Performing Further Procedures and Obtaining Evidence 30-40% Flashcards
What are the 5 assertions to be addressed by the auditor?
Existence or occurrence
Completeness
Rights & Obligations
Valuation or allocation
Presentation disclosure
PCAOB auditing standards dealing with related-party issues specifically require an auditor of an issuer to obtain an understanding of the company’s process for each of the following except for:
A. Identifying related parties and transactions with related parties.
B. Authorizing and approving transactions with related parties.
C. Determining that the terms of related-party transactions are substantially equivalent to those prevailing in arm’s-length transactions with unrelated parties.
D. Accounting for and disclosing relationships and transactions with related parties in the financial statements.
Determining that the terms of related-party transactions are substantially equivalent to those prevailing in arm’s-length transactions with unrelated parties.
The PCAOB requires the auditor to obtain an understanding of the company’s process for the following: (1) identifying related parties and transactions with related parties; (2) authorizing and approving transactions with related parties; and (3) accounting for and disclosing relationships and transactions with related parties in the financial statements. There is no reason to expect that related-party transactions will have terms substantially equivalent to those associated with transactions with unrelated parties.
Suppose that management of an issuer makes an assertion in a footnote to the company’s financial statements that material transactions with related parties were conducted on terms equivalent to those prevailing in arm’s-length transactions. If evidence cannot be obtained to support this assertion and management declines to alter that footnote, what type of audit opinion would be appropriate?
Unqualified with an explanatory paragraph.
Qualified for a scope limitation.
Qualified or adverse for a material misstatement.
Disclaimer of opinion.
Qualified or adverse for a material misstatement.
PCAOB auditing standards (specifically, AS Section 2410) state that the auditor should consider a qualified or adverse opinion under such circumstances.
Which of the following events that occurred after a client’s calendar-year end, but before the audit report date, would require disclosure in the notes to the financial statements, but no adjustment in the financial statements?
A. New convertible bonds are issued to expand the company’s product line.
B. A loss is reported on uncollectible accounts of an acknowledged distressed customer.
C. A fixed asset used in operations is sold at a substantial profit.
D. Negotiations have resulted in compensation adjustments for union employees retroactive to the fourth quarter.
New convertible bonds are issued to expand the company’s product line.
GAAP requires that material changes in debt (or capital) structure during the subsequent events period be disclosed in the financial statements. Such changes would not require adjustment.
Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?
A. Reconcile the amounts included in the statement of cash flows to the other financial statements’ amounts.
B. Vouch a sample of cash receipts and disbursements for the last few days of the current year.
C. Reconcile the cut-off bank statement to the proof of cash to verify the accuracy of the year-end cash balance.
D. Confirm the amounts included in the statement of cash flows with the entity’s financial institution.
Reconcile the amounts included in the statement of cash flows to the other financial statements’ amounts.
Much of the work done to audit the statement of cash flows consists of agreeing amounts included in the statement of cash flows to amounts reported in the other financial statements. This would include, for example, agreeing depreciation expense to the amount reported in the income statement.
