AT.19 Drill on Completing the Audit

Rock School, Inc. has a matter of material litigation that is threatened, but that has not gone to trial. The auditor's consideration of such a matter will most likely include all of the following except

Choices:

• sending a letter to the client's attorneys for more information.

• discussions of the matter with the client and their insurance adjuster.

• confirmation with the harmed party regarding the amount that will be claimed.

• assessment of whether accrual or disclosure by the client.

Correct answer: confirmation with the harmed party regarding the amount that will be claimed.

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Choices:

• Confirming a sample of material accounts receivable established after year-end.

• Comparing the financial statements being reported on with those of the prior period.

• Investigating personnel changes in the accounting department occurring after year-end.

• Inquiring as to whether any unusual adjustments were made after year-end.

Correct answer: Inquiring as to whether any unusual adjustments were made after year-end.

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?

Choices:

• Significant related party transactions are pervasive.

• Usual trade credit from suppliers is denied.

• Arrearages in preferred stock dividends are paid.

• Restrictions on the disposal of principal assets are present

Correct answer: Usual trade credit from suppliers is denied

Which of the following may an auditor least likely consider a symptom of an entity’s significant going-concern problems?

Choices:

• Significant recurring working capital deficiencies.

• Legal proceedings that might jeopardize the entity’s ability to operate.

• A new government regulation imposes a change in accounting principle.

• A recurring default in meeting the entity’s financial obligation

Correct answer: A new government regulation imposes a change in accounting principle.

Items for inclusion in management representation letter are normally:

Choices:

• Determined by management.

• Covering all the accounts in the financial statements

• Determined by auditors based on the circumstances of the engagement.

• Based on AASC’s standard list

Correct answer: Determined by auditors based on the circumstances of the engagement.

Before releasing the audit report, the auditor should do which of the following?

Choices:

• issue a management letter.

• perform an analytical review.

• give subsequent contingency disclosure.

• estimate the subsequent client fee for services

Correct answer: perform an analytical review.

Which statement is incorrect regarding auditing fair value measurements and disclosures?

Choices:

• The auditor should obtain sufficient appropriate audit evidence that fair value measurements and disclosures are in accordance with GAAP.

• Many measurements based on estimates, including fair value measurements, are inherently imprecise.

• The auditor's consideration of such assumptions is based on information available to the auditor at the time of the audit.

• The auditor is responsible for predicting future conditions, transactions or events which, had they been known at the time of the audit, may have had a significant effect on management's actions or assumptions underlying the fair value

Correct answer: The auditor is responsible for predicting future conditions, transactions or events which, had they been known at the time of the audit, may have had a significant effect on management's actions or assumptions underlying the fair value.

An auditor should examine minutes of the board of directors’ meetings:

Choices:

• through the date of the financial statements.

• through the date of the audit report.

• only at the beginning of the audit.

• on a test basis.

Correct answer: through the date of the audit report.

Which of the following auditing procedures most likely would assist an auditor in identifying related-party transactions?

Choices:

• Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.

• Vouching accounting records for recurring transactions recorded just after the balance sheet date.

• Reviewing confirmations of loans receivable and payable for indications of guarantees.

• Performing analytical procedures for indications of possible financial difficulties.

Correct answer: Reviewing confirmations of loans receivable and payable for indications of guarantees.

After an audit report is issued, the auditor discovers through a peer review that an important audit procedure has been omitted. The auditor should do which of the following?

Choices:

• notify all parties known to be relying on the report.

• immediately request the client recall the report.

• contact his or her professional liability insurance carrier.

• determine whether the report can still be supported in light of the omitted procedure

Correct answer: determine whether the report can still be supported in light of the omitted procedure.