Question 1

Discuss three audit procedures commonly used to search for contingent liabilities.

Accepted Answer

• Inquire of management (orally and in w

Question 2

When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily contain a(n):

Accepted Answer

A)  disclaimer of opinion. 
B)  qualified opinion. 
C)  standard unqualified opinion. 
D)  unqualified opinion with a separate explanatory paragraph. 
A)  disclaimer of opinion. 
B)  qualified opinion. 
C)  standard unqualified opinion. 
D)  unqualified opinion with a separate explanatory paragraph.

Question 3

The standard letter of inquiry to the client's legal counsel should be prepared on:

Accepted Answer

A)  plain paper (no letterhead) and be unsigned. 
B)  lawyer's stationery and signed by the lawyer. 
C)  auditor's stationery and signed by an audit partner. 
D)  client's stationery and signed by a company official. 
A)  plain paper (no letterhead) and be unsigned. 
B)  lawyer's stationery and signed by the lawyer. 
C)  auditor's stationery and signed by an audit partner. 
D)  client's stationery and signed by a company official.

Question 4

Which of the following is not a reason why the auditor requests that the client provide a letter of representation?

Accepted Answer

A)  Professional auditing standards require the auditor to obtain a letter of representation. 
B)  It impresses upon management its responsibility for the accuracy of the information in the financial statements. 
C)  It provides written documentation of the oral responses already received to inquiries of management. 
D)  It provides written documentation, which is a higher quality of evidence than management's oral responses to inquiries. 
A)  Professional auditing standards require the auditor to obtain a letter of representation. 
B)  It impresses upon management its responsibility for the accuracy of the information in the financial statements. 
C)  It provides written documentation of the oral responses already received to inquiries of management. 
D)  It provides written documentation, which is a higher quality of evidence than management's oral responses to inquiries.

Question 5

Current professional auditing standards require the performance of analytical procedures during the planning and completion phases of the audit.

Accepted Answer

A) True 
 B)False

Question 6

When preparing a standard inquiry of client's attorney letter, the client's letterhead should be used, and the letter should be signed by the client company's officials.

Accepted Answer

A) True 
 B)False

Question 7

An independent review must be performed of all audits.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would the auditor expect to find in the client's management representation letter?

Accepted Answer

A)  management's recommendations for internal control effectiveness improvements 
B)  management's plans for improving product quality 
C)  management's compliance with contractual arrangements that impact the financial statements 
D)  management's goals for improving earnings per share 
A)  management's recommendations for internal control effectiveness improvements 
B)  management's plans for improving product quality 
C)  management's compliance with contractual arrangements that impact the financial statements 
D)  management's goals for improving earnings per share

Question 9

If the auditor concludes that there are contingent liabilities, he or she must evaluate the significance of the potential liability and the nature of the disclosure needed in the financial statements. Which of the following statements is not true?

Accepted Answer

A)  The potential liability is sufficiently well known in some instances to be included in the financial statements as an actual liability. 
B)  Disclosure may be unnecessary if the contingency is highly remote or immaterial. 
C)  Frequently, the CPA firm obtains a separate evaluation of the potential liability from its own legal counsel rather than relying on management or management's attorneys. 
D)  Answers B and C are correct, but answer A is not. 
A)  The potential liability is sufficiently well known in some instances to be included in the financial statements as an actual liability. 
B)  Disclosure may be unnecessary if the contingency is highly remote or immaterial. 
C)  Frequently, the CPA firm obtains a separate evaluation of the potential liability from its own legal counsel rather than relying on management or management's attorneys. 
D)  Answers B and C are correct, but answer A is not.

Question 10

When testing for contingent liabilities, the primary objective at the initial stage of the tests is to determine the existence of contingencies.

Accepted Answer

A) True 
 B)False

Question 11

The auditor's primary concerns relative to presentation and disclosure-related objectives is:

Accepted Answer

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

Question 12

If, during the completion phase of the audit, the auditor determines that he or she has not obtained sufficient evidence to draw a conclusion about the fairness of the client's financial statements, there are two choices: accumulate additional evidence or issue either a qualified or an adverse opinion.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

A)  review compliance with the terms of debt agreements 
B)  confirmation of accounts receivable from principal customers 
C)  reconciliation of interest expense with debt outstanding 
D)  confirmation of bank balances 
A)  review compliance with the terms of debt agreements 
B)  confirmation of accounts receivable from principal customers 
C)  reconciliation of interest expense with debt outstanding 
D)  confirmation of bank balances

Question 14

What are the three required conditions for a contingent liability to exist?

Accepted Answer

1. There is potential for future payment

Question 15

Which of the following would the auditor find most useful in relation to its previous audit procedures from the client representation letter?

Accepted Answer

A)  to impress upon the audit firm its responsibility for the audit 
B)  to impress upon management its responsibility for the financial statement assertions 
C)  to remind management of potential misstatements or omissions in the financial statements 
D)  to document the responses from management to inquiries about various aspects of the audit 
A)  to impress upon the audit firm its responsibility for the audit 
B)  to impress upon management its responsibility for the financial statement assertions 
C)  to remind management of potential misstatements or omissions in the financial statements 
D)  to document the responses from management to inquiries about various aspects of the audit

Question 16

If the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued, what date(s) may the auditor use on the report?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 17

Auditors will generally send a standard inquiry letter to:

Accepted Answer

A)  only those attorneys who have devoted substantial time to client matters during the year. 
B)  every attorney that the client has been involved with in the current or preceding year, plus any attorney the client engages on occasion. 
C)  those attorneys whom the client relies on for advice related to substantial legal matters. 
D)  only the attorney who represents the client in proceeding where the client is defendant. 
A)  only those attorneys who have devoted substantial time to client matters during the year. 
B)  every attorney that the client has been involved with in the current or preceding year, plus any attorney the client engages on occasion. 
C)  those attorneys whom the client relies on for advice related to substantial legal matters. 
D)  only the attorney who represents the client in proceeding where the client is defendant.

Question 18

Inquiries of management regarding the possibility of unrecorded contingencies will be useful in uncovering:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 19

If an attorney refuses to provide the auditor with information about material existing lawsuits or unasserted claims, current professional standards require that the auditor consider the refusal as a scope limitation.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is most correct about an auditor's required communication with management and those charged with corporate governance?

Accepted Answer

A)  The auditor is required to inform those charged with governance about significant errors discovered and subsequently corrected by management. 
B)  Any significant matter reported to those charged with governance must also be communicated to management. 
C)  Communication is required before the audit report is issued. 
D)  Auditor does not have any requirement to communicate with anyone other than the company's senior management. 
A)  The auditor is required to inform those charged with governance about significant errors discovered and subsequently corrected by management. 
B)  Any significant matter reported to those charged with governance must also be communicated to management. 
C)  Communication is required before the audit report is issued. 
D)  Auditor does not have any requirement to communicate with anyone other than the company's senior management.

Exam 24: Completing the Audit

Discuss three audit procedures commonly used to search for contingent liabilities.

When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily contain a(n):

The standard letter of inquiry to the client's legal counsel should be prepared on:

Which of the following is not a reason why the auditor requests that the client provide a letter of representation?

Current professional auditing standards require the performance of analytical procedures during the planning and completion phases of the audit.

When preparing a standard inquiry of client's attorney letter, the client's letterhead should be used, and the letter should be signed by the client company's officials.

An independent review must be performed of all audits.

Which of the following would the auditor expect to find in the client's management representation letter?

If the auditor concludes that there are contingent liabilities, he or she must evaluate the significance of the potential liability and the nature of the disclosure needed in the financial statements. Which of the following statements is not true?

When testing for contingent liabilities, the primary objective at the initial stage of the tests is to determine the existence of contingencies.

The auditor's primary concerns relative to presentation and disclosure-related objectives is:

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?

What are the three required conditions for a contingent liability to exist?

Which of the following would the auditor find most useful in relation to its previous audit procedures from the client representation letter?

If the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued, what date(s) may the auditor use on the report?

Auditors will generally send a standard inquiry letter to:

Inquiries of management regarding the possibility of unrecorded contingencies will be useful in uncovering:

If an attorney refuses to provide the auditor with information about material existing lawsuits or unasserted claims, current professional standards require that the auditor consider the refusal as a scope limitation.

Which of the following statements is most correct about an auditor's required communication with management and those charged with corporate governance?

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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