Audit Quiz 1 (completion audit & auditor's report) Flashcards
Type I subsequent event usually requires:
a. an adjustment to the financial statements
b. no adjustment to the financial statements
c. withdrawal from the engagement
d. no action
Ans: a
When a question arises about an entity’s continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity’s means:
a. possibility of purchasing certain assets rather than leasing them
b. capability of extending the due dates of existing debt
c. appropriateness of changing depreciation methods from double declining balance to straight line
d. marketability of property and equipment that management plans to keep
Ans: b
Every contingent liability must be recorded.
False
Type II subsequent events are conditions that require an adjustment to the account balance shown in the financial statements.
False
If a lawyer refuses to furnish corroborating information regarding litigation, claims and assessments, the auditor should:
a. honor the confidentiality of the client-lawyer relationship
b. consider the refusal to be a scope limitation
c. seek to obtain the corroborating information from management
d. disclose this fact in a footnote to the financial statements
Ans: b
Which of the following material events occuring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?
a. sale of long-term debt or capital stock
b. loss of a plant as a result of a flood
c. major purchase of a business that is expected to double sales volume
d. settlement of litigation
Ans: d
A going concern issue requires ONLY an explanatory para to be added to the standard unqualified audit report (public co.)
False
Which of the following situations will NOT result in modification of the auditor’s report because of a scope limitation?
Ans: Reliance placed on the report of another auditor
Management believes, and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount of range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should issue an:
a. qualified report due to a scope limitation
b. qualified report due to departure from GAAP
c. unqualified report with an explanatory para
d. standard unmodified auditor’s report
Ans: c
In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA plans to refer to another CPA’s examination of the financial statements of a subsidiary co. Under these circumstances, Frazier’s report must disclose:
a. the name of the other CPA and the type of report issued by the other CPA
b. the portion of financial statements examined by the other CPA
c. the nature of Frazier’s view of the other CPA’s work
d. in a footnotes the portions of the financial statements that were covered by the examinations of both auditors
Ans: b
An auditor was unable to obtain audited financial statements or other evidence supporting an entity’s material investment in a large foreign subsidiary. Between which of the following reports should the auditor choose?
a. unqualified w/ an explanatory/ emphasis of matter para added
b. disclaimer and unqualified w/ an explanatory/ emphasis of matter para added
c. qualified or adverse
d. qualified or disclaimer
Ans: d
When the entity fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the nature and impact of the faulty accounting or misstatement in the auditor’s report and express an:
a. qualified opinion or a disclaimer of opinion
b. qualified opinion or an adverse opinion
c. adverse opinion or an unqualified opinion
d. qualified opinion or an unqualified opinion
Ans: b
A cope limitation results from an inability to obtain sufficient appropriate evidence about some component of the financial statements.
True
The choice of which audit report to issue depends on the nature and the materiality of the condition giving rise to the departure.
True
Which of the following parties is responsible for the fairness of the representations made in the financial statements?
a. entity’s management
b. independent auditor
c. audit committee
d. Malaysia institute of accountants
Ans: a
