When auditing contingent liabilities, which of the following procedures would generally be least effective:
|A)||Reading the minutes of the board and other committee meetings.|
|B)||Examining all IRS documentation related to possible tax disputes.|
|C)||Examining legal letters.|
|D)||Examining accounts payable confirmations.|
Which of the following is an example of a contingent liability?
|B)||Long term debt.|
|D)||All liabilities are "contingent."|
Which of the following is an example of a subsequent event that requires disclosure in the notes to the financial statements (but not adjustments to the financial statements)?
|A)||A client's customer, who has been experiencing financial difficulty for several months, declares bankruptcy. The customer is one of over 1000 customers of the client and appropriate reserves for any related accounts receivable have been properly maintained.|
|B)||The client completes an environmental cleanup. The liability for the clean-up was recorded as a contingent liability at the balance sheet date.|
|C)||An event that confirms the auditor's belief that a large portion of the client's inventory is obsolete. The issue was documented prior to the end of the fiscal year and appropriate inventory adjustments were made at the balance sheet date.|
|D)||A chemical explosion at a customer's warehouse causes all accounts receivable from that customer to be uncollectible.|
With respect to the issuance of an audit report which is dual dated because of an event occurring after the date on which the auditor has obtained sufficient appropriate audit evidence but before the audit report was issued, the auditor's responsibility for events occurring after the completion of fieldwork is:
|A)||Extended to include all events occurring before the audit report is issued.|
|B)||Nonexistent- auditors have no responsibility for subsequent events.|
|C)||Extended to cover the period up to the issuance of the next audit report.|
|D)||Limited to the specific event referred to.|
Analytical procedures performed at the overall review stage of an audit appear to indicate that several accounts have unexpected balances and/or relationships. The result of these procedures most likely would indicate that:
|A)||Internal control activities are not operating effectively.|
|B)||The communications with the audit committee should be revised.|
|C)||Additional detail tests of account balances are necessary.|
|D)||Fraud exists among the relevant account balances involved.|
Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?
|A)||Communications with the audit committee indicate a higher than normal rate of employee turnover.|
|B)||Normal trade credit from major suppliers has recently been restricted or denied.|
|C)||There are a significant number of related party transactions occurring.|
|D)||Plans to repurchase a large block of treasury stock have been delayed.|
According to the Public Company Accounting Oversight Board's [PCAOB] third auditing standard related to auditor documentation and retention, an auditor should retain audit documentation for how long of a period of time beyond completion of the engagement?
|A)||Seven years, unless a shorter period is required by state law.|
|B)||Seven years, unless a longer period is required by state law.|
|C)||Seven years for electronic documentation; ten years for manual.|
|D)||The same period as required under state tax law.|
Dewey, Needham, & Howe accept an engagement to audit the 2009 financial statements [F/S] of Syracuse Co. and begin their fieldwork in September 2009. Syracuse (December 31st year-end) gives the unaudited F/S to the auditors on 1/17/2010. The auditors completed the fieldwork on 3/12/2010 and distributed the audit report on 3/21/2010. The client's letter of representation should be dated ________ and the audit report should be dated __________:
|A)||March 21st; March 12th|
|B)||March 12th; March 12th|
|C)||January 17th; March 21st|
|D)||March 21st; March 21st|
To which of the following matters would an auditor not apply materiality limits when obtaining specific written client representations?
|A)||Disclosure of compensating balance arrangements involving restrictions on cash balances.|
|B)||Information concerning related-party transactions and related amounts receivable or payable.|
|C)||Fraud involving employees with significant roles in the internal control system.|
|D)||The absence of errors and unrecorded transactions in the financial statements.|
Which of the following material events occurring after the issuance of an auditor's report would most likely cause the auditor to make further inquiries about the previously issued financial statements to determine if they may need to be restated?
|A)||An uninsured flood occurs that may affect the entity's ability to continue as a going concern.|
|B)||A major contingency is resolved that had been disclosed in the audited financial statements.|
|C)||New information is discovered leading the auditor to believe that lease transactions during the audit period should have been accounted for as capital rather than operating leases.|
|D)||A subsidiary is sold that accounts for 25% of the entity's consolidated revenues.|
According to FASB ASC Topic 450, "Contingencies," which of the following terms means that the future event is "likely to occur"?
|D)||More than remote.|
A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's financial statements. Which parties should reach an understanding on the limits of materiality for this purpose?
|A)||The auditor and the client's management.|
|B)||The client's audit committee and the lawyer.|
|C)||The lawyer and the auditor.|
|D)||The client's management and the lawyer.|
In most cases, commitments:
|A)||Are likely to result in additional losses to the client.|
|B)||Are found through the accounts payable search for unrecorded liabilities.|
|C)||Require adjustments to the financial statement amounts.|
|D)||Are disclosed in a footnote to the financial statements.|
All of the following are typical audit procedures used to identify subsequent events except:
|A)||Inquiring of management as to their knowledge of subsequent events.|
|B)||Reading available interim financial statements from after year end.|
|C)||Reading board meeting minutes for meetings held after year end.|
|D)||Extending the search for unrecorded liabilities to the report date.|
The auditor must communicate several items to "those charged with governance" at the conclusion of the audit. Which of the following is not a typical communication?
|A)||Significant audit adjustments.|
|B)||The auditor's responsibilities under GAAS.|
|C)||The planned audit procedures for the audit.|
|D)||The planned scope and timing of the audit.|