AUD 2 - Chapter 15 Practice Q's Flashcards
When auditing the year-end balance of interest-bearing
notes payable, which account are the auditors most likely
to audit at the same time?
a. Interest income
b. Interest expense
c. Amortization of goodwill
d. Royalty revenue
When auditing the year-end balance of interest-bearing
notes payable, which account are the auditors most likely
to audit at the same time?
a. Interest income
*b. Interest expense
c. Amortization of goodwill
d. Royalty revenue
a. Incorrect. Interest income is related to notes receivable.
b. Correct. Interest expense can be calculated from the notes payable information.
c. Incorrect. Notes payable are not related to goodwill amortization.
d. Incorrect. Notes payable are not directly related to royalty revenue.
What is the main purpose of a written management
representation letter?
a. Shift responsibility for fi nancial statements from the
management to the auditor.
b. Provide a substitute source of evidence for detail
procedures auditors would otherwise perform.
c. Provide management a place to make assertions about
the quantity and valuation of the physical inventory.
d. Obtain management’s acknowledgement of its
ultimate responsibility for the fi nancial statements
and disclosures.
What is the main purpose of a written management
representation letter?
a. Shift responsibility for fi nancial statements from the
management to the auditor.
b. Provide a substitute source of evidence for detail
procedures auditors would otherwise perform.
c. Provide management a place to make assertions about
the quantity and valuation of the physical inventory.
*d. Obtain management’s acknowledgement of its
ultimate responsibility for the fi nancial statements
and disclosures.
a. Incorrect. Written reps do not shift responsibility to auditors.
b. Incorrect. Written reps should not substitute for other evidence sources.
c. Incorrect. Management makes assertions directly in the financial statements.
d. Correct. Management’s responsibility is one of the required inclusions
Which one of these procedures or sources is not likely to
provide evidence about contingencies?
a. Scan expense accounts for credit entries.
b. Obtain a representation letter from the auditee’s
lawyer.
c. Read the minutes of the board of directors’ meetings.
d. Examine terms of sale in sales contracts.
Which one of these procedures or sources is not likely to
provide evidence about contingencies?
*a. Scan expense accounts for credit entries.
b. Obtain a representation letter from the auditee’s
lawyer.
c. Read the minutes of the board of directors’ meetings.
d. Examine terms of sale in sales contracts.
Someone could come up with an argument about a contingency that could be discovered by scanning expense account credits, but
a. Correct. This scanning is least likely to show any information about a contingency.
b. Incorrect. Attorney’s letters can tell about litigation contingencies.
c. Incorrect. Directors’ minutes can tell about endorsements, guarantees, and other commitments.
d. Incorrect. Sales contracts can tell about rights of return that might need to be disclosed as contingencies.
A Type I subsequent event involves information about a condition that existed at the balance sheet date. Knowledge of which of the following subsequent events would cause the company to adjust its December 31 financial statements?
a. Sale of an issue of new shares for $500,000 on January 30
b. A $10,000 settlement of a damage lawsuit for a customer’s injury sustained February 15
c. A February $100,000 settlement of litigation that had been estimated at $12,000 in the December 31 financial statements
d. Storm damage
A Type I subsequent event involves information about
a condition that existed at the balance sheet date.
Knowledge of which of the following subsequent events
would cause the company to adjust its December 31
fi nancial statements?
a. Sale of an issue of new shares for $500,000 on January
30
b. A $10,000 settlement of a damage lawsuit for a
customer’s injury sustained February 15
*c. A February $100,000 settlement of litigation that had
been estimated at $12,000 in the December 31 fi nancial
statements
d. Storm damage
a. Incorrect. This event did not exist at the prior December 31.
b. Incorrect. The event occurred after December 31.
c. Correct. Since an estimate had been made as of December 31, the event giving rise to the lawsuit had occurred, and the settlement introduced new information about the actual amount of the liability at December 31.
d. Incorrect. The storm occurred after December 31.
A Griffin audited the fi nancial statements of Dodger Magnificat Corporation for the year ended December 31, 20X2. She dated the audit report on January 30 when the board of directors approved the fi nancial statements, and later learned of a stock split voted by the board of directors on February 5. The fi nancial statements were changed to refl ect the split, and she now needs to dual date the audit report before it and the fi nancial statements are issued to users. Which of the following is the proper form?
a. December 31, 20X2, except as to Note X, which is dated January 30, 20X3
b. January 30, 20X3, except as to Note X, which is dated February 5, 20X3
c. December 31, 20X2, except as to Note X, which is dated February 5, 20X3
d. February 5, 20X3, except for completion
A Griffin audited the fi nancial statements of Dodger Magnificat Corporation for the year ended December 31, 20X2. She dated the audit report on January 30 when the board of directors approved the fi nancial statements, and later learned of a stock split voted by the board of directors on February 5. The fi nancial statements were changed to refl ect the split, and she now needs to dual date the audit report before it and the fi nancial statements are issued to users. Which of the following is the proper form?
a. December 31, 20X2, except as to Note X, which is dated January 30, 20X3
* b. January 30, 20X3, except as to Note X, which is dated February 5, 20X3
c. December 31, 20X2, except as to Note X, which is dated February 5, 20X3
d. February 5, 20X3, except for completion
a. Incorrect. The report date should be the date the board approves the financial statements, not the balance sheet date.
b. Correct. The report date is the date the board approves the financial statements, and the dual date is the event date.
c. Incorrect. The report date should be the date the board approves the financial statements, not the balance sheet date.
d. Incorrect. The dates are right, but the order is improperly reversed.
Until when do auditors have a responsibility to perform procedures to fi nd subsequent events?
a. The year-end balance sheet date
b. The audit report date
c. The date the audited financial statements are delivered
to the users
d. The end of audit field work
Until when do auditors have a responsibility to perform procedures to fi nd subsequent events?
a. The year-end balance sheet date
*b. The audit report date
c. The date the audited financial statements are delivered
to the users
d. The end of audit field work
a. Incorrect. see b.
b. Correct. According to CAS, the report date is the date those responsible (e.g., the board) approve the financial statements.
c. Incorrect. see b.
d. Incorrect. This was the dating allowed under the old CICA Assurance standards prior to CAS.
The “subsequent discovery of facts that existed at the balance sheet date” refers to knowledge obtained after which date?
a. The date the audit report was delivered to the auditee
b. The audit report date
c. The company’s year-end balance sheet date
d. The date interim audit work was complete
The “subsequent discovery of facts that existed at the balance sheet date” refers to knowledge obtained after which date?
a*. The date the audit report was delivered to the auditee
b. The audit report date
c. The company’s year-end balance sheet date
d. The date interim audit work was complete
a. Correct. “Subsequent discovery” is after report delivery.
b. Incorrect. see a.
c. Incorrect. see a.
d. Incorrect. see a.
Which of the following is not required by Canadian auditing standards?
a. Management representation letter
b. Lawyer’s letter
c. Management letter
d. Engagement letter
Which of the following is not required by Canadian auditing standards?
a. Management representation letter
b. Lawyer’s letter
* c. Management letter
d. Engagement letter
a. Incorrect. Written management rep letter is required.
b. Incorrect. Letter from auditee’s lawyer is required.
c. Correct. A management letter is not required - control deficiencies can be reported orally to management (note that significant deficiencies must be communicated in writing management and to those charged with governance).
d. Incorrect. An engagement letter is required.
