Question 1

Which of the following is generally requested in a legal letter?

Accepted Answer

A)  A request that the attorney comment on unasserted claims where his or her views differ from management's evaluation.
B)  A list of all attorneys that performed any work for the entity during the year.
C)  A statement indicating that the attorney is responsible for the fair presentation of unasserted claims in the entity's financial statements.
D)  A request that the attorney provide a copy of all invoices given to the entity during the year.

Question 2

From the list below, select the procedures that an auditor would use to test for contingent liabilities.
a. Inquire of SEC officials regarding reported violations by the entity that create claims.
b. Read the entity's contracts, loan agreements, leases, and other documents.
c. Read the entity's minutes of meetings of shareholders, directors, and committees.
d. Request a representation letter from all the entity's employees.
e. Read the legal briefs of all suits filed against the entity's competitors.
f. Request the entity's management to prepare a letter of inquiry to the entity's attorney regarding pending litigation against the entity.

Accepted Answer

Audit procedures 'b,...

Question 3

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

A)  Cash flows from operating activities are negative.
B)  Research and development projects are postponed.
C)  Significant related party transactions are pervasive.
D)  Stock dividends replace annual cash dividends. A

Question 4

Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.

Accepted Answer

Auditing standards indicate that the aud...

Question 5

An auditor will ordinarily examine invoices from lawyers primarily in order to:

Accepted Answer

A)  substantiate accruals.
B)  assess the legal ramifications of litigation in progress.
C)  estimate the dollar amount of contingent liabilities.
D)  identify actual or potential litigation against the entity.

Question 6

A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the:

Accepted Answer

A)  chief executive officer and the chief financial officer.
B)  chief financial officer and the chairman of the board of directors.
C)  chairman of the audit committee of the board of directors.
D)  chief executive officer, the chairman of the board of directors and the entity's lawyer.

Question 7

If there is substantial doubt about the entity's ability to continue as a going concern, the auditor should obtain information about the management's plans to mitigate the problem and assess the likelihood that such plans can be implemented.

Accepted Answer

A) True 
 B)False

Question 8

What is the difference between a contingent liability and a commitment?

Accepted Answer

A contingent liability is an existing co...

Question 9

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to:

Accepted Answer

A)  extend auditing procedures.
B)  accept responsibility for all events between year-end and the audit report date.
C)  permit inclusion of a footnote captioned: event (unaudited) subsequent to the date of the auditor's report.
D)  assume responsibility for events subsequent to the issuance of the auditor's report.

Question 10

An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the:

Accepted Answer

A)  issuance of the financial statements.
B)  final review of the audit working papers.
C)  auditor's report.
D)  delivery of the auditor's report to the entity.

Question 11

When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the:

Accepted Answer

A)  possibility of purchasing certain assets rather than leasing them.
B)  capability of extending the due dates of existing debt.
C)  appropriateness of changing depreciation methods from double declining balance to straight line.
D)  marketability of property and equipment that management plans to keep.

Question 12

A Type I subsequent event usually requires:

Accepted Answer

A)  an adjustment to the financial statements.
B)  no adjustment to the financial statements.
C)  withdrawal from the engagement.
D)  no action.

Question 13

If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should:

Accepted Answer

A)  honor the confidentiality of the client-lawyer relationship.
B)  consider the refusal to be a scope limitation.
C)  seek to obtain the corroborating information from management.
D)  disclose this fact in a footnote to the financial statements.

Question 14

Reading contracts and loan agreements is one way to identify unrecorded contingent liabilities.

Accepted Answer

A) True 
 B)False

Question 15

If an auditor dates the auditor's report on financial statements for the year ended December 31, 2013, as of February 10, 2014, except for Note J, as to which the date is March 3, 2014, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of:

Accepted Answer

A)  all subsequent events occurring through March 3, 2014.
B)  all subsequent events occurring through February 10, 2014.
C)  all subsequent events occurring through February 10, 2014 and the specific subsequent event referred to in Note J through March 3, 2014.
D)  only the specific subsequent event referred to in Note J as of March 3, 2014.

Question 16

Type II subsequent events are conditions that require an adjustment to the account balance shown on the financial statements.

Accepted Answer

A) True 
 B)False

Question 17

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a:

Accepted Answer

A)  letter of audit inquiry to the entity's lawyer.
B)  letter of corroboration from the auditor's lawyer upon review of the legal documentation.
C)  confirmation of claims and assessments from the other parties to the litigation.
D)  confirmation of claims and assessments from an officer of the court presiding over the litigation. A

Question 18

A legal letter will include and evaluate all contingent liabilities of the company.

Accepted Answer

A) True 
 B)False

Question 19

An example of a Type II event or condition is an uncollectible account receivable resulting from deterioration in a customer's financial condition prior to year end, about which the entity is unaware. The customer declares bankruptcy after the balance sheet date but prior to the issuance of the financial statements.

Accepted Answer

A) True 
 B)False  False

Question 20

The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

Accepted Answer

A) True 
 B)False

Exam 17: Completing the Audit Engagement

Which of the following is generally requested in a legal letter?

Correct Answer
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Correct Answer
verified
Audit procedures 'b,...
View Answer

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Correct Answer
verified
A

Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.

Correct Answer
verified
Auditing standards indicate that the aud...
View Answer

An auditor will ordinarily examine invoices from lawyers primarily in order to:

Correct Answer
verified

A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the:

Correct Answer
verified

If there is substantial doubt about the entity's ability to continue as a going concern, the auditor should obtain information about the management's plans to mitigate the problem and assess the likelihood that such plans can be implemented.

Correct Answer
verified

What is the difference between a contingent liability and a commitment?

Correct Answer
verified
A contingent liability is an existing co...
View Answer

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to:

Correct Answer
verified

An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the:

Correct Answer
verified

When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the:

Correct Answer
verified

A Type I subsequent event usually requires:

Correct Answer
verified

If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should:

Correct Answer
verified

Reading contracts and loan agreements is one way to identify unrecorded contingent liabilities.

Correct Answer
verified

If an auditor dates the auditor's report on financial statements for the year ended December 31, 2013, as of February 10, 2014, except for Note J, as to which the date is March 3, 2014, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of:

Correct Answer
verified

Type II subsequent events are conditions that require an adjustment to the account balance shown on the financial statements.

Correct Answer
verified

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a:

Correct Answer
verified
A

A legal letter will include and evaluate all contingent liabilities of the company.

Correct Answer
verified

Correct Answer
verified
False

The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

Correct Answer
verified

Exam 17: Completing the Audit Engagement

Which of the following is generally requested in a legal letter?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAudit procedures 'b,...View AnswerShow Answer

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Correct AnswerverifiedA

Discuss the steps used by an auditor to evaluate an entity's ability to continue as a going concern.

Correct AnswerverifiedAuditing standards indicate that the aud...View AnswerShow Answer

An auditor will ordinarily examine invoices from lawyers primarily in order to:

Correct AnswerverifiedShow Answer

A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the:

Correct AnswerverifiedShow Answer

If there is substantial doubt about the entity's ability to continue as a going concern, the auditor should obtain information about the management's plans to mitigate the problem and assess the likelihood that such plans can be implemented.

Correct AnswerverifiedShow Answer

What is the difference between a contingent liability and a commitment?

Correct AnswerverifiedA contingent liability is an existing co...View AnswerShow Answer

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to:

Correct AnswerverifiedShow Answer

An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the:

Correct AnswerverifiedShow Answer

When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the:

Correct AnswerverifiedShow Answer

A Type I subsequent event usually requires:

Correct AnswerverifiedShow Answer

If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should:

Correct AnswerverifiedShow Answer

Reading contracts and loan agreements is one way to identify unrecorded contingent liabilities.

Correct AnswerverifiedShow Answer

If an auditor dates the auditor's report on financial statements for the year ended December 31, 2013, as of February 10, 2014, except for Note J, as to which the date is March 3, 2014, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of:

Correct AnswerverifiedShow Answer

Type II subsequent events are conditions that require an adjustment to the account balance shown on the financial statements.

Correct AnswerverifiedShow Answer

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a:

Correct AnswerverifiedA

A legal letter will include and evaluate all contingent liabilities of the company.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFalse

The auditor must perform final analytical procedures before deciding on the appropriate audit report to issue for the entity.

Correct AnswerverifiedShow Answer

Correct Answer
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Audit procedures 'b,...
View Answer

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A

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Auditing standards indicate that the aud...
View Answer

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A contingent liability is an existing co...
View Answer

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A

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False

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