Chapter 11

Roll-forward procedure(s)

The procedure(s) performed by auditors to extend the conclusions from an interim date to the date of the financial statements.

Contingency

An existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.

Attorney letter

A communication prepared by the client but sent by the auditors to the client’s attorneys that details all pending litigation, claims, and assessments against the client and that requests the attorneys to comment on these matters directly to the client’s auditors.

Written representation

provided by management to auditors related to the entity’s financial statements, the information provided to the auditors, and management’s internal control over financial reporting to confirm certain matters and support other evidence obtained during the audit; also referred to as management representation.

Subsequent events

Events occurring between the date of the financial statements and the date of the auditor’s report.

Type 1: Events that provided additional evidence of financial statement conditions existed at date of fin. statements

Type 2: Events provide evidence of conditions following the date of fin. statements

Omitted procedures

The inadvertent failure of auditors to perform necessary audit procedures prior to the audit report release date.

Which of the following best describes the role of analytical procedures near the end of the audit engagement?

To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement

Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements?

Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements

Auditors have a responsibility related to management’s disclosure of new information related to subsequent events until:

the audit report release date.

The auditing standards regarding subsequently discovered facts refer to knowledge obtained after:

the date of the auditor’s report.

Which of the following is not required by generally accepted auditing standards?

Management letter

Which of the following is ordinarily performed last in the audit examination?

Obtaining signed written representations

Ambrose is auditing the financial statements of Mays (dated December 31, 2023). The date of the auditor’s report is February 17, 2024, and the audit report release date is February 20, 2024. For which of the following matters would Ambrose have the least responsibility?

A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2024

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate?

Determine whether the omitted procedure is important in supporting the auditors’ opinion on the entity’s financial statements

Hall accepted an engagement to audit the Year 1 financial statements of XYZ Company. XYZ completed the preparation of the Year 1 financial statements on February 13, Year 2, and its auditors began the fieldwork on February 17, Year 2. Hall completed gathering sufficient appropriate evidence on March 24, Year 2; Hall’s report and XYZ’s financial statements were released on March 28, Year 2. The written representations normally would be dated:

March 24, Year 2.

What is an auditor’s primary method to corroborate information on litigation, claims, and assessments?

Reviewing the response from the client’s lawyer to a letter of audit inquiry

Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events?

Compare the latest available interim financial statements with the financial statements being audited

The primary reason auditors request responses to attorney letters is to provide auditors:

corroboration of the information furnished by management about litigation, claims, and assessments.

The scope of an audit is not restricted when an attorney letter limits the response to:

matters to which the attorney has given substantive attention in the form of legal representation.

Lee and Kerzman is the auditor for Nance Corporation. During the course of the audit, the audit team noticed that Nance Corporation showed signs of financial distress. In particular, Nance Corporation was at risk for defaulting on several key loans and had therefore begun the process of restructuring their debt. This, among other indicators, led the audit team to have substantial doubt regarding Nance Corporation's ability to continue as a going concern. The next step the team should take is to:

obtain and discuss with management their plan to continue as a going concern and assess the likelihood the plan will be successful.

What does the auditor need to document when there is substantial doubt that a client will continue as a going concern?

• The conditions or events that suggest there is a going concern uncertainty

• Management's plan (or lack thereof) to mitigate the conditions and to continue as a going concern

• The auditor's conclusion on whether, after evaluating management's plan, substantial doubt exists regarding the company's ability to continue as a going concern and whether any report modifications are needed

• All of the choices are correct.

Which of the following activities is ordinarily performed prior to the date of the financial statements?

Interim testing

Procedures used to allow auditors to extend their conclusions to the end of the year under audit are referred to as:

roll-forward work.

Procedures used by auditors near the end of the audit to identify unusual or unexpected relationships not previously identified during the audit are referred to as:

analytical procedures.

Which of the following audit communications is not required by auditing standards?

Management letter

Which of the following procedures would not be performed by auditors to identify subsequent events?

Review prior-year financial statements and disclosures.

Which of the following types of audit documentation review is focused on ensuring that the quality of audit work and reporting is consistent with the quality standards of the firm?

Review of work by second (reviewing) partner.

Footnote disclosures

For significant events after the balance sheet date but before issuance, or for ongoing risks/commitments that don't yet have a definite monetary value but matter to users.

Adjusting entries

For events that occurred before the balance sheet date but weren't recorded yet, or for accruals/deferrals that finalize the period's numbers.

Legal contingency

Auditors don’t know about/ potential unrecorded litigation

• attorney letters

• legal expenses

• send letter to patten attorney

Going concern

auditors required to consider whether evidence obtained during audit raises concerns

• 12 months out to see if concerns exist

Management letter

list of performance improvements

Emphasis of matter

report that draws attention to a matter already appropriately presented or disclosed

Subsequent discovered facts

info that becomes known to auditors after the date of their report that had it been known at the time, may have caused the auditors to revise their report