Question 1

Which of the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities?

Accepted Answer

A)  auditors 
B)  legal counsel 
C)  management 
D)  management and the auditors 
A)  auditors 
B)  legal counsel 
C)  management 
D)  management and the auditors

Question 2

The audit firm issues an audit report for its client. The auditor's have NO obligation to make further inquiries with respect to the client's audited financial statements unless:

Accepted Answer

A)  a development occurs that may affect the company's long term viability as a company. 
B)  final resolution was made on disclosed contingency for which no liability needed to be accrued. 
C)  new information comes to the auditor's attention concerning an event that occurred prior to the date of the audit report that, if known, would have impacted the audit opinion. 
D)  a lawsuit, in which the risk of loss was considered remote, was resolved in the company's favor. 
A)  a development occurs that may affect the company's long term viability as a company. 
B)  final resolution was made on disclosed contingency for which no liability needed to be accrued. 
C)  new information comes to the auditor's attention concerning an event that occurred prior to the date of the audit report that, if known, would have impacted the audit opinion. 
D)  a lawsuit, in which the risk of loss was considered remote, was resolved in the company's favor.

Question 3

The audit procedures for the subsequent events review can be divided into two categories: (1) procedures integrated as a part of the verification of year-end account balances, and (2) those performed specifically for the purpose of discovering subsequent events. Which of the following procedures is in category 1?

Accepted Answer

A)  Inquiries of client regarding contingent liabilities. 
B)  Obtain a letter of representation written by client. 
C)  Subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate. 
D)  Review journals and ledgers of year 2 to determine the existence of any transaction related to year 1. 
A)  Inquiries of client regarding contingent liabilities. 
B)  Obtain a letter of representation written by client. 
C)  Subsequent period sales and purchases transactions are examined to determine whether the cutoff is accurate. 
D)  Review journals and ledgers of year 2 to determine the existence of any transaction related to year 1.

Question 4

The process of "final evidence accumulation" is always done late in the engagement. Which one of the following would be done the earliest in the engagement?

Accepted Answer

A)  final analytical procedures 
B)  search for contingent liabilities 
C)  evaluate the going concern assumption 
D)  acquire the client's letter of representation 
A)  final analytical procedures 
B)  search for contingent liabilities 
C)  evaluate the going concern assumption 
D)  acquire the client's letter of representation

Question 5

Audit procedures related to contingent liabilities are initially focused on:

Accepted Answer

A)  accuracy. 
B)  completeness. 
C)  existence. 
D)  occurrence. 
A)  accuracy. 
B)  completeness. 
C)  existence. 
D)  occurrence.

Question 6

Auditors, as part of completing the audit, will request the client to send a letter of inquiry to those attorneys the company has been consulting with during the year under audit regarding legal matters of concern to the company. The primary reason the auditor requests this information is to:

Accepted Answer

A)  determine the range of probable loss for asserted claims. 
B)  corroborate of information supplied by management concerning litigation, claims, and assessments. 
C)  outside opinion of probability of losses in determining accruals for contingencies. 
D)  outside opinion of probability of losses in determining the proper footnote disclosure. 
A)  determine the range of probable loss for asserted claims. 
B)  corroborate of information supplied by management concerning litigation, claims, and assessments. 
C)  outside opinion of probability of losses in determining accruals for contingencies. 
D)  outside opinion of probability of losses in determining the proper footnote disclosure.

Question 7

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a:

Accepted Answer

A)  qualified opinion or a disclaimer. 
B)  adverse opinion or a disclaimer. 
C)  qualified or an adverse opinion. 
D)  unqualified opinion with an explanatory paragraph. 
A)  qualified opinion or a disclaimer. 
B)  adverse opinion or a disclaimer. 
C)  qualified or an adverse opinion. 
D)  unqualified opinion with an explanatory paragraph.

Question 8

Auditors are required to obtain a letter of representation that describes management's planned solutions to all internal control weaknesses identified during an audit.

Accepted Answer

A) True 
 B)False

Question 9

A client representation letter is:

Accepted Answer

A)  prepared on the CPA's letterhead. 
B)  addressed to the client. 
C)  signed by high-level officials (e.g., the president and chief financial officer). 
D)  dated as of the client's year-end. 
A)  prepared on the CPA's letterhead. 
B)  addressed to the client. 
C)  signed by high-level officials (e.g., the president and chief financial officer). 
D)  dated as of the client's year-end.

Question 10

Which of the following is not required to be communicated to the audit committee or similarly designated body under auditing standards?

Accepted Answer

A)  Disagreements with the company over two acceptable accounting treatments for a significant transaction. 
B)  Disagreements with management about the scope of the audit, applicability of accounting principles, or wording of the audit report. 
C)  Difficulties encountered in performing the audit, such as lack of availability of client personnel and failure to provide necessary information. 
D)  Auditor's responsibilities under generally accepted auditing standards, including responsibility for evaluating internal control and the concept of reasonable rather than absolute assurance. 
A)  Disagreements with the company over two acceptable accounting treatments for a significant transaction. 
B)  Disagreements with management about the scope of the audit, applicability of accounting principles, or wording of the audit report. 
C)  Difficulties encountered in performing the audit, such as lack of availability of client personnel and failure to provide necessary information. 
D)  Auditor's responsibilities under generally accepted auditing standards, including responsibility for evaluating internal control and the concept of reasonable rather than absolute assurance.

Question 11

When should auditors generally assess a client's ability to continue as a going concern?

Accepted Answer

A)  upon completion of the audit 
B)  during the planning stages of the audit 
C)  throughout the entire audit process 
D)  during testing and completion phases of the audit 
A)  upon completion of the audit 
B)  during the planning stages of the audit 
C)  throughout the entire audit process 
D)  during testing and completion phases of the audit

Question 12

Which of the following statements regarding the letter of representation is not correct?

Accepted Answer

A)  It is prepared on the client's letterhead. 
B)  It is addressed to the CPA firm. 
C)  It is signed by high-level corporate officials, usually the president and chief financial officer. 
D)  It is optional, not required, that the auditor obtain such a letter from management. 
A)  It is prepared on the client's letterhead. 
B)  It is addressed to the CPA firm. 
C)  It is signed by high-level corporate officials, usually the president and chief financial officer. 
D)  It is optional, not required, that the auditor obtain such a letter from management.

Question 13

In a standard inquiry of client's attorney letter, the attorney is requested to communicate about contingencies up to the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 14

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)  loss of a plant as a result of a flood 
B)  sale of long-term debt or capital stock 
C)  settlement of litigation in excess of the recorded liability 
D)  major purchase of a business that is expected to double the sales volume 
A)  loss of a plant as a result of a flood 
B)  sale of long-term debt or capital stock 
C)  settlement of litigation in excess of the recorded liability 
D)  major purchase of a business that is expected to double the sales volume

Question 15

Current professional auditing standards make it clear that management, not the auditor, is responsible for identifying and deciding the appropriate accounting treatment for contingent liabilities.

Accepted Answer

A) True 
 B)False

Question 16

Auditors must communicate in writing about internal control weaknesses to the audit committee or those charged with governance.

Accepted Answer

A) True 
 B)False

Question 17

Because a client representation letter is a written statement from a non-independent source, it cannot be regarded as reliable evidence.

Accepted Answer

A) True 
 B)False

Question 18

The letter of representation obtained from an audit client should be:

Accepted Answer

A)  dated as of the end of the period under audit. 
B)  dated as of the audit report date. 
C)  dated as of any date decided upon by the client and auditor. 
D)  dated as of the issuance of the financial statement. 
A)  dated as of the end of the period under audit. 
B)  dated as of the audit report date. 
C)  dated as of any date decided upon by the client and auditor. 
D)  dated as of the issuance of the financial statement.

Question 19

A lawsuit has been filed against your client. If, in the opinion of legal counsel, the likelihood your client will lose the lawsuit is remote, no financial statement accrual or disclosure of the potential loss would generally be required.

Accepted Answer

A) True 
 B)False

Question 20

If an auditor discovers that previously issued financial statements are misleading, the most desirable approach to follow is to request that the client issue an immediate revision of the financial statements containing an explanation of the reasons for the revision.

Accepted Answer

A) True 
 B)False

Exam 24: Completing the Audit

Which of the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities?

The audit firm issues an audit report for its client. The auditor's have NO obligation to make further inquiries with respect to the client's audited financial statements unless:

The process of "final evidence accumulation" is always done late in the engagement. Which one of the following would be done the earliest in the engagement?

Audit procedures related to contingent liabilities are initially focused on:

Auditors, as part of completing the audit, will request the client to send a letter of inquiry to those attorneys the company has been consulting with during the year under audit regarding legal matters of concern to the company. The primary reason the auditor requests this information is to:

Refusal by a client to prepare and sign the representation letter would require the auditor to issue a:

Auditors are required to obtain a letter of representation that describes management's planned solutions to all internal control weaknesses identified during an audit.

A client representation letter is:

Which of the following is not required to be communicated to the audit committee or similarly designated body under auditing standards?

When should auditors generally assess a client's ability to continue as a going concern?

Which of the following statements regarding the letter of representation is not correct?

In a standard inquiry of client's attorney letter, the attorney is requested to communicate about contingencies up to the balance sheet date.

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?

Current professional auditing standards make it clear that management, not the auditor, is responsible for identifying and deciding the appropriate accounting treatment for contingent liabilities.

Auditors must communicate in writing about internal control weaknesses to the audit committee or those charged with governance.

Because a client representation letter is a written statement from a non-independent source, it cannot be regarded as reliable evidence.

The letter of representation obtained from an audit client should be:

A lawsuit has been filed against your client. If, in the opinion of legal counsel, the likelihood your client will lose the lawsuit is remote, no financial statement accrual or disclosure of the potential loss would generally be required.

If an auditor discovers that previously issued financial statements are misleading, the most desirable approach to follow is to request that the client issue an immediate revision of the financial statements containing an explanation of the reasons for the revision.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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