chapter 11

Question 1

Engagement Letter
______ to ______

Answer 1

Auditor to Client

Question 2

Acceptance Letter
______ to ______

Answer 2

Client to Auditor

Question 3

Attorney Letter Response
______ to ______

Answer 3

Attorney to Auditor

Question 4

Written Representations
______ to ______

Answer 4

Management to Auditor

Question 5

Internal Control Deficiencies
______ to ______

Answer 5

Auditor to Individuals Charged with Governance

Question 6

Communications with Individuals Charged with Governance
______ to ______

Answer 6

Auditor to Individuals Charged with Governance

Question 7

Management Letter
______ to ______

Answer 7

Auditor to Client
(optional)

Question 8

Engagement Letter: Timing

Answer 8

before engagement

Question 9

Acceptance Letter: Timing

Answer 9

before engagement

Question 10

Attorney Letter Response: Timing

Answer 10

near date of the auditor’s reports

Question 11

Written Representation: Timing

Answer 11

date of the auditor’s report
(audit completion date)

Question 12

Internal Control Deficiencies: Timing

Answer 12

prior to audit report release date (public)
within 60 days of audit report release date (large nonpublic)

Question 13

Communications with Individuals Charged with Governance: Timing

Answer 13

after audit

Question 14

Management Letter: Timing

Answer 14

after audit
(optional)

Question 15

Responsibilities in the Audit of Litigation, Claims, & Assessments:
Auditors

Answer 15

• inquire of client regarding the existence of litigation
• perform various procedures regarding litigation
• initiate request to the client for attorney letter
• mail attorney letter prepared by client

Question 16

Responsibilities in the Audit of Litigation, Claims, & Assessments:
Client

Answer 16

• respond to the auditors’ inquiries regarding litigation
• provide auditors a list, description, and evaluation of litigation
• prepare letter to attorney (attorney letter) that includes info related to litigation

Question 17

Responsibilities in the Audit of Litigation, Claims, & Assessments:
Attorney

Answer 17

respond to auditors regarding client’s description of litigation

Question 18

Management Representation Letter
(Written Representation)

Answer 18

signed by CEO and CFO
purpose: to protect the auditor
disclaim an opinion or withdraw if not provided

Question 19

Subsequent Events Timeline

Answer 19

occur between the date of the F/S and date of the auditors’ report

Question 20

Subsequently Discovered Facts

Answer 20

become known after the date of the auditors’ report

Question 21

Subsequent Event Types:
Type I

Answer 21

• provide new info about conditions existing at balance sheet date
• adjust F/S to reflect new information
• also called recognized subsequent events

adjust accrual

Question 22

Subsequent Event Types:
Type II

Answer 22

• involve events occurring after balance sheet date
• disclose in financial statements
• may prepare pro forma F/S
• also called nonrecognized subsequent events

Question 23

When is the audit documentation review performed?

a. During the fiscal year under audit?
b. After the fiscal year-end but before the Audit Report Date?
c. After the Audit Report Date but before Report Issuance?
d. After the Report Issuance Date but before the file is locked down.

Answer 23

b. After the fiscal year-end but before the Audit Report Date?

Question 24

How many years are files required to be maintained for non-public clients?

a. 7 years
b. 5 years
c. 8 years
d. 3 years

Answer 24

b. 5 years

Question 25

Which of the below would NOT be included in a management representation letter

a. Management has made available all records and documents
b. Management is not aware of any material misstatements
c. Management’s responsibility with respect to the financial statements
d. Management plans for future market expansion

Answer 25

d. Management plans for future market expansion

Question 26

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

a. Performing a review for subsequent events
b. Securing a signed engagement letter from the client
c. Obtaining signed written representations
d. Performing tests of controls

Answer 26

c. Obtaining signed written representations

Question 27

Ambrose is auditing the financial statements of Meys (dated December 31, 2017). The date of the auditor’s report is February 17, 2018, and the audit report release date is February 20, 2018. For which of the following matters would Ambrose have the least responsibility?

a. The obsolescence of inventory held on December 31, 2017, that was identified on January 20, 2018.
b. A merger that was announced by Meys and known by Ambrose on February 12, 2018.
c. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2018.
d. A customer’s deteriorating financial condition that was identified on February 19, 2018.

Answer 27

c. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2018.

Question 28

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

a. The date of the financial statements
b. The date of the auditor’s report
c. The date the fieldwork began
d. The date interim audit work was complete

Answer 28

b. The date of the auditor’s report

Question 29

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 norm would be dated

a. February 13, year 2.
b. March 24, year 2.
c. February 17, year 2.
d. March 28, year 2.

Answer 29

b. March 24, year 2.

Question 30

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

a. Reviewing the response from the client’s lawyer to a letter of audit inquiry.
b. Reviewing the written representation letter obtained from management.
c. Verifying attorney-client privilege through interviews.
d. Examining legal invoices sent by the client’s attorney.

Answer 30

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

Question 31

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

a. To identify accounts that appear to be misstated with the intention of planning the nature timing and extent of other substantive procedures.
b. To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.
c. To gather evidence to support one or more assertion(s) related to the account balance of class of transactions.
d. To identify possible deficiencies in the client’s internal control over financial reporting.

Answer 31

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

Question 32

Which of these substantive procedures is not used to obtain evidence about contingencies?

a. Obtain a letter from the client’s attorney.
b. Reading the minutes of the board of director’s meetings.
c. Examining terms of sale in sales contracts.
d. Scanning expense accounts for credit entries.

Answer 32

d. Scanning expense accounts for credit entries.

Question 33

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

a. Storm damage of $1 million to the entities buildings on March1.
b. Settlement of a damage lawsuit for a customer’s injury sustained February 15 for $10,000.
c. Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements.
d. Sale of an issue of new stock for $500,000 on January 30.

Answer 33

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

Question 34

The auditing standards regarding subsequently discovered facts refers to knowledge obtained after

a. The date fieldwork began.
b. The date of the auditor’s report.
c. The date of the financial statements.
d. The date interim audit work was complete.

Answer 34

b. The date of the auditor’s report.