M7-Matters that Require Special Consideration Flashcards
Negative cash flows from operating activities most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern. (true or false)
true
The auditor considers any of management’s plans that might serve to mitigate the adverse effects of particular conditions and events. Typically, plans to increase ownership equity, to borrow money, to restructure debt, to sell assets, and/or to reduce or delay expenditures might all be considered mitigating factors. (true or false)
true
Inadequate disclosure of the substantial doubt about an entity’s ability to continue as a going concern is a departure from GAAP, resulting in either a qualified or adverse opinion. (true or false)
true
If substantial doubt about the entity’s ability to continue as a going concern has been removed in the current period, the emphasis-of-matter paragraph included in the prior period auditor’s report should not be repeated, and no description of the reasons or plans for recovery need to be included. (true or false)
true
If an auditor concludes that there is substantial doubt about an entity’s ability to continue as a going concern and that the entity’s disclosures are adequate, the audit report may be either:
- unmodified (unqualified) with emphasis of matter (explanatory) paragraph, or
- disclaimed
The independent auditor’s procedures with respect to litigation, claims, and assessments should include discussing with management the controls adopted for identifying, evaluating, and accounting for litigation, claims, and assessments. (true or false)
true
A lawyer’s refusal to furnish the information requested in an inquiry letter would be a limitation on the scope of the audit sufficient to preclude an unmodified opinion. (true or false)
true
A client’s refusal to permit inquiry of outside legal counsel is a significant scope limitation that generally will result in a disclaimer of opinion.
In evaluating the reasonableness of an estimate, an auditor would normally concentrate on key factors and assumptions that are (1) significant to the accounting estimate, (2) sensitive to variations, (3) deviations from historical patters, or (4) subjective and susceptible to misstatements and bias. (true or false)
true
The letter of inquiry to the client’s attorneys is a request made by client management. Due to attorney-client privilege, the attorney would not be able to respond to such a request made by another party. Note that management would request the attorney to respond directly to the auditor. (true or false)
true
