Completing the Audit Flashcards
Reclassifying items that should be deferred or contra-assets or liabilities to miscellaneous or other revenues and expenses, especially at the end of a quarter or year is referred to as
Earnings management
The auditor’s report on the entity’s financial statements covers all events that occur up to the
date of the auditor’s report
Potential warranty payments, tax disputes with the IRS and debt guarantees on behalf of another party are all examples of
contingent liabilities
adjustments made to meet analysts’ profit expectations
Earnings management
Auditors must rely on the attorney to inform Blank______ if an unasserted claim must be disclosed.
the client
Management’s refusal to provide written representations
should cause auditor skepticism
constitutes a scope limitation
When no formal lawsuit or other action has been filed or threatened, but circumstances could result in an action in the future, a(n)
blank blank exists.
unasserted claim
A proposed adjustment to the financial statements that the client decides not to make is called a(n
uncorrected misstatement
Subsequently discovered facts become known to the auditor after the
date of the auditor’s report
When subsequently discovered facts that would result in either the revision of the auditor’s report or the financial statements are discovered after the audit report release date and individuals are continuing to rely on the statements, the Blank______ should notify the individuals that the statements should not be relied on.
client
For public entities, the communication of all significant internal control deficiencies must be made to the client in writing
prior to the audit report release date
For nonpublic entities, the communication of all significant internal control deficiencies must be made to the client in writing
no later than 60 days after the audit report release date
Management acknowledgment of its responsibility for the fairness of the financial statements in accordance with U.S. GAAP is included in (blank) audit written representation
all
A list of pending or threatened litigation, claims, or assessments currently outstanding against the client is/is not included in audit written representation
is not
A description of recommendations that allow the client to improve the efficiency and effectiveness of its operations is/is not included in audit written representation
is not
Availability of all financial records and related data is included in (blank) audit written representation
all
Information related to the presentation and disclosure of items within the financial statements is included in (blank) audit written representation
all
Disclosure of all significant deficiencies and material weaknesses in internal control is included in (blank) audit written representation
public entity
Information concerning fraud involving management and employees who have significant roles in internal control is included in (blank) audit written representation
all
Auditors’ judgment about the quality of the client’s accounting principles is/is not included in audit written representation
is not
A statement that the financial statements are prepared according to U.S. generally accepted accounting principles is/is not included in audit written representation
is not (Written representations indicate that management has fulfilled its responsibility for the preparation and presentation of financial statements according to GAAP. However, written representations should not express an opinion on the financial statements)
Working papers are reviewed at ______ supervisory level(s) of a CPA firm.
every
Managers and partners typically review at the _____ of the engagement timeline.
end
Concurring partners are often concerned with _____ control standard compliance.
quality
Reviewers are concerned that the ________ all tie together.
working papers
Reviewers are concerned if immaterial past misstatements have a ______ material effect.
cumulative
conditions that have come into existence after the balance sheet date are a type ___ subsequent event
2
a flood damaging a significant portion of the operating facility after year-end is a type ___ subsequent event
2
additional evidence about conditions that existed at the balance sheet date is a type ___ subsequent event
1
during the audit, a customer with a large A/R balance at year-end declaring bankruptcy is a type ___ subsequent event
1
a lawsuit that was in progress as of year-end being settled shortly thereafter is a type ___ subsequent event
1
The CPA’s opinion on the ______of the financial statements may be changed by subsequent events.
fairness
Many subsequent events may involve the settling of ________.
litigation
Type 2 subsequent events come into existence _____ the balance sheet date.
after
Subsequent events need to be disclosed in the financial statements; otherwise, the financial statements would be_______.
misleading
Type 1 subsequent events require the financial statements to be _______ if needed.
adjusted
Type 2 subsequent events occur after the balance sheet date but ____ the completion of fieldwork.
prior to
Type 1 subsequent events come into existence due to new ______becoming available.
evidence
Interim testing is done prior to year end for efficiency purposes and when overall risk of material misstatement is (blank)
low
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
Omitted procedures are discovered before/after the audit report release date
after
What is typically the auditors’ initial procedure performed to identify litigation, claims, and assessments?
Inquire of the entity regarding the existence of litigation, claims, and assessments.
The attorney’s expert opinion as to the probability of an unfavorable judgment against the entity is/is not included in the attorney letter
is not
What 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 - aka engagement quality review
Roll-forward procedures are performed before/after the date of the financial statements
after
Auditors must review accounting estimates for these two things
- management’s process for developing estimates
- reasonableness
Attorney letters are requested by the ____, prepared by the ______, sent by the ______, filled out by the attorney, and returned to the ____.
auditor, client, auditor, auditor
Written representations are provided by _____ to ______.
management to auditors
Written representations are dated using the date of the
auditor’s reports (audit completion date)
Rollover method of materiality considers the (blank blank) income effect(s) of misstatements
current period
Iron curtain method considers the (blank blank) of the materiality adjustments on the entity’s balance sheet
aggregate effect
all adjustments and misstatements must be communicated to the
audit committee/individuals charged with governance
Near the end of the audit, (blank blank) identify unusual or unexpected relationships not previously identified
analytical procedures
Reviewing and scanning for unusual/large transactions in accounts for “miscellaneous,” “other,” and “clearing” may assist in identifying (blank blank)
earnings management
With respect to reasonableness, auditors should ensure estimates are consistent with these three things
one another, historical data, industry data
facts that become known to auditors after the date of the auditor’s report that may have caused the auditors to revise their report are called
subsequently discovered facts
Reading minutes of meetings held after the date of the financial statements and reviewing the entity’s latest interim financial statements are two procedures that can be performed specially to identify the existence of material (blank blank)
subsequent events
An overall review of the reasonableness of accounting estimates is similar in nature and purpose to the role of
(blank) procedures conducted near the end of the audit.
analytical
True or false: If management refuses to provide written representations, the auditor must withdraw from the engagement.
False, a qualified or disclaimer of opinion may occur
Auditor recommendations for adjustments to the financial statements are considered to be
(blank) to indicate management’s responsibility for the financial statements.
proposed
The auditors have gathered sufficient, appropriate evidence on which to base their report at the date of
the auditor’s report
Significant events occurring between the date of the audit report and the audit report release date may result in a(n) (blank blank) report
dual date
Attorneys should encourage clients to disclose unasserted claims to auditors if the assertion of a claim is remote/probable/possible
probable
For public entities, the communication of all significant internal control deficiencies must be made to the client in writing prior to the (blank) date
audit report release
Management letters ______.
are delivered to and discussed with the client
can make the client aware of other business services offered
