II. Planning Activities - Required Communications w/ those Charges with Governance

Question 1

What are the people that are charged with governance?

What is the definition of Management?

Answer 1

• The person(s) or organization(s) with responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity (encompasses the term “board of directors” or “audit committee” used elsewhere in the auditing standards).
• The person(s) with executive responsibility for the conduct of the entity’s operations.

Question 2

What are the four main categories that the auditor must communicate with management?

Answer 2

• Management Responsibilities
• Auditor’s responsibilities under GAAS
• Planned scope & timing of the audit (with emphasis on audit strategy)
• ***Significant findings from the audit
  
  • With retention or appointment
  • independence issue
  • Qualitative aspects of the findings of accounting policies
  • Disagreements with management
  • Uncorrected Misstatements identified by the auditor

Question 3

During planning, an auditor of a nonissuer should communicate which of the following to those charged with governance at an entity?

Answer 3

• During planning, the auditor communicates that management, not the auditor, is responsible for presenting the financial statements in conformity with the applicable financial reporting framework.

Remember: That management is responsible for the work of the financial statements.

Question 4

Which of the following matters is an auditor required to communicate to an entity’s audit committee (or those charged with governance)?

Significant audit adjustments

Changes in significant accounting policies

as well as

Significant audit adjustments recorded by the entity

Management’s consultation with other accountants about significant accounting matters

Answer 4

Yes

Yes

note: The auditor is required to communicate both significant audit adjustments and changes in significant accounting policies to the audit committee (or those charged with governance). Both would be included under significant findings from the audit.

Yes

Yes

note: The auditor is required to communicate both significant audit adjustments recorded by the entity and management’s consultations with other accountants about significant accounting matters to the audit committee (or those charged with governance).​

Question 5

Which of the following matters is an auditor required to communicate to an entity’s audit committee (or those charged with governance)?

**I. Disagreements with management about matters significant to the entity’s financial statements that have been satisfactorily resolved.

II. The auditor’s views about qualitative aspects of the entity’s significant accounting practices, including accounting policies, accounting estimates, and financial statement disclosures.​**

Answer 5

Both I and II.

Note: The auditor is required to report to the audit committee on both:

• disagreements with management about matters significant to the entity’s financial statements that have been satisfactorily resolved and
• “significant findings from the audit,”
  
  • including the auditor’s views about qualitative aspects of the entity’s significant accounting practices, including accounting policies, accounting estimates, and financial statement disclosures.

Question 6

Which of the following statements is correct concerning an auditor’s required communication with an entity’s audit committee?

Answer 6

This communication should include disagreements with management about significant audit adjustments, whether satisfactorily resolved or unresolved.

Note: This communication should include disagreements with management about significant audit adjustments, whether satisfactorily resolved or unresolved.​

• Communications with the audit committee may be oral or written.
• Communication with the audit committee may occur at any time, as long as the communication is timely.

Question 7

_***_An auditor is obligated to communicate an uncorrected audit adjustment to an entity’s audit committee (or those charged with governance) only if the adjustment

Answer 7

Is not believed to be trivial. (a little value or importance)

note: All uncorrected misstatements must be communicated to the audit committee (or those charged with governance), unless they are deemed to be trivial.

Question 8

An auditor would be least likely to initiate a discussion with a client’s audit committee concerning

Answer 8

The maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated.

Note: Auditor judgement are not discussed to the audit committee.

• The methods used to account for significant unusual transactions WOULD be discussed with the audit committee.
• Illegal acts and irregularities involving senior management are reported directly to the audit committee.
• Disagreements with management as to accounting principles are likely to be discussed with the audit committee, even if resolved.

Question 9

Which of the following statements is correct concerning an auditor’s required communication with an entity’s audit committee (or those charged with governance)?

Answer 9

This communication should include management changes in the application of significant accounting policies.

Note: need to read the questions carefully and also the answer choices.

Any significant matter communicated to the audit committee (or those charged with governance) also should be communicated to management. (Auditor do not need to also communicate it to management)

Question 10

Which of the following statements is correct about an auditor’s required communication with an entity’s audit committee (or those charged with governance)?

Answer 10

Disagreements with management about the application of significant accounting principles are required to be communicated to the entity’s audit committee (or those charged with governance).

Note:

The auditor is required to communicate disagreements with management to those charged with governance that arose during the audit about matters that are individually or in the aggregate significant to the financial statements or the auditor’s report.

All deficiencies or weakness SHOULD be Discuss with MANAGEMENT in WRITING and those charged with GOVERNANCE.

Question 11

During the planning phase of an audit, an auditor is identifying matters for communication to the entity’s audit committee (or those charged with governance).

Answer 11

There were changes in the application of significant accounting policies.

note:

The auditor is required to communicate with the audit committee about changes in the application of significant accounting principles.

Question 12

Which of the following disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance?

Answer 12

it is based only on preliminary information and may well be satisfactorily resolved.

Question 13

What type of disagreements between the auditor and management have to be communicated by the auditor to those charged with governance?

Answer 13

• Disagreements regarding management’s judgment about accounting estimates for goodwill.
• Disagreements about the scope of the audit.
• Disagreements in the application of accounting principles relating to software development costs.

***Why?

Disagreements that should be communicated include those relating to estimates, the scope of the audit, application of accounting principles, the wording of the audit report, and other matters.

Question 14

After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up working paper review. This second review usually focuses on

Answer 14

The fair presentation of the financial statements in conformity with GAAP.

Note:

second or “cold” review aims at determining whether the financial statements result in fair presentation in conformity with GAAP and with whether sufficient appropriate evidence has been obtained.

Question 15

Should an auditor communicate the following matters to those charged with governance of an audit client?

Significant audit adjustments recorded by the entity

Management’s consultation with other accountants about significant accounting matters

Answer 15

Both significant audit adjustments and management’s consultation with other accountants about significant accounting matters should be communicated to an audit committee.

Question 16

Principle included in Trust Services engagements?

Answer 16

• Availability.
• Confidentiality.
• Security.

Question 17

Statements that are true about an auditor’s required communication with those charged with governance of an audit client?

Answer 17

The auditor is required to inform those charged with governance about significant misstatements discovered by the auditor and subsequently corrected by management.

Question 18

A properly disclosed uncertainty relating to litigation arising against a company is most likely to result in which of the following types of reports?

Answer 18

Unmodified opinion with an emphasis-of-matter paragraph.

Note: at the auditor’s discretion, uncertainties result in either unmodified opinions with:

1. An emphasis-of-matter paragraph or
2. disclaimers.

Question 19

Which of the following matters is an auditor required to communicate to an entity’s audit committee?

I. Disagreements with management about matters significant to the entity’s financial statements that have been satisfactorily resolved.

II. Initial selection of significant accounting policies in emerging areas that lack authoritative guidance.

Answer 19

Disagreements should be communicated directly to those charged with corporate governance.

Note:

II is wrong because mangement should be the one to do that

Question 20

Likely initiate a discussion with those charged with governance of an audit client concerning

Answer 20

The methods used to account for significant unusual transactions.

Indications of fraud and illegal acts committed by a corporate officer that were discovered by the auditor.

Disagreements with management as to accounting principles that were resolved during the current year’s audit.

Note: Disagreements with management, as well as the other required disclosures, may be communicated either orally or in writing.

Question 21

In identifying matters for communication with those charged with governance of an audit client, an auditor most likely would ask management whether

Answer 21

It consulted with another CPA firm about accounting matters.

AU-C 260 requires that when the auditor is aware of such consultation with another CPA, s/he should discuss with the audit committee his/her views about significant matters that were the subject of such consultation; accordingly, such a discussion with management is to be expected.

This should be a cause of concern

Question 22

Not be appropriate for the auditor to initiate discussion with the audit committee concerning

Answer 22

While an auditor may reply to audit committee questions concerning the detailed procedures to be applied, initiating the discussion is generally not necessary.