Exam 24: Completing the Audit

The date of the management representation letter received from the client should coincide with which of the following?

Discuss the three matters which Sarbanes-Oxley requires auditors of public companies to report to the audit committee.

The issuance of bonds by the client subsequent to year-end would require a footnote disclosure in, but no adjustment to, the financial statements under audit.

The auditor is responsible for communicating significant internal control deficiencies to the audit committee, or those charged with governance. This communication:

If a potential loss on a contingent liability is remote, the liability usually is:

Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken to distinguish between conditions that existed at the balance sheet date and those that come into being after the end of the year. The subsequent information should not be incorporated directly into the statements if the conditions causing the change in valuation:

An auditor's decision concerning whether or not to dual date an audit report is primarily based on the auditor's decision to:

In connection with the annual audit, which of the following is not a "subsequent events" procedure?

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless:

Contingent liability disclosure in the footnotes of the financial statements would normally be made when:

Who may identify matters to be included in a letter of inquiry sent to a client's legal counsel?

An auditor performs interim work at various times throughout the year. The auditor's subsequent events work should be extended to the date of:

An auditor has the responsibility to actively search for subsequent events that occur subsequent to the:

Which type of subsequent event requires consideration by management and evaluation by the auditor?

Subsequent discoveries of facts requiring the reissuance of financial statements arise from events occurring after the date of the auditor's report.

The fieldwork for the December 31, 2011 audit of Schmidt Corporation ended on March 17, 2012. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2012. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows: a. Adjust the December 31, 2011 financial statements. b. Disclose the information in a footnote in the December 31, 2011 financial statements. c. Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve an adjustment to the December 31, 2011 financial statements. d. Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2011 financial statements. e. No action is required. The situations are as follows: ________ 1. On April 5, 2012, you discovered that, on February 16, 2012 a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses. ________ 2. On February 17, 2012, you discovered that, on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses. ________ 3. On February 17, 2012, you discovered that, on November 30, 2011, a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses. ________ 4. On April 5, 2012, you discovered that, on March 30, 2012, a fire destroyed one of Schmidt's 13 plants. ________ 5. On April 7, 2012, you discovered that a debtor of Schmidt went bankrupt on January 6, 2012, due to gradual declining financial health.

Although the letter of representation is typed on the client's letterhead and signed by the client, it is common for the auditor to prepare the letter.

The fieldwork for the December 31, 2007 audit of Treble Corporation ended on March 17, 2008. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2008. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows: a. Adjust the December 31, 2007 financial statements. b. Disclose the information in a footnote in the December 31, 2007 financial statements. c. Request the client revise and reissue the December 31, 2007 financial statements. The revision should involve an adjustment to the December 31, 2007 financial statements. d. Request the client revise and reissue the December 31, 2007 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2007 financial statements. e. No action is required. The situations are as follows: ________ 1. On January 16, 2008, a lawsuit was filed against Treble for a patent infringement action that allegedly took place in early 2005. In the opinion of Treble's attorneys, there is a reasonable (but not probable) danger of a significant loss to Treble. ________ 2. On February 19, 2008, Treble settled a lawsuit out of court that had originated in 2002 and is currently listed as a contingent liability. ________ 3. On March 30, 2008, Treble settled a lawsuit out of court that had originated in 2004 and is currently listed as a contingent liability. ________ 4. On February 2, 2008, you discovered an uninsured lawsuit against Treble that had originated on August 30, 2007. ________ 5. On April 7, 2008, you discovered that a debtor of Treble went bankrupt on January 22, 2008, due to a major uninsured fire that occurred on January 2, 2008.

At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the:

Match seven of the terms (a-p) with the description/definitions provided below (1-7): a. Commitments b. Completing the engagement checklist c. Contingent liability d. Dual-dated audit report e. Financial statement disclosure checklist f. Independent review g. Inquiry of client's attorneys h. Letter of representation i. Other information in annual reports j. Review for subsequent events k. Subsequent events l. Unadjusted misstatement worksheet m. Management letter n. Pending claim o. Unasserted claim p. Audit documentation review ________ 1. A review of the financial statements and the entire set of audit files by an independent reviewer to whom the audit team must justify the evidence accumulated and the conclusions reached. ________ 2. A potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place. ________ 3. A written communication from the client to the auditor formalizing statements that the client has made about matters pertinent to the audit. ________ 4. A potential legal claim against a client where the condition for a claim exists but no claim has been filed. ________ 5. Transactions that occurred after the balance sheet date, which affect the fair presentation or disclosure of the statements being audited. ________ 6. Agreements that the entity will hold to a fixed set of conditions, such as the purchase or sale of merchandise at a stated price. ________ 7. The use of one audit report date for normal subsequent events and a later date for one or more subsequent events.