer. 
B)  chief financial officer and the chairman of the board of directors. 
C)  chairman of the audit committee of the board of directors. 
D)  chief executive officer, the chairman of the board of directors and the entity's lawyer.

Question 5

For which of the following matters should an auditor obtain written management representations?

Accepted Answer

A)  Management's cost-benefit justifications for not correcting internal control weaknesses. 
B)  Management's knowledge of future plans that may affect the price of the entity's stock. 
C)  Management's compliance with contractual agreements that may affect the financial statements. 
D)  Management's acknowledgment of its responsibility for employees' violations of laws. 
A)  Management's cost-benefit justifications for not correcting internal control weaknesses. 
B)  Management's knowledge of future plans that may affect the price of the entity's stock. 
C)  Management's compliance with contractual agreements that may affect the financial statements. 
D)  Management's acknowledgment of its responsibility for employees' violations of laws.

Question 6

A Type II subsequent event usually requires

Accepted Answer

A)  an adjustment to the financial statements and the footnotes. 
B)  an adjustment to the financial statements but no special disclosure is required. 
C)  disclosure in the footnotes. 
D)  neither an adjustment to the financial statements nor disclosure in the footnotes. 
A)  an adjustment to the financial statements and the footnotes. 
B)  an adjustment to the financial statements but no special disclosure is required. 
C)  disclosure in the footnotes. 
D)  neither an adjustment to the financial statements nor disclosure in the footnotes.

Question 7

Which of the following statements extracted from an entity's lawyer's letter concerning litigation,claims,and assessments most likely would cause the auditor to request clarification?

Accepted Answer

A)  "I believe that the possible liability to the company is nominal in amount." 
B)  "I believe that the action can be settled for less than the damages claimed." 
C)  "I believe that the plaintiff's case against the company is without merit." 
D)  "I believe that the company will be able to defend this action successfully." 
A)  "I believe that the possible liability to the company is nominal in amount." 
B)  "I believe that the action can be settled for less than the damages claimed." 
C)  "I believe that the plaintiff's case against the company is without merit." 
D)  "I believe that the company will be able to defend this action successfully."

Question 8

While auditing other business processes,an auditor may identify information about contingent liabilities.What specific audit procedures relating to other business processes could uncover these liabilities?

Accepted Answer

• Reading the minutes of the board of di

Question 9

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a

Accepted Answer

A)  letter of audit inquiry to the entity's lawyer. 
B)  letter of corroboration from the auditor's lawyer upon review of the legal documentation. 
C)  confirmation of claims and assessments from the other parties to the litigation. 
D)  confirmation of claims and assessments from an officer of the court presiding over the litigation. 
A)  letter of audit inquiry to the entity's lawyer. 
B)  letter of corroboration from the auditor's lawyer upon review of the legal documentation. 
C)  confirmation of claims and assessments from the other parties to the litigation. 
D)  confirmation of claims and assessments from an officer of the court presiding over the litigation.

Question 10

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Accepted Answer

A)  This communication is required to occur before the auditor's report on the financial statements is issued. 
B)  This communication should include management changes in the application of significant accounting policies. 
C)  Any significant matter communicated to those charged with governance also should be communicated to management. 
D)  Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance. 
A)  This communication is required to occur before the auditor's report on the financial statements is issued. 
B)  This communication should include management changes in the application of significant accounting policies. 
C)  Any significant matter communicated to those charged with governance also should be communicated to management. 
D)  Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance.

Question 11

When auditing contingent liabilities,which of the following procedures would be least effective?

Accepted Answer

A)  Reading the minutes of the board of directors. 
B)  Reviewing the bank confirmation letter. 
C)  Examining customer confirmation replies. 
D)  Examining invoices for legal services. 
A)  Reading the minutes of the board of directors. 
B)  Reviewing the bank confirmation letter. 
C)  Examining customer confirmation replies. 
D)  Examining invoices for legal services.

Question 12

Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.

Accepted Answer

Auditing standards indicate that the aud

Question 13

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

Accepted Answer

A)  An analysis of related party transactions for the discovery of possible irregularities. 
B)  A review of the cut-off bank statements for the period after the year-end. 
C)  An inquiry of the entity's legal counsel concerning litigation. 
D)  An investigation of material weaknesses in internal control previously communicated to the entity. 
A)  An analysis of related party transactions for the discovery of possible irregularities. 
B)  A review of the cut-off bank statements for the period after the year-end. 
C)  An inquiry of the entity's legal counsel concerning litigation. 
D)  An investigation of material weaknesses in internal control previously communicated to the entity.

Question 14

State the two primary purposes of the management representation letter.

Accepted Answer

• To document,in writing,oral representa

Question 15

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Accepted Answer

A)  Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. 
B)  Management acknowledges responsibility for illegal actions committed by employees. 
C)  Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion. 
D)  Management acknowledges that there are no material weaknesses in the account balances. 
A)  Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. 
B)  Management acknowledges responsibility for illegal actions committed by employees. 
C)  Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion. 
D)  Management acknowledges that there are no material weaknesses in the account balances.

Question 16

The date of the management representation letter should coincide with the

Accepted Answer

A)  date of the latest subsequent event referred to in the notes to the financial statements. 
B)  balance sheet date. 
C)  date of the auditor's report. 
D)  date of the engagement agreement. 
A)  date of the latest subsequent event referred to in the notes to the financial statements. 
B)  balance sheet date. 
C)  date of the auditor's report. 
D)  date of the engagement agreement.

Question 17

What is an unasserted claim and why would an attorney and/or entity be reluctant to disclose an unasserted claim in the financial statements?

Accepted Answer

An unasserted claim is one in which the

Question 18

When obtaining evidence regarding litigation against an entity,the CPA would be least interested in determining

Accepted Answer

A)  an estimate of when the matter will be resolved. 
B)  the period in which the underlying cause of the litigation occurred. 
C)  the probability of an unfavorable outcome. 
D)  an estimate of the potential loss. 
A)  an estimate of when the matter will be resolved. 
B)  the period in which the underlying cause of the litigation occurred. 
C)  the probability of an unfavorable outcome. 
D)  an estimate of the potential loss.

Question 19

What information is typically requested in a legal letter to an entity's attorney?

Accepted Answer

• A list and evaluation of any pending o

Question 20

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

Accepted Answer

A)  Sale of long-term debt or capital stock. 
B)  Loss of a plant as a result of a flood. 
C)  Major purchase of a business that is expected to double sales volume. 
D)  Settlement of litigation, in excess of the previously recorded liability. 
A)  Sale of long-term debt or capital stock. 
B)  Loss of a plant as a result of a flood. 
C)  Major purchase of a business that is expected to double sales volume. 
D)  Settlement of litigation, in excess of the previously recorded liability.

Exam 17: Completing the Audit Engagement

Every contingent liability must be recorded.

A Type I subsequent event usually requires

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

A written representation from an entity's management that,among other matters,acknowledges responsibility for the fair presentation of financial statements should normally be signed by the

For which of the following matters should an auditor obtain written management representations?

A Type II subsequent event usually requires

Which of the following statements extracted from an entity's lawyer's letter concerning litigation,claims,and assessments most likely would cause the auditor to request clarification?

While auditing other business processes,an auditor may identify information about contingent liabilities.What specific audit procedures relating to other business processes could uncover these liabilities?

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

When auditing contingent liabilities,which of the following procedures would be least effective?

Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

State the two primary purposes of the management representation letter.

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

The date of the management representation letter should coincide with the

What is an unasserted claim and why would an attorney and/or entity be reluctant to disclose an unasserted claim in the financial statements?

When obtaining evidence regarding litigation against an entity,the CPA would be least interested in determining

What information is typically requested in a legal letter to an entity's attorney?

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Reports on Audited Financial Statements

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

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