Auditing Chapter 11 MC

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Seifer
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Auditing Chapter 11 MC
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2012-04-22 16:02:02
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Auditing Assurance Louwers 4th edition
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Auditing Chapter 11 - Completing the Audit MC
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  1. Which of the following would most likely be audited in conjunction with the examination of the client's interest-bearing notes payable?

    A. Interest income
    B. Amortization of goodwill
    C. Royalty revenue
    D. Interest expense
    D. Interest expense can be calculated from the notes payable information and is examined in conjuction with that information

    a. Interest income is related to the examination of notes receivable
    c. Notes payable are not related to goodwill amortization
    d. Notes payable are not directly related to royalty revenue
    (this multiple choice question has been scrambled)
  2. The main purpose of management representations is to

    A. Shift responsibility for financial statements from the management to auditors
    B. Provide a substitute source of audit evidence for substantive procedures that auditors would otherwise perform
    C. Provide management an opportunity to make assertions about the quantity and valuation of the physical inventory
    D. Impress on management its ultimate responsibility for the financial statements and disclosures
    D. This reponsibility is explicity included in the management representations

    a. Management representations do not shift responsibility to auditors for the financial statements
    b. Management representations should not substitute for other evidence sources
    c. Management makes assertions directly in the financial statements and not as part of the managment representations
    (this multiple choice question has been scrambled)
  3. Which of these substantive procedues or sources is not used to obtain evidence about contingencies?

    A. Examine terms of sale in sales contracts
    B. Read the minutes of the board of director's meetings
    C. Scan expense accounts for credit entries
    D. Obtain a letter from the client's attorney
    C. Scanning expenses is unlikely to reveal any information about a contingency

    b. Attorney letters can provide information about contingencies
    c. Minutes of board of directors' meeting can provide information about contingencies
    d. Sales contracts can provide information about right of return that may need to be disclosed as a contingency
    (this multiple choice question has been scrambled)
  4. A Type 1 subsequent event involves subsequent information about a condition that existed at the balance sheet date. Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements?

    A. Sale of an issue of new stock for $500,000 on January 30
    B. Settlement of a damage lawsuit for a customer's injury sustained February 15 for $10,000
    C. Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements
    D. Storm damage of $1 million to the entity's buildings on March 1
    C. Since an estimate had been made as of December 31, the event giving rise to the lawsuit had occurred, and the settlement introduced new information about the actual amount of the liability at December 31

    a. The issuance of stock occurred after December 31
    b. The injury related to the lawsuit was sustained after December 31
    d. The storm occurred after December 31
    (this multiple choice question has been scrambled)
  5. A. Griffin audited the financial statements of Dodger Magnificat Corporation for the year ended December 31, 2010. She completed gathering sufficient appropriate evidence on January 30 and later learned of a stock split voted by the board of directors on February 5. The financial statements were changed to reflect the split, and she now needs to dual date the report on the company's financial statements before sending it to the company. Which of the following is the proper form?

    A. December 31, 2010, except as to Note X, which is dated February 5, 2011
    B. December 31, 2010, except as to Note X, which is dated January 30, 2011
    C. January 30, 2011, except as to Note X, which is dated February 5, 2011.
    D. February 5, 2011, except for the audit completion date, for which the date is January 30, 2011
    C. The report date is the audit completion date and the dual date is the date related to the specific event

    a. the report date is the audit completion date, not the balance sheet date
    c. The report date is the audit date, not the balance sheet date
    d. The report date is the audit completion date, not the date of the subsequent event
    (this multiple choice question has been scrambled)
  6. Prior to the audit report release date, auditors have a responsibility related to management's disclosure of subsequent events until

    A. The auditors' report date
    B. The following year's balance sheet date
    C. The year-end balance sheet date
    D. The audit report release date
    D. Auditors are responsible for ensuring that management properly discloses all subsequent events occurring prior to the audit report release date

    a. see c
    b. Because auditors have not yet released their reports, the responsibility for subsequent events exists until the audit report release date. The response would be correct if the subsequent events were discovered following the audit report release date
    d. see c
    (this multiple choice question has been scrambled)
  7. The auditing standards regarding "subsequent discovery of facts" refers to knowledge obtained after

    A. The entity's year-end balance sheet date
    B. The audit report release date
    C. The auditors' report date
    D. The date interim audit work was complete
    B. Subsequent discovery of facts refers to knowledge obtained after the audit report release date

    b. See a. These type of events are referred to as subsequent events
    c. See a. These type of events are referred to as subsequent events
    d. See a. These type of events are referred to as subsequent events
    (this multiple choice question has been scrambled)
  8. Which of the following is not required by generally accepted auditing standards?

    A. Engagement letter
    B. Management letter
    C. Management representations
    D. Attorney letter
    B. Management letters, while helpful, are not required under GAAS

    a. Management representations are required under GAAS
    b. Attorney letters are required under GAAS
    d. Engagement letters are required under GAAS
    (this multiple choice question has been scrambled)
  9. Which of these persons generally does not participate in writing the management letter?

    A. Client's accounting and production managers
    B. Client's outside attorneys
    C. Public accounting firms' consulting and tax experts
    D. Public accounting firm's audit team on the engagement
    B. The client's attorney would not ordinarily participate in drafting the management letter, as this letter is concerned with helpful suggestions to increase the effectiveness and efficiency of the client's operations

    b. the client's accounting and production managers would provide information about current practices for the management letter
    c. The accounting firm's teams would play a major role in drafting the management letter based on their observations during the audit examination
    d. The accounting firm's consulting and tax experts would participate in drafting the managment letter, as they are in position to identify possible efficiencies and income tax savings
    (this multiple choice question has been scrambled)
  10. Which of the following is ordinarily performed last in the audit examination?

    A. Securing a signed engagement letter from the client
    B. Performing a review for subsequent events
    C. Performing tests of controls
    D. Obtaining signed management representations
    D. Management respresentations would be obtained on the audit completion date

    a. An engagement letter would be secured prior to the commencement of the audit examination
    b. Tests of controls would be perfomed prior to the end of the year under audit
    c. A review for subsequent events would be performed after year end but prior to the audit completion date
    (this multiple choice question has been scrambled)
  11. Which of the following normally occurs earliest in the audit examination?

    A. Review of audit documentation
    B. Dual dating the auditors' report on the entity's financial statements for subsequent events that exist at the balance sheet date
    C. Discovery of an omitted audit procedure
    D. Preparation of the management letter
    A. The review of audit documentaiton occurs after the balance sheet date but before the audit completion date

    a. Discovery of a subsequent event occurs after the audit report release date
    b. Dual dating the auditors' report occurs following the audit completion date
    c. The management letter is prepared and presented to the client following the conclusion of the audit examination
    (this multiple choice question has been scrambled)
  12. Which of the following procedures is least likely to be performed in conjunction with the audit of revenue and expense accounts?

    A. Sampling and investigation of individual transactions affecting revenue and expense accounts
    B. Analytical procedures to evaluate the overall reasonableness of revenue and expense accounts
    C. Considering of evidence obtained in the examination of related balance sheet accounts
    D. Scanning revenue and expense accounts for large and unusual entries
    A. Auditors would typically sample and investigate individual transactions in the examination of the related balance sheet accounts, but not revenue and expense accounts

    a. Analytical procedures would be used in conjuction with the examination of revenue and expense accounts
    c. Auditors would consider evidence obtained in the examination of related balance sheet accounts in the audit of revenue and expense accounts
    d. Auditors would scan revenue and expense accounts for large and unusual debit and credit entries
    (this multiple choice question has been scrambled)
  13. Which of the following statements is most likely to be included in an attorney letter?

    A. "Certain representations in this letter are described as being limited to matters that are material."
    B. "Our work enabled us to notice some actions that could enhance the profitability of the Company."
    C. "If any unasserted claims or assessments are omitted from this disclosure, please provide this information directly to our auditors"
    D. "Please furnish to our auditors such explanation, if any, that you consider necessary to supplement the foregoing information"
    D. The attorney's letter would request that the attorney furnish this information to auditors

    a. This statement would typically be included in management representations and not an attorney letter
    b. While this statement is related to communication with attorneys, it would not be appropriate for the attorney to directly inform auditors of omitted unasserted claims or assessments
    c. This statement would ordinarily be included in a management letter and not an attorney letter
    (this multiple choice question has been scrambled)
  14. If, after the audit report release date, auditors determine that an important auditing procedure was omitted, which of the following initial courses of action is most appropriate?

    A. Engage another public accounting firm to conduct a quality assurance review
    B. Determine whether the omitted procedure is important in supporting the auditor's opinion on the entity's financial statements
    C. Perform the omitted procedure or an alternative procedure
    D. Notice the board of directors and regulatory agencies that are currently relying on auditor's reports
    B. This is the initial course of action that would be taken upon the discovery of an omitted audit procedure

    a. Prior to performing the omitted procedure or an alternative procedure, auditors would determine that the omitted procedure is important in supporting the opinion of the entity's financial statements
    b. Prior to notifying the board of director's and regulatory agencies who are currently relying on the auditor's reports, auditors would determine that the omitted procedure is important in supporting the opinion on the entity's financial statements
    d. A quality assurance review may reveal the omission of an audit procedure, but would not be performed in response to an omitted procedure
    (this multiple choice question has been scrambled)
  15. Which of the following statements is not true with respect to management representations?

    A. Management representations are dated the same date as the auditor's reports
    B. Management representations must address the disclosure of all significant deficiencies in internal control, regardless of materiality
    C. Management representations are used by auditors to corroborate information received during the audit from the client and its employees
    D. The failure of management to furnish representations is a significant scope limitation, resulting in either an adverse opinion or disclaimer of opinion
    D. The failure of management to furnish representations would result in either a qualified opinion or a disclaimer of opinion

    b. Management representations do address disclosure of significant deficiencies in internal control, regardless of materiality
    c. Management representations are used by auditors to corroborate information received from the client and its employees
    d. Management representations are dated the same date as the auditors' reports ( the audit completion date)
    (this multiple choice question has been scrambled)
  16. Hall accepted an engagement to audit the Year 1 financial statements of XYZ Company. XYZ completed the preparation of the Year 1 financial statements on February 13, Year 2, and Hall began the field work on February 17, Year 2. Hall completed gathering sufficient appropriate evidence on March 24, Year 2, and completed the report on March 28, Year 2. The management represenations normally would be dated

    A. March 28, Year 2
    B. February 17, Year 2
    C. March 24, Year 2
    D. February 13, Year 2
    C. Management representations are dated as of the audit completion date (in this case, March 24, Year 2)

    a. Management represenations are dated as of the audit completion date ( in this case, March 24, year 2) not the date of completion of the financial statements
    b. Management representations are dated as of the audit completion date (March 24), not the date the field work began
    d. Management representations are dated as of the audit completion date (March 24), not the date of the auditors' reports are completed
    (this multiple choice question has been scrambled)
  17. A charge in the subsequent period to a notes receivable account from the cash disbursement journal should alert auditors to the possibility that a

    A. Provision for contingencies is required
    B. Contingent liability has become a real liabilty and has been settled
    C. Contingent asset has come into existence in the subsequent period
    D. Contingent liability has come into existence in the subsequent period
    B. The entry may represent the establishment of a receivable from a party for whom the client has guaranteed a debt. The payment of the debt upon default of the party would be recognized in the accounts by a debit to notes receivable and a credit to cash

    a. A charge to notes receivable would relate to a transaction that has occurred in a prior period, not current period
    b. A charge to a notes receivable would related to a transaction that has occurred in a prior period, not current period
    c. A charge would indicate that any obligation has been settled, not incurred
    (this multiple choice question has been scrambled)
  18. Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events?

    A. Communicate material weaknesses to internal control to the client's audit committee
    B. Review the cutoff bank statements for several months after the year-end
    C. Send second reguests to the client's customers who failed to respond to initial accounts receivable confirmation requests
    D. Compare the latest available interim financial statements with the financial statements being audited
    D. Comparing interim financial statements with the financial statments being audited would identify potential subsequent events

    b. Second request confirmations would provide evidence regarding the valuation of accounts receivable balances they would not provide evidence regarding subsequent events
    c. Communicating material weaknesses in internal control would provide the client with the opportunity to improve its internal control but would not provide evidence regarding subsequent events.
    d. Reviewing the cutoff bank statement would verify the valuation of cash but would not provide evidence regarding subsequent events
    (this multiple choice question has been scrambled)
  19. Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?

    A. Investigate changes to shareholders' equity occurring after year-end
    B. Confirm bank accounts established after year-end
    C. Recompute a sample of large-dollar transactions occurring after year-end for arithmetic accuracy
    D. Send confirmations to vendors with whom the client normally does business but for whom no balance in accounts payable is noted
    A. Investigate changes - This procedure may provide information about sales and repurchases of the entity's stock

    a. Recompute - This procedure would provide evidence about the valuation of these transactions, but not subsequent events
    c. Send confirmations - This procedure would be used to search for unrecorded accounts payable at year end, but not the occurrence of subsequent events
    d. Confirm bank accounts - This procedure would provide evidence about the valuation of cash and potential guarantees of debt, but not subsequent events
    (this multiple choice question has been scrambled)
  20. The primary reason auditors request responses to attorney letters is to provide auditors

    A. The attorney's opinions of the client's historical experiences in recent similar litigation
    B. The probable outcome of asserted claims and pending or threatened litigation
    C. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date
    D. Corroboration of the information furnished by management about litigation, claims, and assessments
    D. The attorney letter requests the attorneys to corroborate information furnished from management

    a. While the attorney letter will ask for corroboration of management's information regarding the probable outcome of litigation, cliams, and assessments, management is the primary source of this information
    c. Historical experiences are not included in an attorney letter
    d. A description and evaluation of litigation, claims, and assessments is obtained from the client, the attorney is asked to corroborate this information
    (this multiple choice question has been scrambled)
  21. The scope of an audit is not restricted when an attorney letter limits the response to

    A. The attorney's opinion of the entity's historical experience in recent similar litigation
    B. An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity
    C. The probable outcome of asserted claims and pending or threatened litigation
    D. Matters to which the attorney has given substantive attention in the form of legal representation
    D. The attorney's reponse should be limited to matters to which they have given substantive attention

    b. The attorney should comment on matters of which they are aware that were not disclosed by the entity
    c. The attorney should not limit their response to matters in which the entity has historical experience
    d. The attorney should also comment upon unasserted claims as well as asserted claims and pending or threatened litigation
    (this multiple choice question has been scrambled)

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